ABB LTD
20-Fs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM
REGISTRATION
STATEMENT
PURSUANT TO SECTION
12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF
1934
OR
ANNUAL REPORT PURSUANT
TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
For the fiscal year ended
OR
TRANSITION REPORT
PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from ____________________
to ____________________
OR
SHELL COMPANY
REPORT PURSUANT
TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
Date of event requiring this
shell company report ____________________
Commission file number:
_________________________________________
(Exact name of registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
,
,
(Address of principal executive offices)
,
,
Telephone: +
-
-
Facsimile:
(Name, Telephone, E-mail
and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(b) of the Act: None.
Securities registered or to be registered pursuant
to Section 12(g) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Over-the-Counter
(OTC) Markets
_________________________________________
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the
issuer’s classes of capital or common stock as of the close of
the period covered by the annual report:
_________________________________________
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of
the Securities Act
.
☒
⬜
If this report is an annual or transition report, indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Yes
☐
☒
Note – Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.
☒
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files).
☒
☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non
-accelerated filer, or an emerging growth
company. See definition of
“large accelerated filer,” “accelerated filer,”
and “emerging growth company” in Rule 12b
-2 of the Exchange Act.
☒
Accelerated filer
☐
Non-accelerated filer
☐
Emerging growth company
If an emerging growth company that prepares its financial
statements in accordance with U.S. GAAP,
indicate by check mark if the registrant
has elected not to use the
extended transition period for complying with any new or
revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
☐
† The term “new or revised financial accounting standard” refers
to any update issued by the Financial Accounting Standards Board
to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report
on and attestation to its management’s assessment of
the effectiveness of its internal control
over
financial reporting under Section 404(b) of the Sarbanes
-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of
the registrant included in the filing reflect the
correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive
-based compensation received by any of the
registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark which basis of accounting the
registrant has used to prepare the financial statements included in this
filing:
☒
International Financial Reporting Standards as issued by the International Accounting Standards Board
☐
☐
If “Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17
☐
☐
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b
-2 of the Exchange Act).
Yes
☐
No
☒
(i)
TABLE OF CONTENTS
Page
PART I
4
Item 1.
Identity of Directors, Senior Management
and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 3A.
[Reserved]
14
Item 4.
Information on the Company
14
Item 4A.
Unresolved Staff Comments
34
Item 5.
Operating and Financial Review
and Prospects
35
Item 6.
Directors, Senior Management and
Employees
78
Item 7.
Major Shareholders and Related
Party Transactions
139
Item 8.
Financial Information
140
Item 9.
The Offer and Listing
141
Item 10.
Additional Information
142
Item 11.
Quantitative and Qualitative Disclosures
About Market Risk
151
Item 12.
Description of Securities Other
than Equity Securities
153
PART II
154
Item 13.
Defaults, Dividend Arrearages and
Delinquencies
154
Item 14.
Material Modifications to the Rights
of Security Holders
and Use of Proceeds
154
Item 15.
Controls and Procedures
154
Item 16.
[Reserved]
155
Item 16A.
Audit Committee Financial Expert
155
Item 16B.
Code of Ethics
155
Item 16C.
Principal Accountant Fees and
Services
156
Item 16D.
Exemptions from the Listing Standards
for Audit Committees
156
Item 16E.
Purchase of Equity Securities by
Issuer and Affiliated Purchasers
156
Item 16F.
Change in Registrant’s Certifying Accountant
157
Item 16G.
Corporate Governance
157
Item 16H.
Mine Safety Disclosure
157
Item 16I.
Disclosure Regarding
Foreign Jurisdictions that Prevent Inspections
157
Item 16J.
Insider trading policies
157
Item 16K.
Cybersecurity
158
PART III
159
Item 17.
Financial Statements
159
Item 18.
Financial Statements
159
Item 19.
Exhibits
160
1
Introduction
ABB Ltd is a corporation organized
under the laws of Switzerland.
In this Annual Report on Form 20-F
(Annual Report),
“the ABB Group,”
“the Group,” “ABB,”
the “Company,”
“we,” “our”
and “us” refer to ABB Ltd
and its consolidated subsidiaries
(unless the context otherwise
requires). We also use these terms to refer
to
ABB Asea Brown Boveri Ltd and its
subsidiaries prior to the establishment
of ABB Ltd as the holding
company for the entire ABB
Group in 1999, as described
in this Annual Report under “Item 4. Information
on
the Company—Introduction—History
of the ABB Group”. Our American Depositary
Shares (each
representing one registered
share of ABB Ltd) are referred to as “ADSs”.
The registered shares of ABB
Ltd
are referred to as “shares”. Our principal
corporate offices are located at Affolternstrasse
44, CH-8050 Zurich,
Switzerland, telephone number
+41-43-317-7111.
Our internet address is www.abb.com or global.abb.
The
information contained on or accessible
from our Web site is not incorporated
into this annual report, and you
should not consider it to be a part of
this annual report.
Financial and other information
The Consolidated Financial
Statements of ABB Ltd, including
the Notes thereto, as of December 31, 2023
and 2022,
and for each of the years in the
three-year period ended
December 31, 2023, (our Consolidated
Financial Statements) have been
prepared in accordance with
United States generally accepted
accounting
principles (U.S. GAAP).
In this Annual Report: (i) “$,” “U.S.
dollar”
and “USD” refer to the lawful currency
of the United States of
America; (ii) “CHF” and “Swiss franc”
refer to the lawful currency
of Switzerland; (iii) “EUR” and
“euro”
refer to
the lawful currency of the participating
member states of the European
Economic and Monetary Union
(Eurozone); (iv) “SEK” and “Swedish
krona”
refer to the lawful currency
of Sweden; (v) ‘‘GBP’’ and ‘‘British
pound’’ refer to the lawful currency of
the United Kingdom, (vi) “CNY” and “Chinese
renminbi”
refer to the
lawful currency of the People’s Republic
of China; and (vii) “INR” and “Indian
Rupee”
refer to the lawful
currency of India.
Except as otherwise stated, all monetary
amounts in this Annual
Report are presented in U.S. dollars.
Where
specifically indicated, amounts in
Swiss francs have been
translated into U.S. dollars. These translations
are
provided for convenience only, and they are not representations
that the Swiss franc could be converted
into
U.S. dollars at the rate indicated.
The twelve o’clock buying rate in
the City of New York for cable transfers as
certified for customs purposes by
the Federal Reserve Bank of New York for Swiss francs on
December 29,
2023,
was $1.00 = CHF 0.8405.
The twelve o’clock buying rate for Swiss
francs on February 16, 2024, was
$1.00 = CHF 0.8813.
Cautionary Note Regarding
Forward-Looking Statements
This Annual Report includes forward-looking
statements within the meaning of
the United States Private
Securities Litigation Reform Act of
1995.
We intend such forward-looking statements
to be covered by the
safe harbor provisions for forward-looking
statements contained in
Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the
Securities Exchange Act of 1934,
as amended (Exchange
Act). These
forward-looking statements can be
identified by the use of forward-looking
terminology, including the terms
“believes,”
“estimates,”
“anticipates,”
“expects,”
“intends,”
“may,”
“will,”
or “should”
or, in each case, their
negative, or other variations or comparable
terminology. These forward-looking statements include
all matters
that are not historical facts. They appear
in a number of places
throughout this Annual Report and
include
statements regarding our intentions,
beliefs or current expectations
concerning, among other
things, our
results of operations, financial
condition, liquidity, prospects, growth, dispositions,
strategies and the
countries and industries in which
we operate.
2
These forward looking statements include,
but are not limited to, statements
about our financial condition
and
performance, operating results, liquidity
and our ability to fund our business
operations and initiatives,
capital expenditure and debt
service obligations, plans regarding
our capital structure, ability to take
advantage of market opportunities
and drive growth, our products and
service offerings and their anticipated
performance and impact across various
industries and consumer segments,
anticipated benefits to the
shareholders, planned divestments,
acquisitions and integration,
and related synergies and other
benefits,
investment and risk management
strategies, volatility in the credit
markets, oil prices, foreign currency
exchange rates and other market conditions,
trends and opportunities, industry
trends and expectations,
changing consumer behavior
and demands, our ability to respond
to changing business and economic
conditions, our comparative advantages,
our commitments and
contingencies, availability
of raw materials,
and other plans, goals, strategies, priorities
and initiatives related
to our business, including
our brand
management initiative, the implementation
of ABB Way, and cost-saving measures, as well as, the following:
•
•
management objectives, including
our outlook, as well as trends in results,
prices, volumes,
operations, margins and overall
market trends,
•
certain legal and compliance
matters, and
•
on future dividend payments.
By their nature, forward-looking statements
involve risks and uncertainties
because they relate to events
and
depend on circumstances that may or
may not occur in the future.
We caution you that forward-looking
statements are not guarantees of future
performance and that our actual
results of operations, financial
condition and liquidity, and the development of the countries
and industries in which we operate,
may differ
materially from those described
in or suggested by the forward-looking
statements contained in this Annual
Report. In addition, even if our results
of operations, financial
condition and liquidity, and the development of
the countries and industries in which
we operate, are consistent
with the forward-looking statements
contained in this Annual Report, those
results or developments
may not be indicative of results
or
developments in subsequent
periods. Important factors that
could cause actual results to differ materially
from our expectations are contained
in cautionary statements in
this Annual Report and include,
without
limitation, the following:
Business, economic and industry
risks
•
political conditions.
•
markets.
•
•
we fail to keep pace with technological
changes.
•
•
performance.
•
3
Operational risks
•
in the past, and could in the future, pose
a risk to our systems, networks,
products, solutions and
services.
•
any divestitures will provide business
benefit.
•
ventures or strategic alliances
may not be realized.
•
•
consolidated operating
results, cash flows, and financial position
as well as on our reputation and
our ability to do business.
•
•
‑
term, technically complex projects or
projects that are dependent upon
factors
not wholly within our control could
adversely affect our profitability and
future prospects.
•
be prevented from bidding on, or obtaining,
some contracts, or our costs
with respect to such
contracts could be higher.
•
exchange rates, interest rates, inflation
or commodity prices on our
earnings and cash flows.
•
our business, results of operations, and
financial condition.
Legal and regulatory risks
•
party’s intellectual property rights could
adversely affect our business.
•
otherwise protect personal data,
may adversely impact our
business and financial results.
•
cash flows.
•
incur costs to comply with such regulations,
and our ongoing
operations may expose us to
environmental liabilities.
•
address climate change concerns, including
non-financial reporting disclosure
requirements, as
well as the physical effects of climate
change.
General risk factors
•
may be adversely affected.
•
could be materially adversely
affected if we incur legal liability.
4
We urge you to read the other important
factors set forth under sections
of this Annual Report entitled
“Item 3. Key Information—Risk Factors,”
“Item 4. Information on
the Company”
and “Item 5. Operating and
Financial Review and Prospects”
for a more complete discussion
of the important factors that could
affect our
future performance and the countries
and industries in which
we operate. In light of these risks,
uncertainties
and assumptions, the forward-looking
circumstances described in
this Annual Report and the assumptions
underlying them may not occur.
Except as required by law or applicable
stock exchange rules or regulations, we
undertake no obligation
to
update or revise publicly any forward-looking
statement, whether as a result of new
information, future events
or otherwise. All subsequent written
and oral forward-looking statements attributable
to us or to persons
acting on our behalf are expressly qualified
in their entirety by the cautionary
statements referred to above
and contained elsewhere
in this Annual Report.
PART
I
Item 1.
Identity of Directors, Senior
Management and Advisers
Not applicable
Item 2.
Offer Statistics and Expected
Timetable
Not applicable
Item 3.
Key Information
—
Risk factors
You should carefully consider all of the information set forth
in this Annual Report and
the following
description of risks and uncertainties
that exist or that we currently believe
may exist. Our business, financial
condition or results of operations could
be adversely affected by any of
these risks. Additional
risks of which
we are unaware or that we currently
deem immaterial may also
impair our business operations.
This Annual
Report also contains forward-looking
statements that involve risks and uncertainties.
Our results could differ
materially from those anticipated
in these forward-looking
statements as a result of certain factors,
including
those described below and
elsewhere in this Annual Report.
See “Cautionary Note Regarding
Forward-Looking Statements”.
—
Business,
economic and industry risks
Our business is exposed to risks
associated with the volatile
global economic environment
and
political conditions.
Adverse changes in economic or political
conditions, particularly in locations
where our customers or
operations are located, as well as concerns
about global trade and
global supply chain,
global health crises
(such as COVID-19),
developments in energy prices,
inflation, labor market challenges
and terrorist activities,
could have a material adverse effect on our
business, financial
condition, results of operations and liquidity
and may adversely impact the demand
for our products and services.
These and other factors may
prevent
our customers and suppliers from obtaining
the financing required
to pursue their business activities as
planned.
Financial and other reasons may force
them to modify, delay or cancel orders or plans
to purchase
or supply our products or services.
In addition, if our customers do not
generate sufficient revenue, or
fail to
timely obtain access to the capital
markets, they may not be able
to pay, or may delay payment of, the
amounts they owe us. Customers with
liquidity issues have delayed
payments of amounts they owe us and
5
this has led and may lead to additional
expense for credit losses for us, which
may adversely affect our
results of operations and cash flows.
We are also subject to the risk that
the counterparties to our credit
agreements and hedging
transactions may go bankrupt if they
suffer catastrophic demand on their
liquidity
that prevents them from fulfilling
their contractual obligations to us.
Our business environment is influenced
also by numerous other economic
or political uncertainties which
may affect the global economy and
the international capital markets.
In periods of slow economic growth
or
decline, our customers are more likely
to buy less of our products and services,
and as a result we are more
likely to experience decreased
revenues. Our businesses are affected by
the level of investments and
demand in the markets that we serve,
principally utilities, industry and
transport & infrastructure. At various
times during the last several years,
we also have experienced,
and may experience in the
future, gross
margin declines in certain businesses,
reflecting the effect of factors such as
competitive pricing pressures,
inventory write-downs, charges associated
with the cancellation
of planned expansion and increases
in
component and manufacturing costs
resulting from higher labor
and material costs borne by our
manufacturers and suppliers that, as
a result of competitive pricing
pressures or other factors, we are
unable
to pass on to our customers. Economic
downturns also may
lead to restructuring actions and
associated
expenses. Uncertainty about future economic
conditions makes it difficult for us
to forecast operating results
and to make decisions about future
investments.
In addition, we are subject to
the risks that our business operations
in or with certain countries may
be
adversely affected by trade tariffs, trade or economic
sanctions or other restrictions
imposed on these
countries,
including sanctions against
Russia relating to the war in Ukraine,
contributing to our decision to
exit
the Russian market, and the trade
tensions in recent years
with China.
These could lead to increased
costs
for us or for our customers or limit
our ability to do business in
or with certain countries. In addition,
actual or
potential investors that object to
certain of these business operations
may adversely affect the price of our
shares by disposing or deciding
not to purchase our shares. These
countries may from time to time
include
countries that are identified by the United
States as state sponsors
of terrorism. If any countries
where or with
whom we do business are subject
to such sanctions or restrictions, our
business, consolidated operating
results, financial condition
and the trading price of our shares
may be adversely affected. In 2023, our
total
revenues from business with countries
identified by the U.S. government
as state sponsors of terrorism
represented significantly less than 1 percent
of our total revenues. Based on
the amount of revenues and
other relevant quantitative and qualitative
factors, we have determined
that our business in 2023
with
countries identified by the U.S. government
as state sponsors of terrorism was
not material.
Our operations in emerging markets
expose us to risks associated
with conditions in those markets.
A significant amount of our operations
is conducted in the emerging
markets in South America, Asia,
and the
Middle East and Africa. In 2023, approximately
40 percent of our consolidated
revenues were generated from
these emerging markets. Operations
in emerging markets can present
risks that are not encountered
in
countries with well-established
economic and political systems, including:
•
these markets, cause delays in
the placement of orders for projects
that we have been awarded
and subject us to volatile geographic
markets,
•
investments in such regions and
could complicate our dealings
with governments regarding
permits or other regulatory matters,
local businesses and workforces,
•
which we do business or where
we seek to do business could
adversely affect the ability of our
operations in those countries to obtain
the materials necessary to fulfill contracts
and our ability
to pursue business or establish
operations in those countries,
•
•
6
•
•
•
Additionally, political and social instability resulting
from increased violence
in certain countries in which we
do business has raised concerns
about the safety of our personnel.
These concerns may hinder our
ability to
send personnel abroad
and to hire and retain local personnel.
Such concerns may require us to increase
security for personnel traveling
to and working in affected countries
or to restrict or wind-down operations
in
such countries, which may negatively
impact us and result in higher
costs and inefficiencies.
Consequently, our exposure to the conditions in or affecting
emerging markets may adversely
affect our
business, financial condition,
results of operations and liquidity.
We may encounter difficulty in managing
our business due to the global
nature of our operations.
We operate in approximately 100 countries around
the world and, as of December
31, 2023, employed more
than 105,000 people, of which approximately
48 percent were located in the
Europe region, approximately
28 percent in the Asia, Middle East
and Africa region and approximately
24 percent in the Americas region.
To
manage our day-to-day operations,
we must deal with cultural and language
barriers and assimilate
different business practices. Due to our
global nature, we deal
with a range of legal and regulatory
systems
some of which are less developed
and less well-enforced than others.
The laws and regulations to which
we
are subject can change rapidly
and in unexpected directions. Currency
and other local regulatory
limitations
related to the transfer of funds exist in
a number of countries where
we operate, including: China,
India,
South Africa, Egypt and Turkiye. All of this
may impact our ability to protect
our contractual, intellectual
property and other legal rights.
In addition, we are required
to create compensation programs, employment
policies and other administrative
programs that comply with the laws
of multiple countries. We also must
communicate, monitor and uphold
group-wide standards and directives across
our global network, including
in relation to our suppliers, subcontractors
and other relevant stakeholders.
Our failure to manage
successfully our geographically
diverse operations could impair our
ability to react quickly to changing
business and market conditions and
to enforce compliance with group-wide
standards and procedures.
We operate in very competitive and rapidly
changing markets and could
be adversely affected if
we
fail to keep pace with technological
changes.
We operate in very competitive and rapidly
changing markets where we regularly
need to innovate and
develop products, systems, services
and solutions that address
the business challenges and
needs of our
customers. The nature of these challenges
varies across the geographic markets
and product areas that we
serve. The markets for our products
and services are characterized
by changing regulatory requirements,
developing ESG expectations and
evolving industry standards,
which may require us to modify
our products
and systems. The continual development
of advanced technologies for new
products and product
enhancements is an important way
in which we remain competitive
and maintain acceptable pricing
levels. If
we fail to keep pace with technological
changes in the industrial sectors
that we serve, we may experience
lower revenues, price erosion and
lower margins.
Our primary competitors are sophisticated
companies with significant
resources that may develop
products
and services that are superior to our
products and services or may
adapt more quickly than we do
to new
technologies, industry changes
or evolving customer requirements.
We are also facing increased competition
from low cost competitors in emerging
markets, which may give
rise to increased pressure to
reduce our
prices. Our failure to anticipate or
respond quickly to technological
developments or customer requirements
could adversely affect our business, results
of operations, financial condition
and liquidity.
7
Industry consolidation could result
in more powerful competitors and
fewer customers.
Competitors in the industries in which
we operate are consolidating.
In particular, the automation industry is
undergoing consolidation
that is reducing the number but increasing
the size of companies that compete
with
us. As our competitors consolidate,
they likely will increase
their market share, gain economies
of scale that
enhance their ability to compete with
us and/or acquire additional
products and technologies that could
displace our product offerings.
Our customer base also is undergoing
consolidation. Consolidation
within our customers’ industries (such as
the marine and cruise industry, automotive, aluminum,
steel, pulp and paper and pharmaceutical
industries
and the oil and gas industry) could
affect our customers and their relationships
with us. If one of our
competitors’ customers acquires any
of our customers, we
may lose that business. Additionally, as our
customers become larger and
more concentrated, they could
exert pricing pressure on all suppliers,
including
us. If we were to lose market share or
customers or face pricing
pressure due to consolidation
of our
customers, our results of operations
and financial condition
could be adversely affected.
Increases in costs or limitation
of supplies of raw materials may
adversely affect our financial
performance.
We purchase large amounts of commodity-based
raw materials, including
steel, copper, aluminum and oil.
Prevailing prices for such commodities
are subject to fluctuations due
to changes in supply and demand
and
a variety of additional factors beyond
our control, such as global
political and economic conditions.
Historically, prices for some of these raw materials have
been volatile and unpredictable,
and such volatility is
expected to continue. Therefore,
commodity price changes may result
in unexpected increases in raw
material costs, and we may be unable
to increase our prices to offset these increased
costs without suffering
reduced volumes, revenues or operating
income. We do not fully hedge against
changes in commodity prices
and our hedging procedures
may not work as planned.
We depend on third parties to supply raw
materials and other components
and may not be able
to obtain
sufficient quantities of these materials
and components, which could
limit our ability to manufacture
products
on a timely basis and could harm our
profitability. For some raw materials and components,
we rely on a
single supplier or a small number
of suppliers. If one of these suppliers
were unable to provide us with a raw
material or component we need, our ability
to manufacture some of our
products could be adversely affected
if we are unable to find a sufficient alternative
supply channel in
a reasonable period of time, on commercially
reasonable terms, or at all.
In 2023, we experienced some continuing
global supply chain challenges
such as rising costs, port
congestion, material access issues
and some geopolitical uncertainty. Although we
were able to mitigate
these disruptions, we cannot assure
you that our mitigation efforts will be
sufficient to overcome future supply
chain constraints.
If our suppliers are unable
to deliver sufficient quantities of materials
on a timely basis, the manufacture
and
sale of our products may be disrupted,
we may be required to assume liability
under our agreements with
customers and our sales and profitability
could be materially adversely
affected.
Our multi-national operations expose
us to the risk of fluctuations in currency
exchange rates.
Currency exchange rate fluctuations have
had, and could continue
to have, a material impact on our
operating results, the comparability
of our results between periods,
the value of assets or liabilities
as
recorded on our Consolidated
Balance Sheet and the price of our securities.
Volatility in exchange rates
makes it harder to predict exchange
rates and perform accurate financial
planning. Changes in
exchange
rates can unpredictably and adversely
affect our consolidated operating
results and could result in exchange
losses.
Currency Translation Risk.
companies are initially recorded
in the currency of the country in which
each such company resides, which
we call “local currency”. That financial
information is then translated into U.S.
dollars at the applicable
8
exchange rates for inclusion in our
Consolidated Financial
Statements. The exchange rates between
local
currencies and the U.S. dollar can
fluctuate substantially, which could have a significant
translation effect on
our reported consolidated results
of operations and financial
position.
Increases and decreases in the
value of the U.S. dollar versus local
currencies will affect the reported
value
of our local currency assets, liabilities,
revenues and expenses in our
Consolidated Financial
Statements,
even if the value of these items has not
changed in local currency terms.
These translations could
significantly and adversely affect our results
of operations and financial
position from period to period.
Currency Transaction Risk.
denominated in currencies
that are different from those in which
our manufacturing or sourcing
costs are
incurred. In this case, if, after the parties
agree on a price, the value
of the currency in which the price is to
be
paid were to weaken relative to
the currency in which we incur
manufacturing or sourcing costs,
there would
be a negative impact on the profit
margin for any such transaction.
This transaction risk may exist regardless
of whether there is also a currency
translation risk as described
above.
Currency exchange rate fluctuations in
those currencies in which
we incur our principal manufacturing
expenses or sourcing costs may adversely
affect our ability to compete with
companies whose costs are
incurred in other currencies. If our
principal expense currencies
appreciate in value against
such other
currencies, our competitive position
may be weakened.
—
Operational risks
Increased information technology
(IT) security threats and more sophisticated
cyber-attacks have in
the past, and could in the future,
pose a risk to our systems,
networks, products, solutions and
services.
We have observed a global increase
in IT security threats and more sophisticated
cyber-attacks, which pose
a risk to the security of systems and
networks and the confidentiality, availability
and integrity of data stored
and transmitted on those systems
and networks. Although
we have experienced occasional
cybersecurity
incidents, none have had a material
effect on our business operations. Since
we have in the past and may in
the future experience cyber-attacks
against our systems, networks, products,
solutions and services,
we have
incurred, and expect that we will continue
to incur substantial costs to help
mitigate this risk. Similarly, we
have observed a continued increase
in attacks generally against industrial
control systems as well as against
our customers and the systems
we supply
to them, which has in the past
and may in the future pose a risk
to
the security of those systems and networks.
Future attacks could potentially
lead to the compromising of
confidential information, disruption
of our business, improper use or downtime
of our systems and networks
or those we supplied to our customers,
manipulation, corruption,
inaccessibility and destruction
of data,
defective products or services, production
downtimes and supply
shortages.
Such attacks may also expose
us to loss of business, claims or regulatory
action.
Any such impact in turn could
adversely affect our
reputation, competitiveness and results
of operations. Our insurance
coverage may not be adequate
to cover
all the costs related to cyber security
attacks or disruptions resulting
from such events. Due to the nature of
these security threats, the nature and
scope of the impact of any future
incident cannot be predicted.
Our business strategy includes
making strategic divestitures.
There can be no assurance that any
divestitures will provide business
benefit.
Our strategy includes divesting certain
businesses. The divestiture
of an existing business could
reduce our
future profits and operating cash flows
and make our financial
results more volatile. We may also retain
certain obligations or grant indemnities
in connection with a divestment.
We may not find suitable purchasers
for our non-core businesses and may
continue to pay operating
costs associated with these businesses.
Failed attempts to divest non-core businesses
may distract management’s attention
from other business
activities, erode employee morale
and customers’ confidence,
and harm our business. A divestiture
could
also cause a decline in the price
of our shares and increased
reliance on other elements of our core
business
operations. Whether we realize
the anticipated benefits of a divestment,
including the divestment of the
Power Conversion business and
the spin-off of the Turbocharging business, depends
on whether we
9
successfully manage the related risks.
If we do not successfully manage
the risks associated with a
divestiture, our business, financial
condition, and results of operations could
be adversely affected.
Anticipated benefits of historical, existing
and potential future mergers,
acquisitions, joint ventures
or strategic alliances may
not be realized.
As part of our overall strategy, we may, from time to time, acquire businesses
or interests in businesses,
including noncontrolling
interests, or form joint ventures or create
strategic alliances. Whether we realize
the
anticipated benefits,
including operating
synergies and cost savings, from these
transactions, depends, in
part, upon the integration between
the businesses involved, the performance
and development of the
underlying products, capabilities
or technologies, our correct assessment
of assumed liabilities
and the
management of the operations in question.
Accordingly, our financial results could be adversely
affected by
unanticipated performance and
liability issues, transaction-related
charges, amortization related to
intangibles, charges for impairment
of long-term assets and
partner performance.
There is no guarantee that our ongoing
efforts to reduce costs
will be successful.
We seek continued cost savings through
operational excellence
and supply chain management.
Lowering our
cost base is important for our business
and future competitiveness.
However, there is no guarantee that we
will achieve this goal. If we are unsuccessful
and the shortfall is significant,
there could be an adverse effect
on our business, financial condition,
and results of operations.
Illegal behavior by any of our employees
or agents could have a material
adverse impact on our
consolidated operating results, cash
flows, and financial position
as well as on our reputation and
our ability to do business.
Certain of our employees or agents
have taken, and may in the future
take, actions that violate or
are alleged
to violate the U.S. Foreign Corrupt Practices
Act of 1977 (FCPA), legislation promulgated pursuant
to the
1997 Organisation for Economic Co-operation
and Development (OECD) Convention
on Combating Bribery
of Foreign Public Officials in International
Business Transactions, applicable antitrust
laws,
other applicable
laws or regulations or our Code
of Conduct. For more information
regarding investigations
of past actions
taken by certain of our employees,
see “Item 8. Financial Information—Legal
Proceedings”. Such actions
have resulted, and in the future could
result, in governmental investigations,
enforcement actions, civil
and
criminal penalties, including
monetary penalties and other sanctions,
and civil litigation. It is possible
that any
governmental investigation
or enforcement action arising
from such matters could conclude
that a violation of
applicable law has occurred, and
the consequences of
any such investigation or enforcement
action may
have a material adverse impact
on our consolidated operating
results, cash flows and financial
position. In
addition, such actions, whether actual
or alleged, could damage
our reputation and ability to do business.
Further, detecting, investigating and resolving
such actions could be expensive
and could consume
significant time and attention of our senior
management. While we are committed
to conducting business in a
legal and ethical manner, our internal control
systems at times have not been,
and in the future may not be,
completely effective to prevent and detect
such improper activities by our
employees and agents. We are
subject to certain ongoing
investigations by governmental
agencies.
10
We may be the subject of product liability
claims.
We may be required to pay for losses or
injuries purportedly caused
by the design, manufacture or operation
of our products and systems. Additionally, we may be subject
to product liability claims for the
improper
installation of products and systems designed
and manufactured by others.
Product liability claims brought against
us may be based in tort or
in contract, and typically involve
claims
seeking compensation for personal
injury or property damage. Claims
brought by commercial businesses
are
often made also for financial losses
arising from interruption to operations.
Depending on the nature and
application of many of the products we
manufacture, a defect or alleged
defect in one of these products could
have serious consequences. For example:
•
explosions and power surges,
and significant damage to
electricity generating, transmission
and
distribution facilities as well as electrical
shock causing injury or death.
•
could suffer significant damage to facilities
and equipment that rely on these
products and
systems to properly monitor and
control their manufacturing
processes. Additionally, people
could be exposed to electrical shock
and/or
other harm causing
injury or death.
•
substances could cause injury or death.
•
could cause injury or death.
If we were to incur a very large product
liability claim, our insurance
protection might not be adequate
or
sufficient to cover such a claim in
terms of paying any awards
or settlements, and/or paying
for our defense
costs. Further, some claims may be outside the scope
of our insurance coverage. If a litigant
were successful
against us, a lack or insufficiency of insurance
coverage could result in
an adverse effect on our business,
financial condition, results of operations
and liquidity. Additionally, a well-publicized actual or perceived issue
relating to us or our products could
adversely affect our market reputation,
which could result in a decline
in
demand for our products and reduce
the trading price of our shares.
Furthermore, if we were required
or we
otherwise determined to make a
product recall, the costs could
be significant.
Undertaking long-term, technically
complex projects or
projects that are dependent
upon factors not
wholly within our control could
adversely affect our profitability
and future prospects.
We derive a portion of our revenues
from long-term, fixed price and turnkey
projects and from other
technically complex projects that
can take many months, or even
years, to complete. Such contracts
typically
involve substantial risks, including
the possibility that we may underbid
and consequently have no means
of
recouping the actual costs incurred,
and the assumption of a large portion
of the risks associated with
completing related projects, including
the warranty obligations. Some projects
involve technological risks,
including in cases where
we are required to modify our existing
products and systems to satisfy
the technical
requirements of a project, integrate our
products and systems into the existing
infrastructure and systems at
the installation site, or undertake
ancillary activities such as civil
works at the installation
site. Our revenue,
cost and gross profit realized on such
contracts can vary, sometimes substantially, from our original
projections for numerous reasons,
including:
•
products and systems that may require
us to incur incremental
expenses to remedy such issues,
•
and environments and may lead
to premature failure or unplanned
degradation of products,
•
11
•
•
global health crises and natural disasters,
•
•
•
•
•
•
These risks are exacerbated if a
project is delayed because
the circumstances upon which
we originally bid
and quoted a price may have changed
in a manner that increases
our costs or other liabilities
relating to the
project. In addition, we sometimes
bear the risk of delays caused
by unexpected conditions or events.
Our
project contracts often subject us
to penalties or damages if we cannot
complete a project in accordance
with
the contract schedule. In certain cases,
we may be required
to pay back to a customer all or a portion
of the
contract price as well as potential
damages (which may significantly
exceed the contract price), if
we fail to
meet contractual obligations.
If we are unable to obtain performance
and other guarantees from
financial institutions, we may
be
prevented from bidding on,
or obtaining, some contracts,
or our costs with respect to such
contracts
could be higher.
In the normal course of our business
and in accordance with industry practice,
we provide a number of
guarantees including
bid bonds, advance payment bonds or guarantees,
performance bonds or guarantees
and warranty bonds or guarantees, which
guarantee our own performance.
These guarantees may include
guarantees that a project will
be completed on time or that a project
or particular equipment
will achieve other
defined performance criteria.
If we fail to satisfy any defined
criteria, we may be required to make payments
in cash or in kind. Performance guarantees
frequently are requested in
relation to large projects.
Some customers require that performance
guarantees be issued
by a financial institution. In considering
whether to issue a guarantee on our behalf,
financial institutions consider
our credit ratings. If, in
the future,
we cannot obtain such a guarantee
from a financial institution
on commercially reasonable
terms or at all, we
could be prevented from bidding
on, or obtaining, some contracts, or
our costs with respect to such contracts
could be higher, which would reduce the profitability
of the contracts. If we cannot obtain
guarantees on
commercially reasonable
terms or at all from financial institutions
in the future, there could be a
material
impact on our business, financial
condition, results of operations
or liquidity.
Our hedging activities may
not protect us against the consequences
of significant fluctuations
in
exchange rates, interest rates,
inflation or commodity
prices on our earnings and cash
flows.
Our policy is to hedge material currency
exposures by entering
into offsetting transactions with third-party
financial institutions. Given the effective
horizons of our risk management
activities and the anticipatory
nature of the exposures intended
to be hedged, there can be
no assurance that our currency hedging
activities will fully offset the adverse financial
impact resulting from unfavorable
movements in foreign
exchange rates. In addition, the
timing of the accounting for recognition
of gains and losses related to a
hedging instrument may not coincide
with the timing of gains
and losses related to the underlying
economic
exposures.
As a resource-intensive operation, we are
exposed to a variety of market
and asset risks, including
the
effects of changes in inflation, commodity
prices and interest rates.
We monitor and manage these exposures
as an integral part of our overall
risk management program, which
recognizes the unpredictability
of markets
12
and seeks to reduce the potentially
adverse effects on our business.
As part of our effort to manage these
exposures, we may enter into commodity
price and interest rate hedging
arrangements. Nevertheless,
changes in commodity prices and interest
rates cannot always be predicted
or hedged.
If we are unable to successfully
manage the risk of changes
in exchange rates, interest rates, inflation
or
commodity prices or if our hedging
counterparties are unable to perform their
obligations under our hedging
agreements with them, then changes
in these rates and prices could
have an adverse effect on our financial
condition and results of operations.
Failure to meet ESG expectations
or standards or achieve our ESG
goals could adversely affect
our
business, results of operations, and
financial condition
There has been an increased focus
from regulators and stakeholders
on environmental, social and
governance (ESG) matters. These
include greenhouse
gas emissions and climate-related
risks; diversity,
equity, and inclusion; responsible sourcing; human
rights and social responsibility;
and corporate
governance. We have established
certain ESG goals, commitments
and targets. Our ability to accomplish
them presents
numerous operational,
regulatory, financial, legal, and other challenges,
several of which are
outside of our control. Our failure
to achieve our ESG goals,
commitments and targets or
comply with
emerging ESG regulations could
adversely affect our business, results of
operations, and financial
condition.
Any such failure could harm our
reputation, adversely impact our
ability to attract and retain
customers and
talent and expose us to increased
scrutiny from the investment community
and enforcement authorities.
—
Legal and regulatory risks
An inability to protect our intellectual
property rights or actual or alleged
infringement of a third
party’s intellectual property rights could adversely
affect our business.
Our intellectual property rights are
fundamental to all of our
businesses. We generate, maintain,
utilize and
enforce a substantial portfolio
of trademarks, trade dress, patents
and other intellectual property rights
globally. Intellectual property protection is subject to applicable
laws in various local jurisdictions
where
interpretations and protections vary
or can be unpredictable
and costly to enforce. We use our intellectual
property rights to protect the goodwill
of our products, promote our product
recognition, protect our
proprietary technology and development
activities, enhance our competitiveness
and otherwise support our
business goals and objectives. However, there can
be no assurance that the steps
we take to obtain,
maintain and protect our intellectual
property rights will be adequate.
Our intellectual property rights may
fail
to provide us with significant competitive
advantages, particularly
in foreign jurisdictions that do not
have, or
do not enforce, strong intellectual
property rights. The weakening
of protection of our trademarks, trade
dress, patents and other intellectual
property rights could
adversely affect our business. In addition, there
exist risks around actual or alleged
infringement of third-party intellectual
property rights, which could – even
with mitigation processes in place - lead
to claims against us that require
significant resources to resolve.
We
also may engage in legal
action to protect our own intellectual
property rights, and enforcing our
rights may
require considerable
time, money and oversight, and existing
laws in the various countries in which
we
provide services or solutions may
offer only limited protection.
Failure to comply with evolving
data privacy and data protection
laws and regulations or to otherwise
protect personal data, may adversely
impact our business and financial
results.
We are subject to many rapidly evolving
privacy and data protection laws and
regulations around the world
including the General Data Protection
Regulation (GDPR) in Europe
and the Personal Information Protection
Law in China as well as the California
Data Privacy Act and the California
Privacy Rights Act (effective in
January 2023) in the United States.
This requires us to operate
in a complex environment where
there are
significant constraints on how we
can process personal data across our
business. The GDPR, which became
effective in May 2018, has established
stringent data protection requirements
for companies doing business
in or handling personal data of individuals
in the European Union. The GDPR
imposes obligations on data
controllers and processors including
the requirement to maintain a record
of their data processing
and to
implement policies and procedures
as part of their mandated privacy
governance framework. Breaches
of the
13
GDPR or other applicable
data privacy laws could result in substantial
fines, which in some cases could
be
up to four percent of our worldwide
revenue. In addition, a breach of the
GDPR or other data privacy or data
protection laws or regulations could
result in regulatory investigations,
reputational damage, orders to
cease/change our use of data, enforcement
notices, as well as potential
civil claims including class action
type litigation. We have invested, and continue
to invest, human and technology
resources in our data privacy
and data protection compliance
efforts. There can be no assurance that any
such actions will be sufficient to
prevent cybersecurity breaches, disruptions,
unauthorized release
of sensitive information or corruption
of
data. Despite such actions, there is a
risk that we may be
subject to fines and penalties, litigation
and
reputational harm if we fail to properly
process or protect the data
or privacy of third parties or
comply with the
GDPR or other applicable
data privacy and data protection
regimes.
Examinations by tax authorities
and changes in tax regulations
could result in lower earnings
and
cash flows.
We operate in approximately 100 countries and
therefore are subject to different
tax regulations. Changes
in
tax laws,
including those addressing
tax avoidance and profit sharing,
could result in a higher tax expense
and higher tax payments. Furthermore,
this could materially impact our
tax-related receivables and liabilities
as well as deferred income tax assets
and liabilities. In addition,
the uncertainty of the tax environment
in
some regions could limit our ability
to enforce our rights. As a globally
operating organization, we
conduct
business in countries subject to
complex tax rules, which
may be interpreted in different ways.
Future
interpretations or developments of
tax regimes may affect our tax liabilities,
returns on investments and
business operations. We are regularly
examined by tax authorities in
various jurisdictions. An adverse
decision by a tax authority could
cause a material adverse effect on our
business, financial condition
and
results of operations.
We are subject to environmental
laws and regulations in the countries
in which we operate.
We incur
costs to comply with such regulations,
and our ongoing operations
may expose us to environmental
liabilities.
Our operations are subject to U.S.,
European and other laws
and regulations governing
the discharge of
materials into the environment or
otherwise relating to environmental
protection. Our manufacturing facilities
use and produce paint residues,
solvents, metals, oils and
related residues. We use petroleum-based
insulation in transformers and chloroparaffins
as a flame retardant. We have
manufactured and sold, and we
are using in some of our factories,
certain types of transformers and
capacitors containing polychlorinated
biphenyls (PCBs). These are considered
to be hazardous substances in
many jurisdictions in which we
operate. We may be subject to substantial
liabilities for environmental
contamination arising from the use of
such substances. All of our manufacturing
operations are subject to ongoing
compliance costs in respect of
environmental matters and the associated
capital expenditure
requirements.
In addition, we may be subject to
significant fines and penalties
if we do not comply with environmental
laws
and regulations, including
those referred to above. Some environmental
laws provide for joint and several
or
strict liability for remediation of releases
of hazardous substances,
which could result in us incurring
a liability
for environmental damage without
regard to our negligence
or fault. Such laws and regulations
could expose
us to liability arising out of the conduct
of operations or conditions
caused by others, or for our acts which
were in compliance with all
applicable laws at the time the
acts were performed. Additionally, we may be
subject to claims alleging personal
injury or property damage as a result of
alleged exposure to hazardous
substances. Changes in the environmental
laws and regulations,
or claims for damages to persons,
property,
natural resources or the environment,
could result in substantial
costs and liabilities to us.
14
We have been affected and could in
the future be affected by laws or regulations
enacted to address
climate change concerns,
including non-financial
reporting disclosure requirements,
as well as the
physical effects of climate change.
Existing or pending laws and
regulations intended to address
climate change concerns could
affect us in the
future. We have incurred, and may need
to incur additional costs to
comply with these laws and regulations
and any non-compliance could
adversely affect our reputation and result in
significant fines. We have
incurred, and may need to incur, additional
costs and we need to establish additional
processes to comply
with new non-financial reporting
disclosure requirements. We could also be affected
indirectly by increased
prices for goods or services provided
to us by companies that are
directly affected by these laws and
regulations and pass their increased
costs through to their customers.
At this time, we cannot estimate what
impact such costs may have on our business,
results of operations or financial
condition. We could also be
affected by the physical consequences
of climate change itself, although
we cannot estimate what impact
those consequences might have on
our business or operations.
Any such changes could also
impact our
ability to achieve our 2030 Sustainability
targets as well as the related
costs and resources necessary
to do
so.
—
General risk factors
If we are unable to attract and retain
qualified management and
personnel then our business
may be
adversely affected.
Our success depends in part on our
continued ability to hire, assimilate and
retain highly qualified
personnel,
particularly our senior management
team and key employees. Competition
for highly qualified
management
and technical personnel
remains intense in the industries and
regions in which we operate. If we are unable
to attract and retain members of our
senior management team and
key employees, including in
connection
with our ongoing organizational
transformation, this could have
an adverse effect on our business.
Our business subjects us to considerable
potential exposure to
litigation and legal claims and could
be materially adversely affected
if we incur legal liability.
We are subject to, and may become
a party to, a variety of litigation
or other claims. Our business is
subject
to the risk of claims involving
current and former employees, customers,
partners, subcontractors, suppliers,
competitors, shareholders, government
regulatory agencies
or others through private actions,
class actions,
whistleblower claims, administrative
proceedings, regulatory actions
or other proceedings.
Our acquisition
activities have in the past and may
in the future be subject to
litigation or other claims. While we maintain
insurance for certain potential liabilities,
such insurance does not cover
all types and amounts of potential
liabilities and is subject to various
exclusions as well as caps on amounts
recoverable.
Item 3A.
[Reserved]
Item 4.
Information on the Company
—
Introduction
About ABB
ABB is a technology leader in
electrification and automation,
enabling a more sustainable
and
resource-efficient future. The company’s solutions
connect engineering
know-how and software to optimize
how things are manufactured, moved,
powered,
and operated. Building
on more than 140 years of
excellence, ABB’s more than 105,000 employees
are committed to driving innovations
that accelerate
industrial transformation.
15
We operate in approximately 100 countries across
three regions: Europe, the Americas,
and Asia, Middle
East and Africa,
and generate revenues in numerous
currencies. We are headquartered
in Zurich,
Switzerland,
and we govern our company
through our four Business areas: Electrification,
Motion, Process
Automation, and Robotics & Discrete
Automation. For a breakdown
of our consolidated revenues (i) by
Business area, (ii) by geographic
region,
and (iii) by product type, see
“Item 5. Operating and Financial
Review and Prospects—Analysis of
results of operations—Revenues”
and “Note 23 - Operating segment
and
geographic data” to our Consolidated
Financial Statements.
Our principal corporate offices are located
at Affolternstrasse 44, CH 8050
Zurich, Switzerland, telephone
number +41 43 317 7111. Our agent for U.S. federal securities law purposes
is ABB Holdings Inc., located at
305 Gregson Drive, Cary, North Carolina 27511. Our internet address is www.abb.com or global.abb.
The
information contained on or accessible
from our website is not incorporated
into this annual report, and you
should not consider it to be a part of
this annual report. The United
States Securities and Exchange
Commission (SEC) maintains a website
at www.sec.gov which contains in electronic
form each of the reports
and other information that we have
filed electronically with
the SEC.
History of the ABB Group
The ABB Group was formed in 1988
through a merger between
Asea AB and BBC Brown Boveri AG.
Initially
founded in 1883, Asea AB was a major
participant in the introduction
of electricity into Swedish homes and
businesses and in the development
of Sweden’s railway network. In
the 1940s and 1950s, Asea AB
expanded into the power, mining and steel industries.
Brown Boveri and Cie. (later renamed
BBC Brown
Boveri AG) was formed in Switzerland
in 1891 and initially specialized
in power generation and turbines. In
the early to mid
‑
1900s, it expanded its operations
throughout Europe and broadened
its business operations
to include a wide range of electrical
engineering activities.
In January 1988, Asea AB and
BBC Brown Boveri AG each
contributed almost all of their businesses
to the
newly formed ABB Asea Brown
Boveri Ltd, of which they each
owned 50 percent. In 1996, Asea
AB was
renamed ABB AB and BBC Brown
Boveri AG was renamed ABB
AG. In February 1999, the ABB
Group
announced a group reconfiguration
designed to establish a single parent
holding company and a single
class
of shares. ABB Ltd was incorporated
on March 5, 1999, under the laws
of Switzerland. In June 1999,
ABB Ltd became the holding company
for the entire ABB Group.
This was accomplished by having
ABB Ltd
issue shares to the shareholders
of ABB AG and ABB AB, the two
companies that formerly owned
the ABB
Group. The ABB Ltd shares were
exchanged for the shares
of those two companies, which,
as a result of the
share exchange and certain related
transactions, became wholly
‑
owned subsidiaries of ABB Ltd.
ABB Ltd shares are currently listed
on the SIX Swiss Exchange
and the NASDAQ OMX Stockholm
Exchange.
On May 12, 2023,
we filed the required Form
25 with the SEC to delist ABB’s American
Depositary Shares (ADSs) from trading
on the New York Stock Exchange (NYSE). In connection with
the
delisting from the NYSE which became
effective May 23, 2023,
we converted our ADS program
from a
sponsored Level II program into
a sponsored Level I program.
The new Level I ADSs were assigned
a new
stock ticker (ABBNY) upon delisting
and are now traded on the over-the-counter
(OTC) markets.
ABB today
As a global technology leader
in electrification and automation enabling
sustainability and resource efficiency,
our offering is relevant for the global
transition towards low-carbon
energy, increased energy efficiency, and
the transition to more adaptive manufacturing
and automation, putting us right in
the center of long-term
secular trends.
The ABB Purpose
ABB's purpose is to enable a more sustainable
and resource-efficient future with our
technology leadership
in
electrification and automation.
16
Our core competencies
Our leadership in resource efficiency is
based on our core competencies,
each of which constitutes a barrier
to entry: decades-long domain
expertise, cutting-edge technology
and innovation as well as the ability to
scale operations and distribution.
With its long history, ABB not only invented or pioneered
many power and automation technologies
but has
retained technology and market leadership
in many of these areas. Being
present in various vertical markets
for decades with close long-term relationships
with customers and channel
partners has resulted in our
unique deep domain expertise, enabling
a thorough understanding of customers’ needs
and operations.
We continuously evolve our offering to remain
a relevant and trusted partner
to our customers. Our annual
non-order related research and
development spending in 2023
amounted to approximately 4.1 percent
of
revenues. We focus our research and
development expenditures
on key areas of innovation and have
spent
approximately $9.2 billion
since the beginning of 2016, focusing
on developing best-in-class
products and
services in the fields of electrification
and automation with the goal
of helping our customers to create
resource-efficient value.
All our four Business areas are market
leaders in their respective
areas being in either the number
1 or 2
position. Our global reach along
with our extensive local presence
assists
us in scaling innovations
to achieve
stronger returns, which supports higher
absolute investments for future
growth. Active globally, our revenues
are well-balanced across regions
with customers served directly
and through a strong channel
partner
network.
The ABB Way
The ABB Way is the glue that unites our Group
and comprises a select number
of common processes
covering our business model, our
people and culture, the ABB brand
and our governance framework.
It
facilitates accountability, transparency and speed in ABB.
In our operating model, the divisions
represent the highest level
of operating decisions. They are
closest to
their respective markets and customer
needs. Each division
progresses through the strategic mandates
and
priorities of stability and profitability before
growth. In order to deploy full focus
on organic and acquired
growth to the extent of consolidating
the market, the business’
structure should be robust and profitability
should be at least in line with industry
peers.
Each division has full accountability
for its results and carries the responsibility
for business development,
and research and development
for leading technology to secure a number
1 or 2 market position.
During
2023
we cemented the decentralized way
of working at ABB within
all our divisions,
ensuring accountability,
transparency and speed in decision
making.
Our focus area in 2024
will be to increasingly shift our focus
to
profitable growth, and further increase
the number of our divisions
with this mandate.
Strong performance
management is key in a decentralized
business model. We apply a
monthly scorecard system for
the
divisions and Business areas, based
on a standardized set of Key Performance
Indicators, to support full
transparency of operational performance.
It is accompanied by a limited
select number of short-term
incentives, including the mandatory
target to make annual productivity
improvements of at least 3-5 percent
each year.
The corporate functions focus on
necessary strategic, financial
and governance activities, with a lean
headcount of approximately 800
employees.
17
Enhanced growth profile
Over the past several years, we have
taken significant actions to align
our business portfolio around
our
Purpose, resulting in all divisions
now active only within the markets of
electrification and automation.
Both of
these markets are benefiting from
increasing global investments
to decarbonize, increase energy
efficiency
and to automate and increase
flexibility in society, including industrial manufacturing,
buildings and process
industries.
Additionally, we have increased the proportion
of sales stemming from short-cycle
businesses,
meaning a reduced proportion
from project-related activities,
which we believe should
reduce the risk and
volatility in our earnings. This ongoing
shift towards better quality of
revenues is now an integral part of
governance and business
execution.
The responsibility for growth has
been fully transferred
to the divisions,
as they are closest to customers.
This
includes both organic and
acquired growth. The divisions have
the best insights into current and
future
customer needs and are accountable
for building their respective
business accordingly. With more divisions
transitioning over time from stability
and profitability to growth, we expect
to see a gradual strengthening
of
our growth profile.
Finally, environmental, social and governance (ESG) drivers
are accelerating and translating
into increased
demand for our electrification and automation
offering. The demand for electricity is growing
ten times as fast
as other energy sources, resulting
in approximately 50 percent
higher average annual
investments
into
distribution networks over the next seven
years (source: IEA World Energy
Outlook 2023, Announced
Pledges Scenario).
The share of low-carbon sources in
the global energy mix is expected
to increase to
approximately 70 percent by 2050
from only 20 percent today (source:
IEA World Energy Outlook 2023,
Announced Pledges Scenario).
The need to improve energy efficiency has never
been more relevant, from
both the perspective of sustainable
operations and reducing operating
costs in a high energy cost
environment. Investments in energy efficiency
are expected to increase 46 percent
per year over the next
seven years versus the seven previous
years (source: IEA World Energy
Outlook 2023, Announced Pledges
Scenario). Today approximately 45 percent of the world’s electricity is converted
into motion by electric
motors yet only approximately 20 percent
of the world’s electric motors are optimized
through the control of
drives.
Lastly, the global number of working age people
(25 to 64 years) per retiree (65 years or
over) is
expected to fall by about 20 percent over
the next ten years (source: United
Nations World Population
Prospects 2019), supporting demand
for robotics and automation solutions.
We believe ABB’s offering is well
positioned to address these trends.
—
Businesses
Our markets
ABB is a technology leader in
electrification and automation
with a comprehensive digitalized
offering of
electrification, motion and automation
solutions. Our exposure
to customers is geographically
balanced while
catering to multiple end-markets and
segments. We believe our customer offering
is well positioned to benefit
from secular growth drivers, including
urbanization, labor shortage, shift
to electrification, automation and
robotization, as well as other data
and digitalization trends.
We are focused on creating superior customer
value through our comprehensive,
modular offering,
combining traditional products
and services with software-enabled
products and systems as well as digital
services and software that we sell
both separately and combined
as scalable solutions. Our advanced
software is a key differentiation of our digital
offering and about 55 percent of our
approximately
7,500 employees in research and
development are active in
software development.
18
The majority of our businesses are
market leaders within their respective
segments. We believe market
leadership is critical, as it provides
the opportunity for price leadership,
which in turn supports profitability,
enabling us to invest further in research
and development to sustain
our technological leadership.
For a
discussion of the geographic distribution
of our total revenues, see “Item 5.
Operating and Financial
Review
and Prospects—Analysis of results
of operations—Revenues.”
Industry market
Approximately half of our revenues
are derived from customers within
the industrial segment where we serve
production facilities and factories all
around the world, from process
industries such as oil and
gas, pulp and
paper as well as mining, to discrete
industries including automotive,
food and beverage and consumer
electronics. Demand for our electrification
and automation offerings with embedded
digital solutions
increased as the energy crisis and
tight labor markets served
as a prominent reminder to companies
of the
importance of energy efficiency and flexibility
in automated production.
This has accelerated customer
demand for the digital services and solutions
we offer.
In discrete industries, we saw a normalization
of customers’ order patterns following
a period of pre-buying
due to extended delivery lead
times as a result of the supply
chain constraints in 2022.
Demand in the
automotive segment remained
at a high level due to broadly
accelerating investments in the EV segment,
while the general industry and
consumer-related robotics segments
declined.
Late-cycle process industries were
strong across nearly all customer
segments.
We saw particular strength in
oil & gas-related demand. Strength
was also noted in refining,
petrochemicals and the energy-related
low-carbon segments.
Transport & infrastructure market
Approximately one-third of our customers
operate in the transport & infrastructure
market. Our expertise
provides efficient, reliable and sustainable
solutions for these customers, with
a focus on energy efficiency
and reduced operating costs.
In transport & infrastructure, there
was very strong order development
across data centers.
The buildings
segment saw weakness in all three regions
in residential-related
demand. Demand in the commercial
construction segments varied by geography,
where the U.S. and Europe remained
stable through most of the
year but weakness was noted in
China towards the latter
part of the year.
In the marine segment there were
positive developments
for the cruise ship sector as well as strong
demand in general marine
and ports.
Utilities market
We deliver solutions mainly for distribution
utilities and renewables
customers, while continuing to service
conventional power generation
customers with our control and automation
solutions.
During 2023, the renewables
markets continued to see strong growth.
Business levels in the conventional
power generation market remained
stable. Demand from electrical distribution
utilities remained strong, with
ongoing investments to increase grid
reliability and resilience
due to increased integration of renewables.
We serve our customers through our operating
divisions which are included
in our Business areas.
Developments in these Business areas
are discussed in more detail
below. Revenue figures presented in this
Businesses section are before intersegment
eliminations.
19
—
Electrification Business area
Overview
Electrification provides leading
electrical distribution and management
technologies, solutions and
services to
electrify the world in a safe, smart
and sustainable way. The portfolio includes
medium-
and low-voltage
electrical components, switchgear, digital devices, enclosures,
and circuit breakers, among others.
With our
products, solutions and services, we
collaborate with customers
to improve power delivery and security,
enhance energy management,
efficiency and operational reliability, as we seek to achieve a
low carbon
society.
The Electrification Business area delivers
products to end customers
through a global network of channel
partners and end customers. More
than half of the Business area’s revenue
is derived from distributors and
approximately a quarter is derived from
direct sales to end-users. The remaining
revenues are generated
from original equipment manufacturers
(OEMs), engineering,
procurement and construction (EPC)
contracting companies, system
integrators, utilities and
panel builders. The proportion of
direct compared to
channel partner sales varies by segment,
product technology
and geographic markets.
The Electrification Business area
had approximately 50,300 employees
as of December 31, 2023, and
generated $14.6 billion of revenues
in 2023.
Customers
The Electrification Business area
serves a wide range of customer
segments, including residential,
commercial
and industrial buildings, utilities,
oil and gas, chemicals, data centers,
renewables, food and
beverage, transport and infrastructure,
among others.
From some of the world’s tallest buildings
to the
busiest airports, the Business area’s products
and solutions cover a wide
range of applications and business
segments.
Products and Services
As of December 31, 2023, the Electrification
Business area’s products and services
are delivered through five
operating divisions. The Business area
divested its Power Conversion
Division in July 2023, which designed,
developed, and manufactured
end-to-end power conversion
solutions for mission-critical applications
in the
telecommunications, data center, and industrial
sectors.
The Distribution Solutions Division
facilitates the efficient and reliable
distribution, protection and control of
power by improving electric power
quality while strengthening
the resilience of the grid. The Division offers
segment-specific products and
solutions that largely serve utilities,
industry and infrastructure segments,
often providing the requisite medium-voltage
link between high-voltage
transmission systems and low-voltage
users. With ABB Ability™
enabled connected solutions
at its core, the offering includes medium-voltage
air-
and gas-insulated switchgear
(1 to 66 kilovolts), indoor and outdoor
circuit breakers, reclosers, fuses,
contactors, relays, instrument
transformers, sensors, motor
control centers, as well as low-voltage
switchgear
for the ANSI standard markets.
The Smart Power Division provides
energy distribution solutions
for data centers, industrial and
manufacturing plants, critical infrastructure
and commercial buildings.
The Division’s technical teams work
closely with industry partners, delivering
advanced solutions that support rapid
growth, energy transition, and
sustainability objectives. The Division’s portfolio
includes industrial circuit breakers,
low-voltage systems,
motor starting applications, and
safety devices like switches
and relays. Its Power Protection
unit supports
the world’s largest data center companies
with advanced energy-efficient
UPS solutions. The Division’s
ABB
Ability™
Energy Manager provides a scalable,
easy-to-use platform that helps
organizations save energy and
reduce CO
2
20
The Smart Buildings Division
enables optimization of energy
efficiency, safety,
security and comfort for any
building type, through new installations
or retrofit solutions. The Division
offers integrated digital technologies
to control HVAC, lighting, shutters, and security, in addition to energy distribution
solutions including DIN rail
products, enclosures and emergency
lighting through to industrial
plugs and sockets and conventional
wiring
accessories, accommodating
for single family homes, multiple
dwellings, commercial buildings,
infrastructure
and industrial applications. The Division’s
highly innovative technologies
and digital solutions serve rising
global demand among
real estate developers, owners,
and investors for smart building
technologies that
optimize energy distribution and
building automation. The scalable
solutions aim to deliver significant
sustainable and financial
benefits, meeting social and environmental
demands, while being able
to address
even the most complex of customers’
carbon reduction strategies.
The Installation Products Division
helps manage the connection,
protection and distribution of electrical
power from source to socket. The Division’s
products are engineered
to provide ease of installation and
perform in demanding and harsh
conditions, helping to ensure
safety and continuous operation for
utilities,
businesses and people
around the world. The Commercial
Essentials product segment includes
electrical
junction boxes, commercial fittings,
strut and cable tray metal
framing systems for commercial
and residential
construction. The Premier Industrial
product segment includes
multiple product lines, such as
Ty-Rap® cable
ties, T&B Liquidtight Systems® protection
products, PVC coated and nylon
conduit systems, power
connection and grounding
systems, and cable protection systems of
conduits and fittings for harsh
and
industrial applications. The Division
also manufactures solutions
for medium-voltage applications
used in the
utility market under its marquee
brands including Elastimold™ reclosers
and switchgear, capacitor switches,
current limiting fuses, Homac™
distribution connectors, Hi-Tech Valiant™
full-range current limiting fuse
for
fire mitigation, faulted current indicators
and distribution connectors,
cable accessories and apparatus
with
products for overhead and underground
distribution. Manufacturing
includes made-to-stock and custom-
made solutions.
The Service Division partners with
our customers to improve
the availability, reliability, predictability and
sustainability of electrical products and
installations. The Division’s
extensive service portfolio offers product
care, modernization, and advisory services
to improve performance, extend
equipment lifetime and
deliver
new levels of operational and
sustainable efficiency. We help customers keep resources in use for
as long as
possible, extracting the maximum value
from them, and then recovering
and regenerating products and
materials at the end of their useful
life.
Sales and Marketing
Sales and marketing is generally
conducted within the divisions
in the Electrification Business area. This
enables the divisions to manage
their respective end-to-end activities
and create demand across all
channels, products and solutions.
They increase focus and speed
for our customers to drive faster growth.
Where necessary, the divisions work together on joint services,
such as the management
of accounts,
channels, and segment-sales,
engaging in a range of promotional
activities,
both internal and external.
Competition
The Electrification Business area’s principal
competitors vary by product group and
include Atkore, Chint,
Eaton, Hager, Hubbell, Legrand, LS Electric, Mitsubishi
Electric,
nVent, Panasonic, Schneider Electric,
Siemens and Vertiv.
Capital Expenditures
The Electrification Business area’s capital
expenditures for property, plant and equipment totaled
$386 million
in 2023, compared to $343 million
in 2022. Investments in 2023
principally related to real estate investments,
capacity expansion, as well as equipment
replacement and upgrades.
Geographically, in 2023, Europe
represented 53 percent of the capital
expenditures, followed
by the Americas (35 percent) and Asia,
Middle
East and Africa (12 percent).
21
—
Motion Business area
Overview
The Motion Business area provides pioneering
technology, products, solutions and related services
to
industrial customers to increase
energy efficiency, improve safety and reliability, and maintain precise control
over processes. The portfolio
includes motors, generators and
drives for a wide range of applications
in all
industrial sectors.
The Motion Business area designs,
manufactures and sells
drives, motors, generators, and traction
converters. Building on long-standing
experience in electric powertrains,
the Business area combines
domain
expertise and technology to deliver
the optimum solution for a wide range
of applications for a comprehensive
range of industrial segments. In addition,
the Business area, along with
its channel partners, has an industry
leading global service presence.
The Motion Business area had approximately
22,300 employees as of December
31, 2023, and generated
$7.8 billion of revenues in 2023.
Customers
The Motion Business area serves a wide
range of customers in different industrial
segments such as pulp
and paper, oil and gas, metals and mining, food
and beverage, HVAC, water and wastewater, transportation,
power generation, marine and
offshore.
Products and Services
The Motion Business area’s products and
services are delivered
through seven operating divisions.
The Drive Products Division serves
the industries and infrastructure segments
with world-class drives and
programmable logic controllers
(PLC). With its products, global
scale and local presence, the Division
helps
customers to improve energy efficiency, productivity and
safety.
The System Drives Division is the
market leader in high-power, high-performance
drives, drive systems and
packages for industrial process and
large infrastructure applications,
and a leading supplier of power
conversion equipment for renewable
energy and other applications. The Division
offers global support to help
customers, partners and equipment
manufacturers with asset reliability, performance
improvement and
energy efficiency in mission critical applications.
The Service Division serves customers
worldwide by maximizing
uptime, extending product life cycle and
enhancing the performance and
energy efficiency of their electrical
motion solutions. The Division
is leading
the way in digitalization by securely
connecting motors and
drives, increasing operational
uptime and
improving efficiency. The services offered make the difference
for our customers and partners every
day by
helping keep their operations
running profitably, safely and reliably.
The Traction Division is a recognized leader
in onboard propulsion technologies
that drive innovation in rail,
bus, and industrial vehicle electrification.
A comprehensive range
of high-performance and full lifecycle
managed propulsion, auxiliary
and energy storage solutions help
improve energy efficiency and contribute
to
making transportation more sustainable.
The IEC Low Voltage Division is a technology leader
delivering a full range of energy-efficient
low voltage
motors, including ultra-efficient solutions
such as IE5 SynRM (synchronous
reluctance motors). Through
a
global footprint, domain expertise
and rugged designs, the Division
provides reliable technology
that
improves efficiency and productivity even
in the most demanding
applications
.
The Large Motors and Generators
Division offers a comprehensive
product portfolio of large AC motors
and
generators. The Division’s induction, synchronous
and special design
motors and synchronous generators
22
power critical applications
across industry, infrastructure and marine transportation.
Combining the best
available materials with superior
technology, the large motors and generators are designed
to operate
efficiently and reliably, even for challenging processes
or applications and to have low
life cycle costs.
The NEMA Motors Division is a marketer, designer
and manufacturer that offers
Baldor-Reliance®
industrial
electric motors, primarily in North
America. The Division focuses
on quality, reliability and efficiency to provide
a comprehensive offering of NEMA
motors in the market across most
industrial segments and applications.
Sales and Marketing
Sales are made both through direct
sales forces and through
channel partners, such as distributors
and
wholesalers, as well as installers, OEMs
and system integrators.
The proportion of direct sales to
end users
compared to channel partner sales
varies among the different industries,
products and geographic
markets.
Competition
The principal competitors of the
Motion Business area include
Schneider Electric, Siemens, Toshiba, WEG
Industries, Wolong and Danfoss.
Capital Expenditures
Capital expenditures in the Motion
Business area for property, plant and equipment totaled
$171 million in
2023, compared to $150 million
in 2022. Principal expenditures
in 2023 related to real estate investments,
capacity expansion, equipment
replacement and upgrades
across various countries including
Finland,
Switzerland, the United States, China
and India. Geographically, in 2023, Europe represented
54 percent of
the capital expenditures, followed
by the Americas (33 percent) and
Asia, Middle East and Africa
(13 percent).
—
Process Automation Business area
Overview
The Process Automation Business
area provides a comprehensive
range of integrated automation, electrical
and digital systems and services
for customers in the process, hybrid
and maritime industries.
These
offerings, coupled with deep domain
knowledge in each end
market, help to optimize productivity, energy
efficiency, sustainability and safety of industrial processes
and operations.
The Business area’s offering can be grouped
into two categories, with approximately
half of the offering
related to solutions for new and
brownfield projects and half related
to service, mainly for the existing installed
base. Process Automation also integrates
offerings from the Electrification,
Motion and
Robotics & Discrete Automation
Business areas into its projects.
The Business area’s offerings are sold
primarily through its direct sales
force with a smaller share
through partners and distributors.
The Business area had approximately
21,100 employees as of
December 31, 2023, and generated
revenues
of $6.3 billion in 2023.
Customers
The Process Automation Business
area’s end customers include
companies across process, hybrid
and
maritime industries. These industries
include oil, gas, chemicals,
mining, metals, cement, pulp
and paper,
pharmaceuticals, battery manufacturing,
food and beverage, power generation,
water, marine and ports.
23
Products and Services
The Process Automation Business
area offering includes an extensive portfolio
of products, solutions, digital
applications and services for the control
of the simplest to the most complex
and critical industrial processes
and infrastructure. These systems can
link various process and
information flows, allowing
customers to
manage and control their entire production
process based on real-time information.
The Business area’s
automation offering includes the distributed
control system (DCS) ABB
Ability™
System 800xA
®
, which is
also an electrical control system, a
safety system and a collaboration
enabler with the capacity to improve
engineering efficiency, operator performance and asset utilization.
Other control solutions include
Symphony
®
Plus (designed to address automation
needs of the power and
water industry segments) and
the Freelance
DCS solution. Components for basic
automation solutions, process
controllers, I/O modules, panels, and
Human Machine Interfaces (HMI)
are available through the Compact
Product Suite offering. The product
portfolio is complemented by a
suite of ABB Ability™
Advanced Digital Services
and by ABB Care, a
subscription-based lifecycle management
program that provides services to
maintain and continually
advance and enhance ABB’s distributed
control systems and optimize
customers’ lifecycle costs. The
ABB
Ability™
Genix Industrial Analytics and
Artificial Intelligence Suite unlocks
greater value by contextualizing
and integrating data from IT, engineering, and operations systems
to provide deep, meaningful and
actionable insights. The portfolio is complemented
by a range of industry-specific
applications in each
division.
As of December 31, 2023, the Process
Automation Business
area’s products and services are delivered
through four operating divisions.
The Energy Industries Division
serves a wide range of industrial
sectors, including hydrocarbons,
chemicals,
pharmaceuticals,
power generation and water. With its integrated
solutions that automate, digitalize
and
electrify operations, the Division
is committed to supporting traditional
industries in their efforts to
decarbonize. The Division also
supports the development, integration
and scaling up of new and renewable
energy models. The Division’s goal is to help
customers adapt and succeed
in the rapidly changing
global
energy transition. Harnessing data,
machine learning and artificial
intelligence (AI), the Division
brings over
50 years of domain expertise delivering
solutions designed to improve energy, process and production
efficiency, as well as reduce risk, operational cost and capital
cost, while minimizing waste for customers,
from project start-up and throughout
the entire plant lifecycle.
The Process Industries Division serves
the mining, minerals processing,
metals, cement, pulp and paper,
battery manufacturing, and food and
beverage, as well as their associated
service industries. The Division
brings deep industry domain
expertise coupled with the ability to integrate
both automation and electrical
systems, increase productivity and
reduce overall capital and
operating costs for customers.
For mining,
metals and cement customers, solutions
include specialized
products and services, as well as total
production systems. The Division
designs, plans, engineers, supplies,
installs and commissions integrated
electrical and motion systems, including
electric equipment, drives, motors,
high power rectifiers and
equipment for automation and supervisory
control within a variety of areas
including mineral handling,
mining
operations, aluminum smelting, hot and
cold steel applications
and cement production. The offering
for the
pulp and paper industries
includes control systems, quality control
systems, drive systems, on-line
sensors,
actuators and field instruments.
Digitalization solutions, including
collaborative operations and augmented
reality, help improve plant and enterprise productivity, and reduce maintenance
and energy costs.
24
The Marine & Ports Division
serves the shipping and
ports industries through its extensive portfolio
of
integrated systems and solutions
that improve the flexibility, reliability and energy
efficiency of vessels and
container terminals. By coupling
power, propulsion, automation, marine software and
services that ensure
maximum vessel uptime, the Division
is well positioned to help the marine
industry to achieve its
decarbonization targets while
improving the profitability and sustainability
of our customers’ business
throughout the entire lifecycle of vessels.
With ABB Ability™
Marine software solutions and
ABB Ability™
Collaborative Operations Centers
around the world, shipowners
and operators can run their fleets at
lower
fuel and maintenance costs, while
improving crew, passenger and cargo safety as
well as overall productivity
of their operations. Further, the Division delivers automation,
electrical systems and digital
solutions for
container and bulk cargo handling,
from ship to gate. These solutions
help terminal operators meet
the
challenge of larger ships, taller
cranes and bigger volumes per
call, and make terminal operations
safer,
greener and more productive.
The Measurement & Analytics Division
is among the world’s leading
manufacturers and suppliers of smart
instrumentation and analyzers, working
at the heart of industrial
digital transformation. The Measurement
&
Analytics Division’s portfolio consists of
analyzers measuring compositions
of gases and liquids;
instrumentation measuring process
variables such as temperature,
pressure, flow, and level; force
measurement solutions measuring
parameters such as flatness,
thickness, and tension; and advanced
digital
solutions for device management, device
health check and
predictive maintenance. The Measurement
&
Analytics Division serves key industries
such as oil and gas, chemical,
water and wastewater, power,
hydrogen, batteries, as well as the
marine industry. The Division enables the optimization
of industrial
processes by providing and analyzing
data collected from sensing and
smart measurement devices.
Parameters such as emission levels
and production inputs are measured
by providing ‘before’
and ‘after’
values,
enabling efficient operations and
environmental sustainability through
measurement.
Sales and Marketing
The Process Automation Business
area’s sales are primarily made
through its direct sales force as well
as
third-party channel partners, such
as distributors, system integrators
and OEMs. The majority
of revenues are
derived through the Business area’s own
direct sales channels.
Competition
The Process Automation Business
area’s principal competitors vary by
industry or product group.
Competitors include: Emerson, Honeywell,
Schneider Electric, Siemens,
Siemens Energy, Yokogawa,
Endress + Hauser, Kongsberg and Valmet.
Capital Expenditures
The Process Automation Business
area’s capital expenditures for property, plant and equipment
totaled
$66 million in 2023, compared
to $100 million in 2022. Principal
investments in 2023 primarily related
to
equipment replacement and
upgrades, mainly in the Energy
Industries Division and Measurement
& Analytics
Division. Geographically, in 2023, Europe represented
68 percent of the capital expenditures,
followed by the
Americas (19 percent) and Asia,
Middle East and Africa (13 percent).
—
Robotics & Discrete Automation Business area
Overview
The Robotics & Discrete Automation
Business area provides robotics,
and machine and factory automation
including products, software, solutions
and services. Revenues are generated
both from direct sales to end
users as well as from indirect sales
mainly through system integrators
and machine builders.
The Robotics & Discrete Automation
Business area had approximately
11,300 employees as of
December 31, 2023, and generated
$3.6 billion of revenues
in 2023.
25
Customers
The Robotics & Discrete Automation
Business area serves a wide
range of customers. The main
customers
are active in industries such as automotive,
machine building,
metalworking, electronics, food and beverage
and logistics. They include end-users
such as manufacturers,
system integrators and machine
builders.
Products and Services
The Robotics & Discrete Automation
Business area’s products and services
are delivered through
two
operating divisions.
The Robotics Division offers a wide range
of products, solutions and
services including robots, autonomous
mobile robots, robotics application
cells and smart systems,
field services, spare parts, digital
services,
engineering and operations
software. This offering provides customers with
increased productivity, quality,
flexibility and simplicity for operations,
e.g. to meet the challenge
of making smaller lots of a larger number
of
specific products in shorter cycles
for today’s dynamic global
markets and coping with increasing
uncertainty.
Robots are also used in activities or
environments which may be
hazardous to employee health
and safety,
such as repetitive or strenuous lifting,
dusty, hot or cold rooms, or painting booths and can help
customers
address labor shortages. Robotics solutions
are used in a wide range
of segments from automotive
OEMs,
automotive suppliers, electronics, general
industry, consumer goods, food and beverage, and
warehouse/logistics center automation.
They are increasingly deployed
in service applications for life
sciences care, restaurants and retail.
Typical robotic applications include
welding, material handling, machine
tending, machining, painting,
picking, packing, palletizing
and assembly.
The Machine Automation Division
offers integrated automation solutions
based on programmable logical
controllers, industrial PCs, servo motion,
industrial transport systems and
machine vision. It also provides
software for engineering
and optimization. The range of solutions
are mainly used by machine builders
for
various types of series machines,
e.g. for plastics, metals, printing
and packaging.
Sales and Marketing
Sales are made both through direct
sales as well as through
third
‑
party channel partners, such as system
integrators and machine builders.
The proportion of direct sales compared
to channel partner sales varies
among the different industries, product
technologies and geographic
markets.
Competition
Competitors of the Robotics & Discrete
Automation Business area
vary by offering and include companies
such as Fanuc, Kuka, Yaskawa,
Epson,
Dürr, Stäubli, Universal Robots, Rockwell
Automation,
Siemens,
Mitsubishi Electric and Beckhoff.
Capital Expenditures
The Robotics & Discrete Automation
Business area’s capital expenditures
for property, plant and equipment
totaled $71 million in 2023, compared
to $86 million in 2022. Principal
investments in 2023 were primarily
related to the expansion of the North
American robotics headquarters
and manufacturing facility in
the United
States and production enhancements
in both the Robotics Division
in China and the Machine Automation
Division in Austria. In 2023, Europe
represented 55 percent of
capital expenditures, followed
by the Americas
(24 percent)
and Asia, Middle East and Africa
(21 percent).
26
—
Corporate and Other
Corporate and Other includes core headquarter
functions, real estate activities,
Corporate Treasury,
functional shared services for human
resources, finance and information
services and other minor business
activities. Certain strategic investments
managed by ABB Technology Ventures are also included in
Corporate. The remaining activities of
certain EPC projects which
we are completing and
are in a wind-down
phase are reported as non-core businesses
within Corporate and Other. The historical
business activities of
certain divested businesses are also
presented in Corporate
and Other. These include the high-voltage
cables business, steel structures and
certain EPC contracts relating
to the oil and gas industry. In addition,
effective January 1, 2023, the E-mobility Division
became a separate operating
segment and is reported in
Corporate and Other for all periods
presented.
Corporate headquarters and
stewardship activities include
the operations of our corporate headquarters
in
Zurich, Switzerland, as well as limited
corporate
‑
related activities in certain
countries. These activities cover
staff functions with group
‑
wide responsibilities, such
as accounting and financial
reporting, corporate finance
and corporate treasury, taxes, internal audit, legal and
integrity, compliance, risk management and insurance,
corporate communications, human resources,
information systems and
investor relations.
We operate shared service centers globally
through a network of hubs which
consist of services in the areas
of human resources, finance and
information services.
We also staff and maintain front offices in various
countries. The costs of these shared
services are incurred
primarily for the benefit of the Business
areas,
which are charged
for their use of such services and
the related number of employees are allocated
to the
Business areas.
Similarly, a significant portion of the shared
corporate overhead costs are charged
to the
operating businesses. We also provide services
to third parties under transitional
service agreements in
relation to certain divested businesses,
the largest of which is Hitachi
Energy (the former Power Grids
business).
The E-mobility Division is contributing
to a zero-emission mobility future with
smart, reliable and emission-free
electric vehicle charging solutions
including market leading charging
hardware, ABB Ability™
enabled digital
services and energy and fleet management
solutions. ABB E-mobility offers a leading
portfolio of EV charging
solutions from smart chargers for
the home to high-power chargers
for the highway stations of
the future,
solutions for the electrification of
fleets and opportunity charging
for electric buses and trucks.
Corporate and Other had approximately
2,900 employees at December
31, 2023, of which approximately
2,100 pertain to the E-mobility Division
and our other non-core businesses.
—
Discontinued operations
In 2020, we completed the divestment
of our Power Grids business
to Hitachi Ltd (Hitachi). As a
result, the
Power Grids business was reported
as discontinued operations
in the Consolidated Financial
Statements.
See “Note 3 - Discontinued operations”
to our Consolidated Financial
Statements.
—
Capital expenditures
Total
capital expenditures for property, plant and equipment
and intangible assets (excluding
intangibles
acquired through business
combinations) amounted to
$770 million, $762 million and
$820 million in 2023,
2022 and 2021, respectively. In 2023 and 2022,
capital expenditures
were 1 percent and 6 percent lower,
respectively, than depreciation and amortization. Excluding
acquisition-related amortization, capital
expenditures were 37 percent higher
in 2023
and 30 percent higher in 2022,
respectively, than depreciation
and amortization.
27
Capital expenditures in 2023
primarily focused in mature markets, reflecting
the geographic distribution
of our
existing production facilities. Capital
expenditures in Europe and the Americas
in 2023 were driven primarily
by upgrades of existing production
facilities and capacity expansion,
mainly in the U.S., Germany, Italy,
Finland, Switzerland and Austria.
In Asia, Middle East and
Africa, capital expenditures were
made primarily to
increase production capacity by investing
in new or expanded
facilities, the highest of which were in China
and India.
The share of emerging markets
capital expenditures
as a percentage of total capital expenditures
in 2023 and 2022 was 23 percent
and 24 percent, respectively.
At December 31, 2023, construction
in progress for property, plant and equipment was $713
million, mainly in
the U.S., Germany, Switzerland and Finland,
while at December 31, 2022,
construction in progress
for
property, plant and equipment was $586 million, mainly in
the U.S., Germany, Switzerland, Finland, Austria,
China and Sweden.
Our capital expenditures relate primarily
to property, plant and equipment and are funded primarily
through
cash flows from operating activities.
For 2024, we estimate
the expenditures for property, plant and
equipment will be higher
than our annual depreciation and amortization
charge, excluding acquisition-related
amortization.
—
Supplies and raw materials
We purchase a variety of supplies
and products which contain
raw materials for use in our production
and
project execution processes. The primary
materials used in our products,
by weight, are copper, steel,
aluminum, mineral oil and
various plastics. We also purchase
a wide variety of fabricated products,
electronic
components and systems. We operate
a worldwide supply chain
management network with employees
dedicated to this function in our Business
areas, divisions and in key countries.
Our supply chain operations
consists of a number of teams, each
focusing on different product categories.
These category teams are
tasked with taking advantage of opportunities
to leverage the scale of ABB
on a global, Business area and/or
division level, as appropriate,
to optimize the efficiency of our supply networks
in a sustainable manner.
Our supply chain management organization’s
activities and objectives include:
•
•
reporting system linked to our enterprise
resource planning
(ERP) systems,
•
management structure and extensive
competency-based training,
and
•
processes used.
We buy many categories of products which
contain copper, steel, aluminum, crude oil and
other
commodities. Continuing global
economic growth in many emerging
economies, coupled with the volatility
in
foreign currency exchange rates,
has led to significant fluctuations
in these raw material costs over
the last
few years. While we expect global
commodity prices to remain highly
volatile, we expect to offset some
market volatility through the use of
long-term contracts and
global sourcing.
28
We seek to mitigate the majority of our
exposure to commodity price risk
by entering into derivative
contracts.
For example, we manage copper, steel, aluminum, and
silver price risk using principally
swap contracts
based on prices for these commodities
quoted on leading exchanges.
ABB’s hedging policy is designed
to
safeguard margins by minimizing
price volatility and providing
a stable cost base during order execution.
In
addition to using derivatives to reduce
our exposure to fluctuations
in raw materials prices, in some
cases we
can reduce this risk by incorporating
changes in raw materials
prices into the prices of our end products
(through price escalation clauses).
Throughout 2023, we continued
to optimize our value chain
in all aspects of our business, while
ensuring
high standards of quality and delivery. Despite some continuing
global supply chain challenges
such as rising
costs, port congestion, material access
issues and some geopolitical
uncertainty, we were able to mitigate
these difficulties with efforts from our dedicated
category teams, supply chain
management personnel and
Business area task forces.
We also enhanced our rigorous supplier
onboarding process involving
comprehensive integrity due diligence
and competitive bidding for our potential
and existing vendors. This
helps
in reducing the risk of fraud, corruption
and non-compliance as well
as in securing the best value and
quality for our products and services.
As a result, we were able
to minimize the impact of supply
chain
disruptions, maintain a high level
of customer satisfaction and
support our business growth.
Through our Sustainable Supply
Base Management (SSBM) approach,
we assess environment,
social and
governance (ESG) risks, compliance,
and the performance of our suppliers
in these areas to make sure
they
meet our expectations. These expectations
are detailed in the ABB Supplier
Code of Conduct and the ABB
Code of Conduct. In 2023, the Supplier
Code of Conduct was revised and updated
to reflect the increasing
legal and stakeholder requirements
as well as our Sustainability Framework
2030.
In August 2012, the SEC issued its
final rules regarding “Conflict
Minerals”, as required by section
1502 of
the Dodd-Frank Wall Street Reform and Consumer
Protection Act. We initiated conflict
mineral processes in
2013 and have continuously
aimed at improving and tailoring
the processes to our value chain. We continue
to work with our suppliers and
customers, to enable us to comply with
the rules and disclosure obligations.
Further information on ABB’s Conflict Minerals
policy and supplier
requirements can be found under
“Responsible Minerals
Sourcing” at https://global.abb/group/en/about/supplying/responsible-minerals.
Furthermore, ABB has developed
a list of prohibited and restricted
substances to ensure that the materials
we use do not contribute to environmental
degradation. We update this list
regularly in line with international
regulations, including
the U.S. Toxic
Substances Control
Act (TSCA) regulations and California
Proposition
65. More information on our Product
Material Compliance program
and supplier requirements
can be found
under “Material Compliance”
at https://global.abb/group/en/about/supplying/material-compliance.
As announced in 2022, ABB is working
closely with its most impactful
suppliers to reduce GHG emissions
along the supply chain. In 2023, we partnered
with EcoVadis, a leading service provider in the ESG domain,
to engage with suppliers for
GHG emission data collection
and supplier education
on this topic.
—
Patents and trademarks
While we are not materially dependent
on any one of our intellectual
properties, as a technology-driven
company, we believe that intellectual property rights are
crucial to protect the assets of our business.
We
continue to file new patent applications
to protect our new inventions.
As of December 31, 2023, we have a
portfolio of approximately 26,000 pending
patent applications and granted
patents,
of which approximately
5,700 are pending applications.
This portfolio includes
approximately 3,600 utility models
and design rights,
of which approximately 170 are pending
applications. In 2023, we filed over 650
priority patents, utility model
and design applications,
each covering a unique invention
or unique angle on an invention.
Additionally, we
filed approximately 1,900 secondary
patents, utility model and
design applications, each extending
the
coverage of a previously filed priority application.
29
Based on our existing intellectual
property strategy, we believe that we have adequate
control over our core
technologies. The “ABB” trademarks
and logo are protected in
all of the countries in which we
operate. We
proactively assert our intellectual property
rights to safeguard the reputation
associated with the ABB
technology and brand. While these
intellectual property rights
are fundamental to all of our
businesses, there
is no dependency of the business on
any single patent, utility model
or design application.
—
Sustainability activities
Sustainability is key to our purpose
which is to enable a more sustainable
and resource-efficient future with
our technology leadership
in electrification and automation. We believe
that sustainable development
means
progress towards a healthier and
more prosperous world today
and for future generations.
This means
balancing the needs of society, the environment and the
economy. To
achieve this, we act and embed
this
approach to business across our value
chain, including our own
operations, our suppliers, our customers
and
the communities we serve. We strive
to always be an exemplary corporate
citizen wherever we operate.
Our Sustainability Agenda consists
of three pillars:
Enabling a low-carbon society
target sectors that account for
three quarters of global energy
consumption. Our ambition is to
support our
customers in avoiding emissions.
We intend to have our updated targets
validated against the Science Based
Targets
initiative’s new Net-Zero Standard
in 2024. We are following
the World Business Council for
Sustainable Development (WBCSD) guidance
on avoided emissions and
are hence no longer focusing on
a
limited number of cases linked to
the 100 megatons emissions
avoidance but rather on our complete
portfolio
of offerings. Our net-zero commitments
for emissions reductions
in our own operations and across our
value
chain are:
•
2
e (CO
2
by 100 percent by 2050 compared
to baseline year 2019,
and
•
2
e (CO
2
25 percent by 2030, and by 90 percent
by 2050 compared to baseline
year 2022.
Preserving resources
considerations across our value
chain. Our solutions reduce
waste, provide increased recyclability
and foster
reusability. Our 2030 commitments are:
•
Approach, and
•
Promoting social progress
to cause zero harm to our people
and contractors, increase
the proportion of women in senior management
roles, achieve a top-tier employee
engagement score, respect and
promote human rights along
our value
chain and expand our programs
for community engagement. Our 2030
commitments:
•
reduction in lost time from incidents,
•
within our comprehensive diversity
and inclusion framework,
•
•
30
All three pillars of our Sustainability
Agenda are underpinned by our
commitment to embedding
a culture of
integrity and transparency across
our value chain. We have established
four concrete targets:
•
risk-based due diligence
and life cycle monitoring by 2030,
•
management strategy gained from
insights through targeted
learnings, transparent reporting
and
monitoring by 2030,
•
Base Management (SSBM) approach
by 2030. The 2025 mid-term
target is to cover at least
80 percent of our high-risk supply
spending in these focus countries
by SSBM. This approach
includes regular assessments of environmental,
social and governance performance,
and
•
Reflecting the importance of sustainability
as a strategic topic, ABB’s Board
of Directors reviews and
approves our Sustainability Agenda
and related targets. The Governance
and Nomination Committee
of the
Board of Directors is responsible
for overseeing ABB’s Sustainability
Agenda (including corporate social
responsibility, health, safety and environment), while the
Compensation Committee ensures
that ABB’s
executive compensation policies
are appropriately aligned with
its Sustainability Agenda.
In 2023, we continued to make good
progress towards our sustainability
targets. We see a further
improvement in the share of electricity
from renewable sources we
use, from 81 percent in 2022 to
94 percent in 2023. We have reduced
our own emissions by 76 percent
to 151 kilotons since 2019.
86 percent of our waste in 2023 was
recycled, and 6.3 percent was
sent to landfill, down from 6.4 percent
in
2022. Of the 338 ABB sites mapped
in 2023, 61 face an extremely
high level of water stress and
55 face a
high level of water stress. For all ABB
sites in stressed watersheds,
total water withdrawals in 2023
amounted
to 1,242 kilotons, representing
49 percent of our total water withdrawals.
There are 12 projects currently
under way to improve water management
across ABB.
In 2023, ABB recorded one workplace-related
fatality and zero travel-related fatalities.
An investigation into
the fatal incident is currently underway, and we will draw
on the lessons learned to prevent
any future
recurrence. In spite of this fatality, the total number of serious
and high-potential incidents decreased
compared to 2022. In 2023, our lost
time incident frequency rate decreased
from 0.14 per 200,000 hours
worked in 2022 to 0.13 in 2023.
The number of women in
senior management positions
increased from
17.8 percent in 2022 to 21 percent
in 2023.
Our employee engagement score increased
from 76 (out of 100) in 2022
to 77 in 2023, while the response
rate increased from 82 percent
to 84 percent. We continued to provide
impactful support for community-
building initiatives across all regions.
Our community engagement
initiatives will be expanded
around four
focus areas (4Es): education, emergency
and disaster relief, empowering
communities, and the environment
and conservation.
ABB is committed to respecting
and promoting the dignity and human
rights of all people, as expressed
in the
International Bill of Human Rights.
In December 2023, we
published an updated
edition of ABB’s Human
Rights Policy, which includes our documented HRDD (Human
Rights Due Diligence) Framework.
The update
was drafted concurrently with business
area risk and HRDD reviews
and incorporates feedback from
internal
and external stakeholders and
subject-matter experts gathered
during 2023, along with the requirements
of
the latest relevant international
frameworks, standards and
legislation governing responsible
business
practices.
In 2023, all Executive Committee
members had at least two sustainability-related
goals (e.g., CO
2
e
emission
reduction, safety, female leadership) in their individual
component of the Annual Incentive
Plan (AIP).
31
—
Regulation
Our operations are subject to numerous
governmental laws and
regulations including those governing
antitrust and competition, corruption,
the environment, securities
transactions and disclosures,
import and
export of products, currency conversions
and repatriation, taxation of
foreign earnings and earnings
of
expatriate personnel and use of local
employees and suppliers.
As a reporting company under
Section 12 of the Exchange Act, we
are subject to the FCPA’s anti-bribery
provisions with respect to our conduct
around the world.
Our operations are also subject
to the 1997 OECD Convention
on Combating Bribery of Foreign
Public
Officials in International Business Transactions.
The convention obliges
signatories to adopt national
legislation that makes it a crime
to bribe foreign public officials. Those countries
which have adopted
implementing legislation and
have ratified the convention
include the U.S., several European
nations and
certain other countries in which we have
significant operations.
We conduct business in certain countries
known to experience
governmental corruption. While we
are
committed to conducting business
in a legal and ethical manner, our employees
or agents have taken, and
in
the future may take, actions that
violate the U.S. FCPA, legislation promulgated
pursuant to the 1997 OECD
Convention on Combating
Bribery of Foreign Public Officials in International
Business Transactions, antitrust
laws or other laws or regulations.
These actions have resulted
and could result in monetary or other penalties
against us and could damage
our reputation and, therefore, our ability
to do business. For more information,
see “Item 8. Financial Information—Legal
Proceedings”.
The U.S. Iran Threat Reduction
and Syria Human Rights Act
of 2012 requires companies
with securities
registered in the U.S. to disclose information
relating to certain transactions
with Iran. In 2018, certain
non-U.S. subsidiaries of ABB, in accordance
with applicable laws, provided
electrical equipment, automation
systems and on-site services to
OEMs, distributors, panel
builders, EPC contracting companies
and other
customers for Iranian business.
ABB discontinued its Iranian
business on November 4, 2018. As
previously
disclosed, ABB is completing minor
work on a long-term contract which
is being performed in line with
applicable sanctions. The revenues attributable
to this work in 2023 amounted
to approximately $0.2 million.
—
Organizational structure
ABB Ltd is the ultimate parent company
of the ABB Group. It is the sole
shareholder of ABB Asea Brown
Boveri Ltd which directly or indirectly
owns the other companies
in the ABB Group. The table below
both sets
forth, as of December 31, 2023,
the name, place of incorporation
and ownership interest of the significant
direct and indirect subsidiaries
of ABB Ltd, Switzerland. ABB’s operational
group structure is described above
in the “Businesses” section of
Item 4.
Name
Location
Country
Group
Interest %
ABB Australia Pty. Limited
Moorebank
Australia
100.00
ABB Group Holdings
Pty. Ltd.
Moorebank
Australia
100.00
ABB Group Investment
Management Pty. Ltd.
Moorebank
Australia
100.00
ABB AG
Wiener Neudorf
Austria
100.00
B&R Holding GmbH
Eggelsberg
Austria
100.00
B&R Industrial Automation
GmbH
Eggelsberg
Austria
100.00
ABB N.V.
Zaventem
Belgium
100.00
32
Name
Location
Country
Group
Interest %
ABB AUTOMAÇÃO LTDA.
Sorocaba
Brazil
100.00
ABB ELETRIFICAÇÃO LTDA.
Sorocaba
Brazil
100.00
ABB Bulgaria EOOD
Sofia
Bulgaria
100.00
ABB Electrification Canada
Inc.
Saint-Laurent
Canada
100.00
ABB Inc.
Saint-Laurent
Canada
100.00
ABB S.A.
Santiago
Chile
100.00
ABB (China) Investment
Limited
Beijing
China
100.00
ABB (China) Ltd.
Beijing
China
100.00
ABB Beijing Drive Systems
Co. Ltd.
Beijing
China
90.00
ABB Beijing Switchgear
Limited
Beijing
China
60.00
ABB Electrical Machines
Ltd.
Shanghai
China
100.00
ABB Engineering (Shanghai)
Ltd.
Shanghai
China
100.00
ABB LV Installation Materials Co. Ltd.
Beijing
Beijing
China
85.70
ABB Shanghai Free Trade Zone
Industrial Co., Ltd.
Shanghai
China
100.00
ABB Shanghai Motors
Co. Ltd.
Shanghai
China
75.00
ABB Xiamen Low Voltage Equipment
Co. Ltd.
Xiamen
China
100.00
ABB Xiamen Switchgear
Co. Ltd.
Xiamen
China
66.52
ABB Xinhui Low Voltage Switchgear
Co. Ltd.
Xinhui
China
90.00
ABB s.r.o.
Prague
Czech Republic
100.00
ABB A/S
Skovlunde
Denmark
100.00
ABB for Electrical Industries
(ABB ARAB) S.A.E.
Cairo
Egypt
100.00
Asea Brown Boveri S.A.E.
Cairo
Egypt
100.00
ABB AS
Jüri
Estonia
100.00
ABB Oy
Helsinki
Finland
100.00
ABB France
Cergy Pontoise
France
99.84
ABB SAS
Cergy Pontoise
France
100.00
ABB AG
Mannheim
Germany
100.00
ABB Beteiligungs-
und Verwaltungsgesellschaft
mbH
Mannheim
Germany
100.00
ABB Stotz-Kontakt GmbH
Heidelberg
Germany
100.00
ABB Striebel & John
GmbH
Sasbach
Germany
100.00
B + R Industrie-Elektronik
GmbH
Bad Homburg
Germany
100.00
Busch-Jaeger Elektro
GmbH
Lüdenscheid
Germany
100.00
ABB Global Business Services
and Contracting India
Private Limited
Bangalore
India
100.00
ABB Global Industries
and Services Private
Limited
Bangalore
India
100.00
ABB India Limited
Bangalore
India
75.00
ABB Limited
Dublin
Ireland
100.00
ABB E-mobility S.p.A.
Milan
Italy
74.70
ABB S.p.A.
Milan
Italy
100.00
ABB K.K.
Tokyo
Japan
100.00
ABB Ltd.
Seoul
Korea, Republic of
100.00
ABB Electrical Control
Systems S. de R.L.
de C.V.
Monterrey
Mexico
100.00
33
Name
Location
Country
Group
Interest %
ABB Mexico S.A. de C.V.
San Luis Potosi
Mexico
100.00
Asea Brown Boveri S.A.
de C.V.
San Luis Potosi
Mexico
100.00
ABB B.V.
Rotterdam
Netherlands
100.00
ABB E-mobility B.V.
Delft
Netherlands
74.70
ABB Finance B.V.
Rotterdam
Netherlands
100.00
ABB Holdings B.V.
Rotterdam
Netherlands
100.00
ABB AS
Fornebu
Norway
100.00
ABB Electrification Norway
AS
Skien
Norway
100.00
ABB Holding AS
Fornebu
Norway
100.00
ABB Business Services
Sp. z o.o.
Warsaw
Poland
99.94
ABB Sp. z o.o.
Warsaw
Poland
99.94
Industrial C&S of P.R. LLC
Arecibo
Puerto Rico
100.00
ABB Electrical Industries
Co. Ltd.
Riyadh
Saudi Arabia
65.00
ABB Pte. Ltd.
Singapore
Singapore
100.00
ABB Holdings (Pty) Ltd.
Modderfontein
South Africa
100.00
ABB Investments (Pty)
Ltd.
Modderfontein
South Africa
51.00
ABB South Africa (Pty) Ltd.
Modderfontein
South Africa
74.91
Asea Brown Boveri S.A.
Madrid
Spain
100.00
ABB AB
Västerås
Sweden
100.00
ABB Electrification Sweden
AB
Västerås
Sweden
100.00
ABB Norden Holding
AB
Västerås
Sweden
100.00
ABB Asea Brown Boveri
Ltd
Zurich
Switzerland
100.00
ABB Capital AG
Zurich
Switzerland
100.00
ABB E-mobility Holding
Ltd
Zurich
Switzerland
74.70
ABB Schweiz AG
Baden
Switzerland
100.00
ABB Ltd.
Taipei
Taiwan (Chinese
Taipei)
100.00
ABB Elektrik Sanayi A.S.
Istanbul
Turkiye
99.99
ABB Industries (L.L.C.)
Dubai
United Arab
Emirates
49.00
(1)
ABB Industries FZE
Dubai
United Arab
Emirates
100.00
ABB Holdings Limited
Warrington
United Kingdom
100.00
ABB Limited
Warrington
United Kingdom
100.00
ABB E-mobility Inc.
Wilmington, DE
United States
74.70
ABB Finance (USA)
Inc.
Wilmington, DE
United States
100.00
ABB Holdings Inc.
Cary, NC
United States
100.00
ABB Inc.
Cary, NC
United States
100.00
ABB Installation Products
Inc.
Memphis, TN
United States
100.00
ABB Motors and Mechanical
Inc.
Fort Smith, AR
United States
100.00
ABB Treasury Center (USA),
Inc.
Wilmington, DE
United States
100.00
Edison Holding Corporation
Wilmington, DE
United States
100.00
Industrial Connections
& Solutions LLC
Cary, NC
United States
100.00
(1)
Company consolidated as ABB exercises full management control.
34
—
Description of property
As of December 31, 2023, we occupy
real estate in around
100 countries throughout the world.
The facilities
consist mainly of manufacturing plants,
office buildings, research centers and
warehouses. A substantial
portion of our production and development
facilities is situated in China, the U.S.,
Germany, Finland, Austria,
Sweden, Italy, Canada, Poland, India and Mexico.
We also own or lease other properties,
including office
buildings, warehouses, research and
development facilities
and sales offices in many countries.
We own
substantially all of the machinery and
equipment used in our
manufacturing operations.
From time to time, we have a surplus
of space arising from
acquisitions, production efficiencies and/or
restructuring of operations. Normally, we seek to sell
such surplus space which
may involve leasing property
to third parties for an interim period.
The net book value of our property, plant and equipment
at December 31, 2023, was $4,142
million, of which
machinery and equipment represented
$1,353 million, land and buildings
represented $2,085 million
and
construction in progress represented
$704 million. We believe
that our current facilities are in good
condition
and are adequate to meet the requirements
of our present and foreseeable
future operations.
Item 4A.
Unresolved Staff Comments
None
35
Item 5.
Operating and Financial Review
and Prospects
The discussion in Item 5 below provides
a comparative analysis
between 2023 and 2022. For a comparative
analysis between 2022 and
2021 see “Item 5. Operating and Financial
Review and Prospects” in our Annual
Report on Form 20-F for the year ended
December 31, 2022, with
the exception of subsections
"Electrification" and "Corporate and
Other" under "Business analysis"
below, where a comparative analysis
between 2022 and 2021
has been provided to reflect the realignment
of E-mobility (see “Note 23 - Operating
segment and geographic data”
for details).
—
Management overview
In 2023 we delivered a strong operational
result as we executed on our strong order
backlog which was built
up during a period of a strained value
chain, inflation and an energy
crisis. It was also another year of robust
price execution where the linked
benefits more than offset the inflation in labor
costs while the margin was
further supported by lower inflation-affected input
costs and freight. In
the wake of normalizing value
chains,
price management progressively
returned to be customer value
driven.
The energy crisis triggered a series
of
customer investments throughout
the year and further highlighted
their need to ramp up investments in
energy efficiency and transition to renewable
energy sources. During the year
we saw high customer activity
in the areas of LNG and hydrogen,
highlighting how relevant
our offering and technologies
are to address
these energy challenges.
The ABB Way operating model facilitates
more efficient ways of working which,
combined with a strong
market situation,
led to increased operational
results. We delivered record segment profit
(Operational EBITA)
and continued
to see our divisions progress through
their strategic mandates of
stability
and profitability before growth.
With approximately 70 percent of division
revenues now covered under
a
growth mandate we are increasingly
shifting our focus to growth.
We continued to be active in portfolio
management and completed the sale
of our Power Conversion Division
in July 2023, marking the completion
of the three announced divisional
exits.
Active portfolio management continues
to be part of our performance culture and
is an integrated part of
the
responsibilities of divisional
management teams. This includes identifying
areas for inorganic growth through
acquisitions related to new segments,
new market access, better economies
of scale or filling technology
gaps.
The divisions also assess,
based on systematic
portfolio reviews,
whether,
ultimately,
their division is
the best owner of their different businesses.
During 2023, we also continued
to make strategic venture capital
investments focused in the areas of
digital capabilities and
software, completing nine new investments
during
the year and a number of follow-on
investments in existing
ventures.
The divisions
continue to build up their
acquisition target pipelines
and,
during 2023, we completed the acquisitions
of the Siemens low-voltage
motor business led by the NEMA Motors
Division,
strengthened our smart home
technology portfolio with the
acquisition of EVE systems led by
the Smart Buildings Division,
and completed four other smaller bolt-on
acquisitions primarily related
to software and AI technology. As part of our future strategy, we continue to aim
to complete five to ten small to mid-size
bolt-on acquisitions
each year. On the divestment side, the Energy
Industries Division completed the divestment
of its technical engineering
consultancy business in the United
Kingdom and the Smart Buildings
Division divested their industrial
plugs & sockets product line.
36
Business progress
During 2023, underlying
demand for ABB’s offering remained resilient
from the previous year’s already
high
level with reported orders being
steady, somewhat negatively impacted by exchange rates
and business
divestments. Throughout the year
we noted that order momentum
was strongest in the systems-
and project-
related businesses, driven predominantly
by utilities and datacenters as well as process-related
industries.
This offset some softening of demand in
the short-cycle business
from the previous year's high
order level,
mainly in the residential construction
segment and in the discrete
manufacturing sectors apart from
the
automotive segment, as customers normalized
order patterns in the face of
shortening delivery lead
times. In
total, orders continued to exceed revenues
in three out of four Business
areas, and we further increased
total
order backlog.
While our orders decreased 1 percent
(increased 1 percent in local currencies)
in 2023, revenue growth was
stronger, reaching 9 percent (11 percent in local currencies).
As supply chain constraints
and imbalances in
the overall supply chain eased
we were able to effectively convert orders
into deliveries.
Group profitability showed strong improvement
during 2023
with the level of segment profit improving
in all
Business areas. The result was driven
by strong pricing execution, increased
volumes and improved internal
efficiency. Active price management and productivity gains
were able to offset increasing labor inflation
as
well as some limited cost inflation
related to commodities which
were still present in the first half of
the year.
The profitability improvement as well
as our ability to keep working
capital steady facilitated by the
normalization of supply chains allowed
us to achieve strong operating cashflows.
Cash flows from operating
activities in continuing operations
improved to $4.3 billion in 2023,
an increase of $3 billion compared
to 2022.
This improvement was further
helped as the previous year’s
results included significant cash
outflows relating to the exit of a non-core
business, the payment for
the settlement related to regulatory
penalties for the Kusile project,
costs for the spinoff of the Turbocharging
Division as well as ongoing
restructuring and business transformation
costs.
We continued to make organic growth investments
in a disciplined
manner, prioritizing research and
development while reducing
administrative costs. Total non-order related research and development
was
$1.3 billion in 2023, or 4.1 percent
of revenues.
Updated financial targets
During 2023, we raised our growth
target to 5 to 7 percent (up from 3
to 5 percent) for comparable average
revenue growth, through an economic
cycle,
in constant currencies and excluding
acquisitions and
divestments.
In addition we continue to target 1
to 2 percent acquired revenue
growth through the economic
cycle net of acquisitions and divestments.
For the Operational EBITA margin, having reached our
target of at least 15 percent a year earlier
than
planned, we raised our target to be
in the range of 16 to 19 percent
on an annual basis commencing
in 2024.
As a result of our higher growth
and Operational EBITA margin targets and increasing
focus on capital
returns, including in the annual
employee incentive plans, we have increased
our Return on Capital
Employed (ROCE) target to be above
18 percent excluding transformative
deals defined as being larger
than
3 percent of Group revenues annually
(up from the range of 15 to 20 percent).
Additionally, we have sharpened our EPS growth target
to be at least high-single digit
through the economic
cycle (from basic EPS growth above
revenue growth) reflecting
our confidence in our ability to sustainably
reduce the gap between Operational
EBITA and Income from operations.
Lastly, we maintain our target to achieve Free cash flow
conversion of approximately 100 percent
on an
annual basis.
37
Capital allocation
Our capital allocation priorities
are unchanged:
•
•
•
•
We expect that our strong cash generation,
on the back of the ABB
Way operating model,
will enhance our
flexibility to invest in both organic
growth and bolt-on acquisitions,
while providing attractive returns
to
shareholders.
At the 2024
Annual General Meeting (AGM),
the Board of Directors is proposing
a dividend of 0.87 Swiss
francs per share.
Under the various share buyback
programs we repurchased
$893 million of shares in 2023.
Sustainability Agenda
With our sustainability agenda,
we are actively contributing
to a more sustainable world, leading
by example
in our own operations and partnering
with customers and suppliers
to enable a low-carbon society, preserve
resources and promote social progress.
All three pillars of our sustainability
agenda are underpinned
by our
commitment to create a culture
of integrity and transparency
across our value chain.
Amongst other focus areas in 2023,
we’ve reinforced and
accelerated our sustainability
efforts, aligning our
methodologies with recognized
international frameworks. We have submitted
updated SBTi (Science Based
Targets
initiative) targets to be net-zero
aligned. In this context, we increased
our scope 3 emissions
reduction target to 25 percent by
2030. By 2050, we target to have a
100 percent reduction in Scope 1
and 2
emissions versus the 2019 baseline
and a 90 percent reduction in
Scope 3 emissions versus the 2022
baseline. Furthermore, we aligned
our methodology for our avoided
emissions to the World Business Council
for Sustainable Development (WBCSD)
2023 guidance and moved
from a target to an ambition
to avoid 600
megatons of CO
2
e emissions by 2030, providing
increased credibility and
comparability to our contribution of
enabling a low carbon society.
For a detailed discussion
of our sustainability strategy 2030 and
our progress
in 2023, see “Item 4. Information on
the Company—Sustainability
activities”.
—
Critical accounting policies
and estimates
General
We prepare our Consolidated Financial
Statements in accordance
with U.S. GAAP and present these in U.S.
dollars unless otherwise stated.
The preparation of our financial
statements requires us to make assumptions
and estimates that affect the
reported amounts of assets, liabilities,
revenues and expenses and
the related disclosure of contingent
assets and liabilities. We evaluate our estimates
on an ongoing basis
(see “Note 2 - Significant accounting
policies” to our Consolidated
Financial Statements for a listing
of our most significant accounting
estimates).
Where appropriate, we base our estimates
on historical experience
and on various other assumptions
that we
believe to be reasonable
under the circumstances, the results
of which form the basis
for making judgments
about the carrying values of assets
and liabilities that are not readily
apparent from other sources. Actual
results may differ from our estimates and
assumptions.
38
We deem an accounting policy to be critical
if it requires an accounting
estimate to be made based
on
assumptions about matters that are highly
uncertain at the time
the estimate is made and if different
estimates that reasonably could
have been used, or if changes
in the accounting estimates that are
reasonably likely to occur periodically, could materially
impact our Consolidated Financial
Statements. We
also deem an accounting policy
to be critical when the application
of such policy is essential to our ongoing
operations. We believe the following
critical accounting policies
require us to make subjective judgments,
often as a result of the need to make
estimates regarding
matters that are inherently uncertain
and material
to our Consolidated Financial
Statements. These policies should
be considered when reading
our
Consolidated Financial
Statements.
Revenue recognition
A customer contract exists if collectability
under the contract is considered
probable, the contract has
commercial substance, contains
payment terms, the rights and commitments
of both parties,
and has been
approved. By analyzing the type, terms
and conditions of each contract
or arrangement with a customer, we
determine which revenue recognition
method applies.
We recognize revenues when control of
goods or services is transferred
to customers in an amount
that
reflects the consideration we expect
to be entitled to in exchange
for these goods or services. Control
is
transferred when the customer has
the ability to direct the
use and obtain the benefits from
the goods or
services.
The percentage
‑
of
‑
completion method of accounting
is generally used when
recognizing revenue on an over
time basis and involves the use of assumptions
and projections, principally
relating to future material, labor,
subcontractor and project
‑
related overhead costs as well
as estimates of the amount of variable
consideration to which we expect to
be entitled.
As a consequence, there
is a risk that total contract costs
or
the amount of variable consideration
will,
respectively, either exceed or be lower than those we originally
estimated (based on all information
reasonably available to us) and
the margin will decrease or the
contract
may become unprofitable. This risk increases
if the duration of a contract increases
because there is a higher
probability that the circumstances upon
which we originally developed
our estimates will change, resulting
in
increased costs that we may not recover. Factors
that could cause costs
to increase include:
•
us to incur additional costs to remedy,
•
•
•
•
•
Changes in our initial assumptions,
which we review on a regular
basis between balance sheet
dates, may
result in revisions to estimated costs,
current earnings and anticipated
earnings. We recognize these
changes in the period in which
the changes in estimates are determined.
By recognizing changes
in
estimates cumulatively, recorded revenue and costs to
date reflect the current estimates
of the stage of
completion of each project. Additionally, losses on such
contracts are recognized in the period
when they are
identified and are based upon
the anticipated excess of contract costs
over the related contract revenues.
39
Pension and other postretirement benefits
As more fully described in “Note 17 -
Employee benefits” to our
Consolidated Financial
Statements, we have
a number of defined benefit pension
and other postretirement
plans and recognize an asset
for a plan’s
overfunded status or a liability
for a plan’s underfunded status in our
Consolidated Balance Sheets.
We
measure such a plan’s assets and obligations
that determine its funded status as
of the end of the year.
Significant differences between assumptions
and actual experience,
or significant changes in assumptions,
may materially affect the pension obligations.
The effects of actual results differing from assumptions
and the
changing of assumptions are included
in net actuarial loss within Accumulated
other comprehensive loss.
We recognize actuarial gains and losses
gradually over time. Any cumulative
unrecognized actuarial
gain or
loss that exceeds 10 percent of the greater
of the present value of
the projected benefit obligation
(PBO) and
the fair value of plan assets is recognized
in earnings over the expected average
remaining working
lives of
the employees participating in
the plan, or the expected average
remaining lifetime of the inactive
plan
participants if the plan is comprised
of all or almost all inactive
participants. Otherwise, the actuarial
gain or
loss is not recognized in the Consolidated
Income Statements.
We use actuarial valuations to determine
our pension costs and credits.
The amounts calculated depend
on a
variety of key assumptions, including
discount rates, mortality rates
and expected return on plan assets.
Under U.S. GAAP, we are required to consider current market conditions
in making these assumptions.
In
particular, the discount rates are reviewed annually
based on changes in long
‑
term, highly
‑
rated corporate
bond yields. Decreases in the discount
rates result in an increase
in the PBO and a decrease in pension
costs. Conversely, an increase in the discount rates results
in a decrease in the PBO and an increase
in
pension costs. The mortality assumptions
are reviewed annually
by management. Decreases in mortality
rates result in an increase in the PBO
and in pension costs. Conversely, an increase
in mortality rates results
in a decrease in the PBO and in pension
costs.
Holding all other assumptions constant,
a 0.25 percentage-point
decrease in the discount rate would
have
increased the PBO related to our
defined benefit pension plans
by $157 million while a 0.25 percentage-point
increase in the discount rate would
have decreased the PBO related
to our defined benefit pension
plans by
$153 million.
The expected return on plan assets is
reviewed regularly and
considered for adjustment annually
based upon
the target asset allocations and represents
the long
‑
term return expected to be achieved.
Decreases in the
expected return on plan assets result
in an increase to pension
costs. Holding all other assumptions constant,
an increase or decrease of 0.25 percentage
points in the expected long
‑
term rate of asset return would
have
decreased or increased, respectively, the net periodic benefit
cost in 2023
by $16 million.
The funded status, which can increase
or decrease based on the performance
of the financial markets or
changes in our assumptions, does not
represent a mandatory short
‑
term cash obligation. Instead,
the funded
status of a defined benefit pension
plan is the difference between
the PBO and the fair value of the plan
assets. Our defined benefit pension
plans were overfunded by $212
million and $326 million at December
31,
2023 and 2022, respectively.
40
Income taxes
In preparing our Consolidated
Financial Statements, we are required
to estimate income taxes in each
of the
jurisdictions in which we operate.
Tax
expense from continuing
operations is reconciled from the
weighted
‑
average global tax rate (rather than from
the Swiss domestic statutory tax
rate). As the parent
company of the ABB Group, ABB Ltd,
is domiciled in Switzerland,
income which has been generated
in
jurisdictions outside of Switzerland
(hereafter “foreign jurisdictions”)
and has already been subject
to
corporate income tax in those foreign
jurisdictions is, to a large extent,
tax exempt in Switzerland.
Therefore,
generally no or only limited
Swiss income tax has to be
provided for on the repatriated earnings
of foreign
subsidiaries. There is no requirement
in Switzerland for a parent company
of a group to file a tax return
of the
group determining domestic and
foreign pre
‑
tax income and as our consolidated
income from continuing
operations is predominantly
earned outside of Switzerland,
corporate income tax in foreign
jurisdictions
largely determines our global
weighted
‑
average tax rate.
We account for deferred taxes by using
the asset and liability method. Under
this method, we determine
deferred tax assets and liabilities
based on temporary differences between
the financial reporting
and the tax
bases of assets and liabilities.
Deferred tax assets and liabilities
are measured using the enacted tax
rates
and laws that are expected to be in effect
when the differences are expected
to reverse. We recognize a
deferred tax asset when it is more likely
than not that the asset will
be realized. We regularly review our
deferred tax assets for recoverability
and establish a valuation
allowance based upon historical
losses,
projected future taxable income and
the expected timing of the
reversals of existing temporary
differences. To
the extent we increase or decrease
this allowance in a period,
we recognize the change in the allowance
within Income tax expense in the Consolidated
Income Statements unless the change
relates to discontinued
operations, in which case the change
is recorded in Loss from discontinued
operations, net of tax.
Unforeseen changes in tax rates
and tax laws, as well as differences
in the projected taxable income
as
compared to the actual taxable income,
may affect these estimates.
Certain countries levy withholding
taxes, dividend distribution taxes or additional
corporate income taxes
(hereafter “withholding taxes”) on dividend
distributions. Such taxes cannot
always be fully reclaimed by
the
shareholder, although they have to be declared
and withheld by the subsidiary. Switzerland has concluded
double taxation treaties with many
countries in which we operate.
These treaties either eliminate or
reduce
such withholding taxes on dividend
distributions. It is our policy to distribute
retained earnings
of subsidiaries,
insofar as such earnings are not
permanently reinvested
or no other reasons exist that would
prevent the
subsidiary from distributing them. No
deferred tax liability is
set up if retained earnings are
considered as
indefinitely reinvested and
used for financing current operations
as well as business growth
through working
capital and capital expenditure
in those countries.
We operate in numerous tax jurisdictions
and, as a result, are regularly
subject to audit by tax authorities,
including for transfer pricing. We provide
for tax contingencies whenever
it is deemed more likely than not
that a tax asset has been impaired
or a tax liability has been
incurred for events such as tax claims
or
changes in tax laws. Contingency provisions
are recorded based on
the technical merits of our filing position,
considering the applicable
tax laws and OECD guidelines and
are based on our evaluations
of the facts and
circumstances as of the end of each
reporting period. Changes
in the facts and circumstances could
result in
a material change to the tax accruals.
Although we believe that our
tax estimates are reasonable
and that
appropriate tax reserves have been
made, the final determination
of tax audits and any related litigation
could
be different than that which is reflected in our
income tax provisions
and accruals.
An estimated loss from a tax contingency
must be accrued as a charge
to income if it is more likely
than not
that a tax asset has been impaired
or a tax liability has been
incurred and the amount of the loss can
be
reasonably estimated. We apply a two
‑
step approach to recognize
and measure uncertainty in income
taxes.
The first step is to evaluate the
tax position for recognition by determining
if the weight of available evidence
indicates that it is more likely
than not that the position will
be sustained on audit, including
resolution of
related appeals or litigation
processes, if any. The second step is to measure the tax benefit
as the largest
amount which is more than 50 percent
likely of being realized
upon ultimate settlement. The required
amount
of provisions for contingencies
of any type may change in the future
due to new developments.
41
Goodwill and intangible assets
We review goodwill for impairment annually
as of October 1, or more frequently if
events or circumstances
indicate the carrying value may not
be recoverable. We use either a qualitative
or quantitative assessment
method for each reporting unit.
As each of our divisions have full
ownership and accountability
for their respective strategies, performance
and resources, we have determined
our reporting units
to be at the division level, which
is generally one level
below our reportable segments
of Electrification, Motion, Process
Automation and Robotics & Discrete
Automation.
When performing the qualitative assessment,
we first determine, for a reporting
unit, factors which would
affect the fair value of the reporting unit
including: (i) macroeconomic
conditions related to the business,
(ii) industry and market trends,
and (iii) the overall future financial
performance and future opportunities
in the
markets in which the business operates.
We then consider how these factors would
impact the most recent
quantitative analysis of the reporting
unit’s fair value. Key assumptions
in determining the fair value
of the
reporting unit include the projected level
of business operations including
future expected profit margins, the
reporting unit’s weighted
‑
average cost of capital and the terminal
growth rate.
During 2023,
we divested our Power Conversion
Division resulting in nineteen
divisions and reporting units.
There were no additions to our divisions
and reporting units during
2023. For each change in reporting unit
which arose during 2023, an interim
impairment test was conducted
before and after the change.
In both the
“before” and “after” tests, it was
concluded that the fair value
of the reporting units exceeded
the carrying
value by a significant amount.
In 2023, we elected to perform quantitative
assessments for seven divisions,
being Installation Products,
IEC
LV Motors, Large Motors and Generators,
NEMA Motors,
Robotics,
Machine Automation and
E-mobility. For
each of these divisions the fair value
was determined using
a discounted cash flow fair value
estimate based
on objective information available
at the measurement date. The significant
assumptions used to develop
the
estimates of fair value for each division
included management’s best estimates
of the expected future results,
as well as discount and terminal growth
rates specific to the reporting
unit. The fair value estimates
were
based on assumptions that a market
participant would expect
to use, but which are inherently
uncertain and
thus, actual results may differ from those
estimates. The fair values
for each of the individual
reporting units
and their associated goodwill
were determined using Level 3 measurements.
In each of the above
quantitative assessments, it was concluded
that the fair value of the reporting
unit exceeded its carrying value
by more than 100 percent.
For the remaining divisions, we
performed qualitative assessments
and
determined that it was not more likely
than not that the fair value
for each of these reporting units
was below
the carrying value.
Intangible assets are reviewed for
recoverability upon the
occurrence of certain triggering
events (such as a
decision to divest a business or projected
losses of an entity) or whenever
events or changes in
circumstances indicate that the
carrying amount may not be
recoverable. We record impairment
charges
other than impairments of goodwill
in Other income (expense), net,
in our Consolidated
Income Statements,
unless they relate to a discontinued
operation, in which case the
charges are recorded in Loss from
discontinued operations, net of tax.
—
New accounting pronouncements
For a description of accounting changes
and recent accounting pronouncements,
including the expected
dates of adoption and estimated
effects, if any, on our Consolidated Financial
Statements, see “Note 2 -
Significant accounting policies”
to our Consolidated Financial
Statements.
42
—
Research and development
Each year, we invest significantly in research and development.
Our research and development focuses
on
developing and commercializing
the technologies,
products and solutions of our businesses
that are of
strategic importance to our future growth.
In 2023, we invested $1,317
million, or approximately 4.1 percent
of our 2023
consolidated revenues, on research
and development activities
in our continuing operations.
We
also had expenditures of approximately
$55 million on order-related
development activities. These are
customer
‑
‑
specific development efforts
that we undertake to develop or adapt
equipment and
systems to the unique needs
of our customers in connection
with specific orders or projects.
In addition to continuous product development,
and order
‑
related engineering work, we develop
platforms for
technology applications
in our businesses in our research
and development laboratories,
which operate on a
global basis. Through active management
of our investment in research
and development, we seek
to
maintain a balance between
short
‑
term and long
‑
term research and development
programs and optimize our
return on investment. We protect these
results by holding patents, copyrights
and other appropriate
intellectual property protection.
To
complement our business-focused
product development, our businesses
invest together in collaborative
research activities covering topics
such as artificial intelligence,
software, sensors, control and optimization,
mechatronics and robotics, power
electronics, communication
technologies, material and manufacturing,
electrodynamics and electrical
switching technologies. This results in
advancing the state-of-the-art
technologies used in our products
and in common technology
platforms that can be applied across multiple
product lines.
Universities are incubators of
future technology, and one task of our research and development
teams is to
transform university research into
industry
‑
ready technology platforms.
We collaborate with multiple
universities and research institutions
to build research networks and
foster new technologies. We believe
these collaborations shorten the amount
of time required to turn
basic ideas into viable products, and
they
additionally help us to recruit and
train new personnel. We have built
numerous university strategic
relationships with a number of leading
institutions in various countries
around the world.
We are also leveraging our ecosystem to
enhance our innovation
efforts and gain speed with strategic
partners with complementary competencies.
In addition, we invest and collaborate
with start-ups worldwide
via our corporate venture arm ABB
Technology Ventures
and our start-up collaboration
arm SynerLeap.
The result of our investment in research
and development is that
ABB is widely recognized
for its world-class
technology.
—
Acquisitions and divestments
Acquisitions
During 2023, 2022 and 2021,
ABB paid $175 million,
$195 million and $212
million to purchase seven, five
and two businesses,
respectively.
The principal acquisition
in 2022 was InCharge Energy, Inc. (In-Charge),
where we increased our ownership
to a 60 percent controlling interest, expanding
the market presence of the E-mobility
operating segment,
particularly in the North American
market. In-Charge is headquartered
in Santa Monica, United States, and is
a provider of turn-key commercial
electric vehicle charging hardware
and software solutions. See “Note 4 -
Acquisitions, divestments and equity-accounted
companies” to our Consolidated
Financial Statements.
43
The principal acquisition
in 2021 was ASTI Mobile Robotics Group
SL (ASTI). ASTI is headquartered
in
Burgos, Spain.
There were no significant acquisitions
in 2023.
Divestments and spin-offs
Divestment of the Power Conversion
Division
In July 2023, we completed the sale of
our Power Conversion Division
to AcBel Polytech Inc. for cash
proceeds of $496 million, net of
transaction costs and cash disposed,
and recognized a net gain on
sale of
$59 million.
Prior to its disposal, the Power Conversion
Division was part of our Electrification
Business area.
See “Note 4 - Acquisitions, divestments
and equity-accounted
companies” to our Consolidated
Financial
Statements.
Spin-off of the Turbocharging Division
In September 2022, the shareholders
approved the spin-off of our Turbocharging
Division into an
independent, publicly traded company, Accelleron
Industries AG (Accelleron), which was
completed through
the distribution of common stock of
Accelleron to the stockholders
of ABB on October 3, 2022. As a result of
the spin-off of this Division, we distributed net
assets of $272 million,
net of amounts attributable to
noncontrolling interests of $12 million,
which was reflected as a reduction
in Retained earnings. In
addition,
total accumulated comprehensive
income of $95 million, including
the cumulative translation adjustment,
was
reclassified to Retained earnings.
Cash and cash equivalents distributed
with Accelleron was $172 million.
Prior to being spun-off, the Turbocharging Division
was part of our Process Automation
Business area.
See
“Note 4 - Acquisitions, divestments and
equity-accounted companies”
to our Consolidated Financial
Statements.
Divestment of the Mechanical Power
Transmission Division
In November 2021, we completed
the sale of our Mechanical
Power Transmission Division (Dodge) to RBC
Bearings Inc. for cash proceeds
of $2,862 million,
net of transaction costs and cash disposed,
and
recognized a net gain on sale
of $2,195 million.
Prior to its disposal, the Dodge
business was part of our
Motion Business area.
See “Note 4 - Acquisitions, divestments
and equity-accounted companies”
to our
Consolidated Financial
Statements.
Divestment of the Power Grids business
On July 1, 2020,
we completed the divestment
of 80.1 percent of our former
Power Grids business (Hitachi
Energy) to Hitachi. As this divestment
represented a strategic
shift that would have a major effect on
our
operations and financial
results, the results of operations for
this business are presented as discontinued
operations and the assets and liabilities
are reflected as held for sale for
all periods presented. For more
information on the divestment of
the Power Grids business see
“Note 3 - Discontinued operations”
to our
Consolidated Financial
Statements.
Hitachi held a call option which
required ABB to sell the remaining
19.9 percent interest in Hitachi Energy
at a
price consistent with what was paid
by Hitachi to acquire the initial
80.1 percent or at fair value, if
higher. In
September 2022, we agreed with Hitachi
that we would sell our remaining
investment in Hitachi Energy and
concurrently settle certain outstanding
contractual obligations relating
to the initial sale of the business,
including certain indemnification
guarantees (see Note 15 - Commitments
and contingencies). The
transaction was completed in December
2022, and we received
proceeds of $1,552 million. See “Note 4
-
Acquisitions, divestments and equity-accounted
companies” to our Consolidated
Financial Statements.
44
—
Exchange rates
We report our financial results in U.S. dollars.
Due to our global operations,
a significant amount of our
revenues, expenses, assets and liabilities
are denominated in other currencies.
As a consequence,
movements in exchange rates between
currencies may affect: (i) our profitability, (ii) the comparability
of our
results between periods and (iii)
the reported carrying value
of our assets and liabilities.
We translate non
‑
USD denominated results of operations,
assets and liabilities
to USD in our Consolidated
Financial Statements. Balance sheet
items are translated
to USD using year
‑
end currency exchange
rates.
Income statement and cash flow items
are translated to USD using
the relevant monthly average
currency
exchange rate.
Increases and decreases in the
value of the USD against other
currencies will affect the reported
results of
operations in our Consolidated
Income Statements and the value of certain
of our assets and liabilities
in our
Consolidated Balance
Sheets, even if our results of operations
or the value of those assets and liabilities
have not changed in their original
currency. As foreign exchange rates impact our reported
results of
operations and the reported value
of our assets and liabilities,
changes in foreign exchange
rates could
significantly affect the comparability of
our reported results of operations
between periods and result in
significant changes to the reported
value of our assets, liabilities
and stockholders’
equity.
While we operate globally
and report our financial results in USD,
exchange rate movements between
the
USD and the EUR, the CNY and the CHF
are of particular importance
to us due to (i) the location of our
significant operations and (ii) our
corporate headquarters being
in Switzerland.
The exchange rates between
the USD and the EUR, the USD
and the CHF and the USD and
the CNY at
December 31, 2023, 2022 and 2021,
were as follows:
Exchange rates into $
2023
2022
2021
EUR 1.00
1.11
1.07
1.13
CHF 1.00
1.20
1.08
1.10
CNY 1.00
0.14
0.14
0.16
The average exchange rates between
the USD and the EUR, the USD
and the CHF and the USD and
the
CNY for the years ended December 31,
2023, 2022 and 2021, were as follows:
Exchange rates into $
2023
2022
2021
EUR 1.00
1.08
1.05
1.18
CHF 1.00
1.11
1.05
1.09
CNY 1.00
0.14
0.15
0.16
When we incur expenses that are not
denominated in the same
currency as the related revenues,
foreign
exchange rate fluctuations could affect our
profitability. To
mitigate the impact of exchange
rate movements
on our profitability, it is our policy to enter into forward foreign
exchange contracts to manage the foreign
exchange transaction risk of our operations.
In 2023, approximately 74 percent of
our consolidated revenues
were reported in currencies other than
the
USD. The following percentages
of consolidated revenues were
reported in the following
currencies:
•
•
45
In 2023, approximately 72 percent of
our cost of sales and
selling, general and administrative
expenses were
reported in currencies other than
the USD. The following percentages
of consolidated cost of sales and
selling, general and administrative
expenses were reported in the
following currencies:
•
•
We also incur expenses other than cost
of sales and selling,
general and administrative expenses
in various
currencies.
The results of operations and financial
position of our subsidiaries
outside of the U.S. are generally
accounted for in the currencies of
the countries in which those subsidiaries
are located. We refer to these
currencies as “local currencies”. Local
currency financial information
is then translated into USD at applicable
exchange rates for inclusion in our
Consolidated Financial
Statements.
The discussion of our results of operations
below provides certain information
with respect to orders,
revenues, income from operations
and other measures as reported
in USD (as well as in local
currencies).
We measure period
‑
to
‑
period variations in local
currency results by using
a constant foreign exchange
rate
for all periods under comparison.
Differences in our results of operations
in local currencies as compared
to
our results of operations in USD are
caused exclusively by changes
in currency exchange rates.
While we consider our results of operations
as measured in local currencies
to be a significant indicator of
business performance, local currency
information should not be
relied upon to the exclusion
of U.S. GAAP
financial measures. Instead, local
currencies reflect an additional
measure of comparability and provide
a
means of viewing aspects of our operations
that, when viewed together with the U.S.
GAAP results, provide a
more complete understanding
of factors and trends affecting
the business. As local currency information
is
not standardized, it may not be possible
to compare our local currency information
to other companies’
financial measures that have
the same or a similar title. We encourage
investors to review our financial
statements and publicly filed reports
in their entirety and not to
rely on any single financial
measure.
—
Orders
Our policy is to book and report
an order when a binding
contractual agreement has been concluded
with a
customer covering, at a minimum,
the price and scope of products or
services to be supplied, the delivery
schedule and the payment terms.
The reported value of an order corresponds
to the undiscounted value of
revenues that we expect to recognize
following delivery of the goods
or services subject to the order, less any
trade discounts and excluding
any value added or sales tax. The
value of orders received during a given
period of time represents the sum
of the value of all orders received
during the period, adjusted to reflect
the
aggregate value of any changes
to the value of orders received
during the period and orders
existing at the
beginning of the period. These adjustments,
which may in the aggregate
increase or decrease the orders
reported during the period, may include
changes in the estimated order
price up to the date of contractual
performance, changes in the scope
of products or services ordered
and cancellations of orders. The
undiscounted value of future revenues
we expect to generate from our
orders at any point in time is
represented by our order backlog.
The level of orders fluctuates from
year to year. Portions of our business involve orders
for long
‑
term projects
that can take months or years to complete
and many larger
orders result in revenues in periods
after the
order is booked. Consequently, the level of orders generally
cannot be used to accurately predict
future
revenues or operating performance.
Orders that have been placed
can often be cancelled, delayed or
modified by the customer. These actions can reduce
or delay any future revenues
from the order or may
result in the elimination of the order.
46
—
Performance measures
We evaluate the performance of our operating
segments based on orders received,
revenues and
Operational EBITA.
Operational EBITA represents income from operations
excluding:
•
•
•
divestment date (changes in obligations
related to divested businesses),
•
held for sale),
•
•
•
(a) unrealized gains and
losses on derivatives (foreign exchange,
commodities, embedded
derivatives), (b) realized gains and
losses on derivatives where
the underlying hedged
transaction has not yet been realized,
and (c) unrealized foreign
exchange movements on
receivables/payables (and
related assets/liabilities).
Certain other non-operational
items generally includes: certain
regulatory, compliance and legal costs, certain
asset write downs/impairments and
certain other fair value
changes, changes in estimates relating
to opening
balance sheets of acquired businesses
(changes in pre-acquisition
estimates), as well as other items which
are determined by management on
a case-by-case basis.
See “Note 23 - Operating segment
and geographic data” to our Consolidated
Financial Statements for a
reconciliation of the total Operational
EBITA to income from continuing operations before taxes.
47
—
Analysis of results of operations
Our consolidated results from operations
were as follows:
Income Statement Data:
($ in millions, except per
share data in $)
2023
2022
2021
Revenues
32,235
29,446
28,945
Cost of sales
(21,021)
(19,736)
(19,478)
Gross profit
11,214
9,710
9,467
Selling, general and administrative
expenses
(5,543)
(5,132)
(5,162)
Non-order related research
and development expenses
(1,317)
(1,166)
(1,219)
Other income (expense),
net
517
(75)
2,632
Income from operations
4,871
3,337
5,718
Interest and dividend income
165
72
51
Interest and other finance
expense
(275)
(130)
(148)
Non-operational pension
(cost) credit
17
115
166
Income tax expense
(930)
(757)
(1,057)
Income from continuing
operations, net of
tax
3,848
2,637
4,730
Loss from discontinued
operations, net of
tax
(24)
(43)
(80)
Net income
3,824
2,594
4,650
Net income attributable
to noncontrolling
interests and redeemable
noncontrolling interests
(79)
(119)
(104)
Net income attributable
to ABB
3,745
2,475
4,546
Amounts attributable to
ABB shareholders:
Income from continuing
operations, net of
tax
3,769
2,517
4,625
Loss from discontinued
operations, net of
tax
(24)
(42)
(79)
Net income
3,745
2,475
4,546
Basic earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
2.03
1.33
2.31
Loss from discontinued
operations, net of
tax
(0.01)
(0.02)
(0.04)
Net income
2.02
1.30
2.27
Diluted earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
2.02
1.32
2.29
Loss from discontinued
operations, net of
tax
(0.01)
(0.02)
(0.04)
Net income
2.01
1.30
2.25
A more detailed discussion of
the orders, revenues, income
from operations and Operational
EBITA for our
Business areas follows in the sections
of “Business analysis”
below for Electrification, Motion,
Process
Automation, Robotics & Discrete Automation,
and Corporate and Other. Orders and revenues
of our
businesses include intersegment
transactions which are eliminated
in the “Corporate and Other”
line in the
tables below.
48
Orders
% Change
($ in millions)
2023
2022
2021
2023
2022
Electrification
15,189
15,182
13,850
0%
10%
Motion
8,222
7,896
7,616
4%
4%
Process Automation
7,535
6,825
6,779
10%
1%
Robotics & Discrete Automation
3,066
4,116
3,844
(26)%
7%
Total Business areas
34,012
34,019
32,089
0%
6%
Corporate and Other
E-mobility, Non-core and divested businesses
720
787
593
(9)%
33%
Intersegment eliminations
(914)
(818)
(814)
n.a.
n.a.
Total
33,818
33,988
31,868
(1)%
7%
In 2023, total orders decreased 1 percent
compared with 2022 (increased
1 percent in local currencies). The
decrease reflects the steep decline
in orders for the Robotics & Discrete
Automation Business area as
customers normalized order patterns
in response to shortened
delivery lead times, as well as an
overall
weakness in the Robotics market outside
the automotive segment.
Orders in the Electrification Business
area
were steady despite the sale of
the Power Conversion Division
in July 2023.
The Process Automation
Business area had a strong increase,
reflecting the receipt of higher
large orders which more
than offset the
impact from the spin-off of the Turbocharging Division
in October 2022 which affected total order growth
by
1 percent. The increase in Orders
in the Motion Business area reflects
strong demand in long-cycle
markets
and project businesses. For additional
information about individual
Business area order performance, refer
to
the relevant sections of “Business
analysis” below.
We determine the geographic distribution
of our orders based on the location
of the ultimate destination of the
products’ end use, if known, or
the location of the customer. The geographic
distribution of our consolidated
orders was as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Europe
11,458
11,778
11,857
(3)%
(1)%
The Americas
12,437
11,825
9,940
5%
19%
of which: United States
9,204
8,920
7,453
3%
20%
Asia, Middle East and Africa
9,923
10,385
10,071
(4)%
3%
of which: China
4,488
5,087
5,036
(12)%
1%
Total
33,818
33,988
31,868
(1)%
7%
In 2023, orders increased 5 percent
in the Americas (5 percent in local
currencies), with orders growing
in the
U.S., Canada and Chile.
The increase in the U.S. includes
two large orders with multi-year fulfillment
periods
for $285 million and $150 million,
respectively.
In Europe, orders decreased 3 percent
(4 percent in local
currencies). Orders were higher
in Norway
and the United Kingdom
while they declined in Switzerland
and
Poland.
Despite the impact of an order
reversal of approximately $170
million recorded in 2022,
orders
decreased in Germany as well. In Asia,
Middle East and Africa, orders
decreased 4 percent (increased
1 percent in local currencies). In local
currencies, order growth
in India and Saudi Arabia more
than offset the
decline in China.
The spin-off of the Turbocharging Division in October 2022 also
had a negative impact of
3 percent on the order growth in Asia,
Middle East and Africa and 2 percent
in Europe.
49
Order backlog
% Change
December 31, ($ in millions)
2023
2022
2021
2023
2022
Electrification
6,808
6,404
5,105
6%
25%
Motion
5,343
4,726
3,749
13%
26%
Process Automation
7,519
6,229
6,079
21%
2%
Robotics & Discrete Automation
2,141
2,679
1,919
(20)%
40%
Total Business areas
21,811
20,038
16,852
9%
19%
Corporate and Other
508
552
467
(8)%
18%
(752)
(723)
(712)
n.a.
n.a.
Total
21,567
19,867
16,607
9%
20%
At December 31, 2023, consolidated
order backlog was 9 percent higher
(7 percent in local currencies)
compared to December 31, 2022.
Order backlog increased in
all Business areas except Robotics
& Discrete
Automation. The order backlog in
the Process Automation
Business area was supported by a
strong order
increase in most Divisions except
the Measurement & Analytics Division.
The increase also includes the
impact of two large orders
with multi-year fulfillment periods
for $285 million and $150 million,
respectively, in
the Marine & Ports Division.
The order backlog in the Electrification
Business area was driven by order
growth in the Smart Power Division,
partially offset by a decrease from
the divestment of the Power
Conversion Division in
July 2023.
An increase in orders in both the Systems
Drives and Traction Divisions
contributed to the increase in the order
backlog in the Motion Business
area while the decrease in the order
backlog in the Robotics & Discrete Automation
Business area was a result of the decline
in orders in both
Divisions.
Revenues
% Change
($ in millions)
2023
2022
2021
2023
2022
Electrification
14,584
13,619
12,894
7%
6%
Motion
7,814
6,745
6,925
16%
(3)%
Process Automation
6,270
6,044
6,259
4%
(3)%
Robotics & Discrete Automation
3,640
3,181
3,297
14%
(4)%
Total Business areas
32,308
29,589
29,375
9%
1%
Corporate and Other
E-mobility, Non-core and divested businesses
769
653
348
18%
88%
Intersegment eliminations
(842)
(796)
(778)
n.a.
n.a.
Total
32,235
29,446
28,945
9%
2%
In 2023, revenues increased by 9 percent
(11 percent in local currencies). The normalization
of supply chains
facilitated strong execution of our order
backlog into revenue
growth during the year. All Business areas
reported revenue growth, with both
increased volumes and
product prices. Growth was highest in
the
Robotics & Discrete Automation and
Motion Business areas. The increase
in the Robotics & Discrete
Automation Business area reflects improved
order backlog execution
as supply chain constraints eased in
2023.
The Electrification Business area achieved
a high single-digit growth rate despite
the adverse impact
from the divestment of the Power Conversion
Division in July 2023,
while the Process Automation
Business
area achieved single-digit growth in
local currencies despite the spin-off of
the Turbocharging Division in
October 2022. These two business
portfolio changes had
a combined negative impact on the growth
in total
Revenues of 2 percent. For additional
analysis of revenues for each of the
Business areas, refer to the
relevant sections of “Business analysis”
below.
50
We determine the geographic distribution
of our revenues based on the location
of the ultimate destination
of
the products’ end use, if known,
or the location of the customer. The geographic
distribution of our
consolidated revenues was
as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Europe
11,568
10,285
10,529
12%
(2)%
The Americas
11,090
9,573
8,686
16%
10%
of which: United States
8,248
7,023
6,397
17%
10%
Asia, Middle East and Africa
9,577
9,588
9,730
0%
(1)%
of which: China
4,468
4,696
4,932
(5)%
(5)%
Total
32,235
29,446
28,945
9%
2%
In 2023,
revenues increased 16 percent
in the Americas (15 percent in
local currencies), where
revenues in
the United States increased 17 percent
(17 percent in local
currencies). Revenues in the Americas
also
experienced strong growth in Canada,
Brazil, Argentina and Chile.
In Europe, revenues increased
12 percent
(11 percent in local currencies) and were higher across
all Business areas. Revenue growth was
the highest
in Italy, Turkiye, Sweden,
Norway and the United Kingdom.
In Asia, Middle East and Africa,
revenues were
flat (increased 5 percent in local currencies)
compared to 2022.
Revenues grew strongest in India
and Saudi
Arabia while they decreased
in China and South Korea.
The spin-off of the Turbocharging Division
in October
2022 also had a negative impact
of 3 percent on the revenue
growth in Asia, Middle East and Africa,
2
percent in Europe and 1 percent in
the Americas.
Cost of sales
Cost of sales consists primarily of labor, raw materials
and component costs but also includes
indirect
production costs, expenses for warranties,
contract and project charges,
as well as order-related
development expenses incurred
in connection with projects for which
corresponding revenues
have been
recognized.
In 2023, costs of sales increased 7
percent (8 percent in local
currencies) to $21,021 million. Cost of
sales as
a percentage of revenues decreased
to 65.2 percent from 67.0 percent
in 2022. The increase
in the gross
margin was primarily due to the stabilization
of commodity and freight costs and certain
mitigation actions
taken in response to higher labor
costs as well as some positive
impact from changes in the product
portfolio.
The improvement in 2023 was realized
in all Business areas.
Selling, general and administrative expenses
The components of selling, general
and administrative expenses were
as follows:
($ in millions)
2023
2022
2021
Selling expenses
3,415
3,248
3,281
General and administrative
expenses
2,128
1,884
1,881
Total
5,543
5,132
5,162
In 2023, general and administrative
expenses increased 13 percent (15
percent in local currencies)
compared to 2022. As a percentage
of revenues, general
and administrative expenses slightly
increased to
6.6 percent from 6.4 percent in 2022.
The increase represents inflation
impacts as well as increased business
transformation and employee short-term
incentive compensation
costs. General and administrative expenses
in 2023
also includes
the ongoing costs required to deliver
services to Hitachi Energy Ltd and
Accelleron
under transition service agreements
for which we are compensated.
We have recorded $121 million
in Other
income (expense), net,
during 2023
compared to $162 million
in 2022 related to these agreements with
Hitachi Energy and Accelleron.
51
In 2023, selling expenses increased
5 percent (5 percent in local currencies)
compared to 2022 and was
higher across all Business areas apart
from Process Automation.
Selling expenses as a percentage
of orders
increased from 9.6 percent in 2022
to 10.1 percent in 2023.
Non
‑
order related research and development expenses
In 2023, non
‑
order related research and development
expenses increased 13
percent (14 percent in local
currencies) compared to 2022. In 2023,
non
‑
order related research and
development expenses as a
percentage of revenues remained
similar to prior year levels (4.1 percent
in 2023 compared to 4.0 percent
in
2022) as we continued investing
in research and development
in line with revenue growth.
Other income (expense), net
($ in millions)
2023
2022
2021
Income from provision
of services under transition
services agreements
175
221
173
Net gain from sale of property, plant
and equipment
116
84
38
Gain (loss) from change in
fair value of investments
in equity securities
3
52
108
Brand income from Hitachi
Energy
39
57
89
Net gain from sale of businesses
and equity-accounted
investments
(1)
101
36
2,193
Asset impairments
(49)
(55)
(33)
Income (loss) from equity-accounted
companies
(16)
(102)
(100)
Restructuring and restructuring-related
expenses
(2)
(20)
(227)
(48)
Regulatory penalties in connection
with Kusile project
—
(313)
—
Other income (expense)
168
172
212
Total
517
(75)
2,632
(1)
2022 includes
gain on sale
of the remaining
19.9 percent
investment
in Hitachi
Energy Ltd.
(2)
Excluding
asset impairments
In 2023, Other income (expense),
net, was a gain of $517 million
compared to a loss of $75 million
in 2022.
The primary reason for the change
was that in 2022, we recorded
costs of $313 million associated with
regulatory penalties assessed
in connection with the Kusile
project and $195 million of restructuring
and
restructuring-related expenses in connection
with the exit of the full train retrofit
business. The amount in
2022 also included higher
losses from equity-accounted companies
which principally represented
losses in
Hitachi Energy. In 2023, we recorded higher gains from
sales of businesses primarily due
to the sale of the
Power Conversion Division.
In 2022, we recorded a gain
of $43 million relating to the sale of
the remaining
19.9
percent of Hitachi Energy to Hitachi.
In 2023, we recorded lower gains
for net fair value increases in
various equity investments compared
to 2022, the most significant
of which in 2022 related to InCharge
Energy, Inc.
52
Income from operations
% Change
($ in millions)
2023
2022
2021
2023
2022
Electrification
2,800
2,140
1,827
31%
17%
Motion
1,390
1,092
3,276
27%
(67)%
Process Automation
947
663
713
43%
(7)%
Robotics & Discrete Automation
446
247
269
81%
(8)%
Total Business areas
5,583
4,142
6,085
35%
(32)%
Corporate and Other
(711)
(804)
(371)
n.a.
n.a.
Intersegment elimination
(1)
(1)
4
n.a.
n.a.
Total
4,871
3,337
5,718
46%
(42)%
In 2023 and 2022, changes in income
from operations were
a result of the factors discussed
above and in
“Business analysis” below.
Financial income and expenses
Financial income and expenses
include Interest and dividend
income and Interest and other finance
expense.
Interest and other finance expense
includes interest expense
on our debt, the amortization of upfront
transaction costs associated with long
‑
term debt and committed credit
facilities, commitment fees on
credit
facilities, foreign exchange gains
and losses on financial items, and gains
and losses on marketable
securities. In addition, interest costs
relating to uncertain tax positions
are included within interest expense.
($ in millions)
2023
2022
2021
Interest and dividend income
165
72
51
Interest and other finance
expense
(275)
(130)
(148)
In 2023, both interest income and interest
expense reflect increases in market
interest rates especially
for the
U.S. dollar and the euro.
Interest on cash deposits reflects
primarily interest income on U.S.
dollar deposits.
Interest expense on our external debt increased
due to higher debt
levels as well as higher interest rates
on
floating rate obligations. Due to our internal
funding structure and the resulting
currency hedging
requirements,
our interest expense reflects more
the short-term Swiss franc interest
rates than the direct
underlying interest costs incurred in
the currencies of our external debt,
especially the euro.
Non-operational pension (cost) credit
A non-operational pension
credit of $17 million was recorded in
2023
compared to a $115 million credit in
2022. The decrease in the non-operational
pension credit compared to 2022 is primarily
due to higher interest
costs on the benefit obligations
(see “Note 17 - Employee benefits”
to our Consolidated Financial
Statements).
53
Income tax expense
($ in millions)
2023
2022
2021
Income from continuing
operations before
taxes
4,778
3,394
5,787
Income tax expense
(930)
(757)
(1,057)
Effective tax rate for the
year
19.5%
22.3%
18.3%
In 2023, the effective tax rate decreased to
19.5 percent from 22.3 percent
in 2022. In 2023, the effective tax
rate benefited from a favorable resolution
of an uncertain tax position
early in the year which reduced
the
effective tax rate by approximately 4 percentage
points. In 2022, the effective tax was
approximately
2 percentage points higher due
to the non-deductible regulatory penalties
in connection with the Kusile
project and 3 percentage points higher
due to not benefiting losses in
entities having a participation
exemption.
The effective tax rate in 2022 also
reflects a benefit of approximately
6 percentage points due to
changes in assessment of recoverability
of deferred tax assets.
See “Note 16 - Income taxes” to our
Consolidated Financial
Statements for additional information.
Income from continuing operations, net of tax
As a result of the factors discussed above,
compared to 2022, Income
from continuing operations,
net of tax,
increased by $1,211 million to $3,848 million in 2023.
Loss from discontinued operations, net of tax
In 2020, we completed the divestment
of 80.1 percent of our former Power
Grids business to Hitachi. As a
result of the sale, substantially
all Power Grids related assets and
liabilities have been
sold. As this
divestment represented a strategic shift
that would have a major effect on our
operations and financial
results, the results of operations for
this business were presented
as discontinued operations. In addition,
we
also have retained obligations
(primarily for environmental and
taxes) related to other businesses disposed
or
otherwise exited that qualified as discontinued
operations. Changes to these
retained obligations are
also
included in Loss from discontinued
operations, net of tax.
For additional information on the divestment
and discontinued
operations,
see “Note 3 - Discontinued
operations”
to our Consolidated Financial
Statements.
Net income attributable to ABB
As a result of the factors discussed above,
compared to 2022, Net income attributable
to ABB increased by
$1,270 million to $3,745 million
in 2023.
54
Earnings per share attributable to ABB shareholders
(in $)
2023
2022
2021
Basic earnings per share
attributable to ABB shareholders:
Income from continuing
operations, net of
tax
2.03
1.33
2.31
Loss from discontinued
operations, net of
tax
(0.01)
(0.02)
(0.04)
Net income
2.02
1.30
2.27
Diluted earnings per share
attributable to ABB shareholders:
Income from continuing
operations, net of
tax
2.02
1.32
2.29
Loss from discontinued
operations, net of
tax
(0.01)
(0.02)
(0.04)
Net income
2.01
1.30
2.25
Basic earnings per share is calculated
by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings
per share is calculated by dividing
income by the
weighted
‑
average number of shares outstanding
during the year, assuming that all potentially
dilutive
securities were exercised, if dilutive.
Potentially dilutive securities
comprise: outstanding written call
options
and outstanding options and
shares granted subject to certain
conditions under our share
‑
based payment
arrangements. See “Note 20 - Earnings
per share”
to our Consolidated Financial
Statements.
55
—
Business analysis
Electrification Business area
The financial results of our Electrification
Business area were as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Orders
15,189
15,182
13,850
0%
10%
Order backlog at December
31,
6,808
6,404
5,105
6%
25%
Revenues
14,584
13,619
12,894
7%
6%
Income from operations
2,800
2,140
1,827
31%
17%
Operational EBITA
2,937
2,343
2,120
25%
11%
Orders
Approximately two-thirds of the Business
area’s orders are for products with
short lead times; these orders
are usually recorded and delivered
within a three-month period and thus are
generally considered
as short-
cycle. The remainder is comprised
of smaller project orders that require
longer lead times, as well
as larger
solutions requiring engineering
and installation. Approximately half of
the Business area’s orders are received
via third-party distributors.
As a consequence, end-customer
market data is based partially on
management
estimates.
In 2023, orders were flat (increased 1 percent
in local currencies) compared
to 2022,
despite the divestment
of the Power Conversion Division
in July 2023,
which negatively impacted the growth
rate by approximately 2
percent.
Order growth was strong in
the Smart Power Division, partially
offset by decreased demand in the
Smart Buildings and Installation
Products Divisions. Orders improved
on strength in demand in customer
segments such as data centers, utilities,
chemical, and oil and gas. This was
partially offset by weakness in
the building segment, the Electrification
Business area’s largest end-user segment,
led by a slowdown in
residential construction while
commercial construction showed
positive momentum,
mainly in the United
States.
56
In 2022, orders increased 10 percent
(16 percent in local currencies)
as demand improved across all key
end-user segments.
Demand in the buildings
segment was robust,
with strong growth particularly
in the non-
residential building sector. Solid growth in the residential
building sector in the first half of the
year was
partially
offset by a slowdown in the second half of
2022,
particularly in certain European
markets.
We
experienced strong growth in data
centers, food and beverage,
infrastructure and renewables. Demand
from
the oil and gas segment increased
significantly during the year,
while growth in the utilities
and rail segments
was solid even if geographically
uneven.
The geographic distribution
of orders for our Electrification
Business area was as follows:
($ in millions)
2023
2022
2021
Europe
4,629
4,595
4,789
The Americas
6,567
6,509
5,000
of which: United States
5,001
5,062
3,733
Asia, Middle East and Africa
3,993
4,078
4,061
of which: China
1,815
1,992
2,103
Total
15,189
15,182
13,850
In 2023, orders in Europe increased 1 percent
(decreased 1 percent in local
currencies) as a result of growth
in markets such as the United Kingdom,
Turkiye and Ireland.
This was partially offset by a decrease in
demand in Germany,
particularly in the building
segment,
as well as in the Netherlands
and France.
Orders in
the Americas increased 1 percent (1 percent
in local currencies) despite the divestment
of the Power
Conversion Division, which
had a large market presence in the Americas
and negatively impacted growth
in
the region by 2 percent.
Orders decreased 2 percent in
Asia, Middle East and Africa (increased
5 percent in
local currencies) as a lower level
of orders in China,
reflecting a slowdown
in demand, were more than offset
by strong growth in Saudi Arabia
and India.
In 2022, orders in local currencies increased
in all regions. The pandemic-related
challenges improved
compared to 2021 in most geographies.
Orders in the Americas increased
30 percent (31 percent in local
currencies), with demand strengthening
across all key markets, led by increases
in the U.S. and Brazil.
Orders in Europe decreased 4 percent,
reflecting the weakening
of many European currencies against the
U.S. dollar,
but increased 6 percent in local
currencies,
with growth across the region including
in key
markets such as Italy and Germany.
Orders in Asia, Middle
East and Africa were on the same level
as in
2021,
but increased 6 percent in local currencies,
with strong order growth in
India throughout the year
offsetting a slowdown in China.
Orders in China were lower
in most end-user segments mainly as
business
activity was hampered by pandemic-related
measures and also reflected
a challenging comparable
due to
strong order performance in 2021.
Order backlog
In 2023, the order backlog increased
6 percent (6 percent in local currencies).
The divestment of the Power
Conversion Division in July
2023 negatively impacted the growth
rate by approximately 8 percent.
Order
backlog benefited from the strong order
intake in the Smart Power Division.
In 2022, order backlog increased 25 percent
(32 percent in local currencies).
Order backlog benefited from
strong order intake, but was also impacted
by execution challenges
caused by material shortages,
transportation constraints as well
as pandemic-related production
pressures
in some local markets.
57
Revenues
In 2023, revenues
increased 7 percent (8 percent in
local currencies) compared
to 2022. The divestment of
the Power Conversion Division
in July 2023 negatively impacted
the growth rate by approximately
2 percent.
The supply chain tightness that negatively
impacted revenues in 2022
normalized in 2023,
however, inflation
and labor market shortages
continued to pose challenges.
Pricing actions taken to mitigate
increasing
material,
labor and transportation costs
again contributed strongly
to the higher revenue level
and accounted
for almost half of the revenue growth
in 2023, excluding the negative
impact from the divestment of
the
Power Conversion Division.
The revenue growth was led
by the Distribution Solutions and
Smart Power
Divisions,
reflecting high demand as well
as strong order backlog execution,
while revenues in the Smart
Buildings and Installation
Products Divisions decreased.
In 2022, revenues increased 6 percent
(12 percent in local currencies).
Revenues in local currencies
increased in all divisions
reflecting the strong demand across regions
and end-user segments, however
growth was hampered by component
shortages, logistics
challenges and a tight labor
market. Pricing actions
taken to mitigate increasing material,
labor and transportation
costs contributed strongly to
the higher
revenue level and accounted
for around three quarters
of the revenue growth in 2022. The revenue
growth
was led by the Smart Power Division,
mirroring the very high
demand in this segment. There was
also strong
double-digit revenue growth in local
currencies in the Power Conversion
Division as well as in the Installation
Products Division.
The geographic distribution
of revenues for our Electrification
Business area was as follows:
($ in millions)
2023
2022
2021
Europe
4,641
4,318
4,489
The Americas
5,968
5,181
4,418
of which: United States
4,480
3,791
3,252
Asia, Middle East and Africa
3,975
4,120
3,987
of which: China
1,797
1,969
2,079
Total
14,584
13,619
12,894
In 2023, revenues
in the Americas increased 15 percent
(15 percent in local currencies)
compared to 2022,
despite the divestment of the Power
Conversion Division, which
negatively impacted growth in
the region by
4 percent.
Revenues increased 7 percent
(5 percent in local currencies)
in Europe, led by growth in the
United Kingdom, Turkiye and Italy and supported
by the strengthening of key
European currencies against
the U.S. dollar. Revenues in Asia, Middle East and Africa
decreased 4 percent (increased 3
percent in local
currencies),
mainly reflecting lower revenues
in China caused by a slowdown
in demand.
In 2022, revenues in the Americas increased
17 percent (18 percent in
local currencies) with widespread
regional growth.
Revenues increased 3 percent (10
percent in local currencies) in Asia,
Middle East and
Africa, supported by strong growth in
India,
while revenues in
China were lower than the previous
year.
Revenues in Europe decreased
4 percent,
impacted by weakening
currencies in many European countries
versus the U.S.
dollar, while revenues in the region grew 6 percent
in local currencies.
58
Income from operations
In 2023, income from operations increased
31 percent,
supported by higher volumes as well
as pricing
actions to offset the adverse impact
from cost inflation,
primarily in labor.
Gains from sale of businesses
amounted to $75 million primarily
reflecting the gain from the divestment
of the Power Conversion
Division in
July 2023.
Benefits of savings realized from
ongoing restructuring and cost
savings programs also positively
influenced income from operations.
These positive effects were partially dampened
by widespread
inflationary cost pressures in 2023. The
level of research and
development spending was higher
in 2023 than
in 2022,
driven mainly by our expansion
in the United States, as well as increased
investments in
sustainability and in our service
offering. Restructuring-related expenses
and implementation costs increased
in 2023 compared to 2022 mainly
due to right-sizing actions
following lower demand
in certain market
segments. Changes in foreign currencies,
including the impacts from
FX/commodity timing differences
summarized in the table below,
negatively impacted income
from operations in 2023 by 1 percent.
In 2022, income from operations increased
17 percent supported by higher
volumes as well as strong price
management,
which helped offset the adverse impact
from cost inflation in raw materials,
freight and labor.
Benefits of savings realized from ongoing
restructuring and cost savings programs
also positively influenced
income from operations. Restructuring-related
expenses and implementation
costs in our operating divisions
were lower in 2022
than in 2021, mainly due to the substantial
completion of the integration
of GEIS, which
we acquired in 2018.
Also, lower GEIS integration costs
contributed to the higher income
from operations in
2022 compared to 2021. These positive
effects were partially dampened
by widespread inflationary cost
pressures in 2022, as well as higher personnel
expenses driven by a ramp-up of manufacturing
capacity to
meet higher demand.
Changes in foreign currencies,
including the impacts from
FX/commodity timing
differences summarized in the table below,
negatively impacted income
from operations by approximately
6 percent.
Operational EBITA
The reconciliation of Income from
operations to Operational
EBITA for the Electrification Business area was
as follows:
($ in millions)
2023
2022
2021
Income from operations
2,800
2,140
1,827
Acquisition-related amortization
88
104
115
Restructuring, related and
implementation
costs
76
28
66
Changes in obligations
related to divested businesses
1
1
—
Gains and losses from
sale of businesses
(75)
(1)
13
Acquisition-
and divestment-related
expenses and integration
costs
30
36
69
Certain other non-operational
items
16
41
7
FX/commodity timing
differences in income from
operations
1
(6)
23
Operational EBITA
2,937
2,343
2,120
In 2023, Operational EBITA increased 25 percent (27 percent
excluding the impact from
changes in foreign
currency exchange rates) compared
to 2022, primarily due to the reasons described
under “Income from
operations”, excluding the explanations
related to the reconciling
items in the table above.
In 2022, Operational EBITA increased 11 percent (20 percent excluding the impact
from changes in foreign
currency exchange rates) compared
to 2021, primarily due to the reasons described
under “Income from
operations”, excluding the explanations
related to the reconciling
items in the table above.
59
Motion Business area
The financial results of our Motion Business
area were as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Orders
8,222
7,896
7,616
4%
4%
Order backlog at December
31,
5,343
4,726
3,749
13%
26%
Revenues
7,814
6,745
6,925
16%
(3)%
Income from operations
1,390
1,092
3,276
27%
(67)%
Operational EBITA
1,475
1,163
1,183
27%
(2)%
Orders
In 2023, orders increased 4 percent,
(5 percent in local
currencies) compared to 2022.
The Business area
experienced strong double-digit
order growth in long-cycle markets and project
businesses served by the
System Drives, Large Motors and
Generators, and Traction Divisions, partially
offset by decreased demand
in the short-cycle product-related
divisions. The Business area recorded
strong double-digit order
growth in
process-related segments such
as chemical, oil and gas, and
also growth in cement, mining
and minerals.
Transport segments related to rail and marine
also experienced order growth
during the year while orders
declined in the buildings segment
(heating, ventilation and
air conditioning) as well
as food and beverage.
Overall, the Business area has benefited
from the market shift towards carbon
reduction and increased
energy efficiency in critical processes, such
as the electrification of propulsion
systems and investments in
hydrogen and renewables.
The geographic distribution
of orders for our Motion Business
area was as follows:
($ in millions)
2023
2022
2021
Europe
2,797
2,710
2,617
The Americas
2,715
2,583
2,677
of which: United States
2,186
2,128
2,200
Asia, Middle East and Africa
2,710
2,603
2,322
of which: China
1,300
1,314
1,232
Total
8,222
7,896
7,616
60
In 2023, orders increased 3 percent
(1 percent in local currencies)
in Europe as orders increased particularly
in Norway, Austria, Finland and Spain partially offset by lower
orders
in Sweden, France, Switzerland
and
Italy. In Asia, Middle East and Africa, orders increased
4 percent (10 percent in local currencies)
driven by
growth in India and China,
with the latter impacted by a
weakened Chinese currency. In the Americas, orders
increased 5 percent (4 percent in local
currencies) driven by increased
orders in the U.S. and Canada.
Order backlog
Order backlog in 2023 increased
13 percent (9 percent in local
currencies) compared to 2022 reaching
$5.3 billion. Order backlog increase
was driven by large orders
in the long-cycle business. In
the short-cycle
business, supply chain constraints eased
from the prior year and resulted in a reduction
of the high backlog
built up in 2022.
Revenues
In 2023, revenues increased 16 percent
(17 percent in local
currencies) compared to 2022.
Strong revenue
growth was delivered across all divisions,
both in the short-
and long-cycle businesses.
The revenue growth
was supported by strong demand
and execution of the order
backlog, as well as a positive
full-year impact
from successful price increases in
the prior year.
The geographic distribution
of revenues for our Motion Business
area was as follows:
($ in millions)
2023
2022
2021
Europe
2,704
2,271
2,258
The Americas
2,650
2,208
2,396
of which: United States
2,176
1,823
1,974
Asia, Middle East and Africa
2,460
2,266
2,271
of which: China
1,256
1,245
1,256
Total
7,814
6,745
6,925
In 2023, revenues in Europe increased
19 percent (16 percent in
local currencies) compared to 2022.
The
revenue increase was driven
by Italy, Germany, Sweden, Turk
iye and Spain while
revenues declined in
Switzerland. In Asia, Middle East
and Africa, revenues increased
by 9 percent (14 percent in local currencies)
with solid revenue growth in India,
Australia and China with
the latter partially impacted by a
weakened
Chinese currency.
In the Americas, revenues increased
20 percent (20 percent in local
currencies) with
strong growth in the U.S., Canada and
Mexico.
Income from operations
In 2023, income from operations increased
27 percent. The increase was
driven by higher revenues
reflecting a strong demand, solid
order backlog execution and benefits
from a strong price execution which
more than offset cost inflation related
to labor and materials. Profitability was
also supported by continued
cost discipline and a positive divisional
mix. All divisions apart from the Traction and
IEC LV Motors Divisions
reported strong profitability improvements
in 2023. Changes in foreign
currencies, including the impacts
from
FX/commodity timing differences summarized
in the table below, positively impacted income
from operations
by approximately 1 percent.
61
Operational EBITA
The reconciliation of Income from
operations to Operational
EBITA for the Motion Business area was as
follows:
($ in millions)
2023
2022
2021
Income from operations
1,390
1,092
3,276
Acquisition-related amortization
35
31
43
Restructuring, related and
implementation
costs
46
16
22
Gains and losses from
sale of businesses
—
8
(2,196)
Acquisition-
and divestment-related
expenses and integration
costs
17
15
26
Certain other non-operational
items
6
—
1
FX/commodity timing
differences in income from
operations
(19)
1
11
Operational EBITA
1,475
1,163
1,183
In 2023, Operational EBITA increased 27 percent (27 percent
excluding the impact from
changes in foreign
currency exchange rates) compared
to 2022, primarily due to the reasons
described under “Income
from
operations”, excluding the explanations
related to the reconciling
items in the table above.
Process Automation Business area
The financial results of our Process
Automation Business area were
as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Orders
7,535
6,825
6,779
10%
1%
Order backlog at December
31,
7,519
6,229
6,079
21%
2%
Revenues
6,270
6,044
6,259
4%
(3)%
Income from operations
947
663
713
43%
(7)%
Operational EBITA
909
848
801
7%
6%
62
Orders
In 2023, orders increased 10 percent
(12 percent in local currencies)
compared to 2022. Order growth
was
negatively impacted by approximately
12 percent due to the spin-off of
the Turbocharging Division in October
2022. Orders grew in all divisions
excluding the Measurement
& Analytics Division and was
strong in
long-cycle projects, reflecting a
significant increase in large
orders. Strong demand was seen
for the product,
systems and service businesses and
supported by most customer
segments. Demand was particularly
strong
in sectors such as marine and ports,
and oil and gas, with additional
positive developments in the areas
of
mining and metals. Customer activities
increased in the power
generation segments, and were
flat in
chemicals and refining, whereas
demand in pulp and paper
was lower. Customer interest continued to be
high in the hydrogen segment, which
remains a growing part of
the business.
The geographic distribution
of orders for our Process Automation
Business area was as follows:
($ in millions)
2023
2022
2021
Europe
2,662
2,361
2,614
The Americas
2,441
1,994
1,645
of which: United States
1,506
1,201
1,047
Asia, Middle East and Africa
2,432
2,470
2,520
of which: China
729
748
821
Total
7,535
6,825
6,779
Orders in Europe increased 13 percent
(14 percent in local currencies).
In local currencies, orders increased
in Norway, Italy and Germany, however the increase in Germany included
the impact of an order reversal
of
approximately $170 million
recorded in 2022. Orders in Asia, Middle
East and Africa decreased 2 percent
(increased 2 percent in local currencies).
Higher orders in Saudi
Arabia were more than offset by lower order
volumes in Japan,
Singapore and South Africa. In
the Americas, orders increased
22 percent (21 percent in
local currencies) supported by strong
demand in the U.S. and Canada,
with the former impacted by two large
orders with multi-year fulfillment periods
for $285 million and $150 million,
respectively, in the Marine & Ports
Division. This is partially offset by declined
demand in Argentina which
received several large order
bookings
in 2022.
Order backlog
In 2023, Order backlog increased
21 percent (19 percent in local
currencies) compared to 2022. Order
backlog increased in all
divisions except the Measurement & Analytics
Division due to strong order intake
during 2023. The increase in Order backlog
also includes the impact of
the two large orders with multi-year
fulfillment periods in the Marine &
Ports Division.
Revenues
In 2023, revenues increased 4 percent
(increased 5 percent in local currencies)
in 2023. Revenue growth
was negatively impacted by approximately
11 percent due to the spin-off of the Turbocharging Division
in
October 2022. Revenues increased
in all divisions, reflecting
strong execution of the order backlog
in the
long-cycle businesses and strong
underlying demand in the current
year.
63
The geographic distribution
of revenues for our Process Automation
Business area was as
follows:
($ in millions)
2023
2022
2021
Europe
2,311
2,266
2,439
The Americas
1,741
1,569
1,439
of which: United States
1,077
943
836
Asia, Middle East and Africa
2,218
2,209
2,381
of which: China
708
668
742
Total
6,270
6,044
6,259
Revenues in 2023 were 11 percent higher (10 percent
in local currencies) in the Americas,
flat (5 percent
higher in local currencies)
in Asia, Middle East and Africa
and 2 percent higher (2 percent in
local currencies)
in Europe compared to 2022.
The spin-off of the Turbocharging Division
in October 2022 had a negative
impact on the growth rate in 2023 of
10 percent in the Americas, 12 percent
in Asia, Middle East and Africa,
and 12 percent in Europe. In the Americas,
revenue growth was driven by
the U.S. and Argentina. In Asia,
Middle East and Africa, revenues were
higher in India and
Saudi Arabia but declined
in South Korea and the
United Arab Emirates. Growth in Europe
was reported in key markets including
Norway, Sweden and Poland.
Income from operations
In 2023, income from operations increased
43 percent compared to 2022, driven
by strong business
performance in all divisions, partly
offset by the impact of the spin-off of the
Turbocharging Division. All
divisions reported higher
income from operations. Growth
was driven by higher revenue
volumes, continued
operational improvements in project execution
and a favorable business
mix. The impact of inflation on input
costs was more than offset by the impact
of successful pricing actions
taken in 2022, especially in the short-
cycle business. The increase in
income from operations is also impacted
by gains from sales of
businesses
of $26 million while 2022
included significant costs in connection
with the spin-off of the Turbocharging
Division. Changes in foreign
currencies, including the effect from changes
in the FX/commodity timing
differences summarized in the table below, positively impacted
income from operations by approximately
2 percent.
Operational EBITA
The reconciliation of Income from
operations to Operational
EBITA for the Process Automation Business area
was as follows:
($ in millions)
2023
2022
2021
Income from operations
947
663
713
Acquisition-related amortization
5
4
5
Restructuring, related and
implementation
costs
3
29
48
Gains and losses from
sale of businesses
(26)
—
(13)
Acquisition-
and divestment-related
expenses and integration
costs
(7)
134
35
Certain other non-operational
items
—
—
1
FX/commodity timing
differences in income from
operations
(13)
18
12
Operational EBITA
909
848
801
In 2023, Operational EBITA increased 7 percent (8 percent
excluding the impact from
changes in foreign
currency exchange rates) compared
to 2022, primarily due to the reasons
described under “Income
from
operations”, excluding the explanations
related to the reconciling
items in the table above.
64
Robotics & Discrete Automation Business area
The financial results of our Robotics &
Discrete Automation Business
area were as follows:
% Change
($ in millions)
2023
2022
2021
2023
2022
Orders
3,066
4,116
3,844
(26)%
7%
Order backlog at December
31,
2,141
2,679
1,919
(20)%
40%
Revenues
3,640
3,181
3,297
14%
(4)%
Income from operations
446
247
269
81%
(8)%
Operational EBITA
536
340
355
58%
(4)%
Orders
In 2023, orders decreased 26 percent
(25 percent in local currencies)
as customers normalized order
patterns and the market in China softened.
In the Machine Automation Division,
the shortening of delivery
lead times and easing of supply chain
constraints led to customers
normalizing order patterns, as the
previous year saw customers placing
orders early in an effort to secure deliveries.
In the Robotics Division,
lower orders were driven by the weakness
in the underlying market in China
with additional pressure from
local inventory reductions among
channel partners,
apart from the automotive segment.
The geographic distribution
of orders for our Robotics & Discrete Automation
Business area was as
follows:
($ in millions)
2023
2022
2021
Europe
1,481
2,043
1,978
The Americas
544
609
530
of which: United States
335
404
371
Asia, Middle East and Africa
1,041
1,464
1,336
of which: China
752
1,151
976
Total
3,066
4,116
3,844
In 2023, orders decreased in all regions.
Orders in Europe decreased 28
percent (28 percent in local
currencies) driven by decreased demand,
mainly in Germany,
Italy,
France and Austria. Orders in
the
Americas decreased 11 percent (12 percent in local currencies)
compared to 2022, driven by the
normalization of orders in the U.S.
due to shortened delivery
lead times. Orders in Asia, Middle
East and
Africa decreased 29 percent (25 percent
in local currencies) with lower
demand in China, primarily in
the
Robotics Division.
65
Order backlog
In 2023, order backlog decreased 20 percent
(20 percent in local currencies)
compared to 2022. Order
backlog decreased in both divisions
due primarily to lower order intake,
along with improved order backlog
execution.
Revenues
In 2023, revenues increased 14 percent
(14 percent in local
currencies) compared to 2022. Revenues
increased in both divisions
due to improved order backlog execution,
higher volumes from book-and-bill
business and the realization
of the impacts of successful
price increases. Service revenues also
increased in
2023,
driven by strong demand from
the automotive segment. The higher
revenues in 2023 also reflects
the
impacts of the COVID-19 shutdown
of the robotics factory in China
during April 2022.
The geographic distribution
of revenues for our Robotics & Discrete
Automation Business area was
as
follows:
($ in millions)
2023
2022
2021
Europe
1,942
1,498
1,582
The Americas
577
525
441
of which: United States
361
374
309
Asia, Middle East and Africa
1,121
1,158
1,274
of which: China
805
899
950
Total
3,640
3,181
3,297
Revenues from Asia, Middle East
and Africa decreased 3 percent (increased
1 percent in local currencies)
compared to 2022
due to improved order backlog execution.
Revenues in Europe increased
30 percent
(27 percent in local currencies) with strong
deliveries to Germany, Italy and France. In the Americas,
revenues increased 10 percent
(8 percent in local currencies)
due to improved order backlog execution
in
Mexico and Canada.
Income from operations
In 2023, the Business area recorded
income from operations
of $446 million compared to $247
million in
2022, with both divisions contributing
to the higher income level. The operational
performance in 2023
reflected improved sales volumes,
price increases, a favorable
change in the revenue mix, and the benefit
of
cost reduction measures put in place
in the second half of 2022. These
positive drivers were partially
offset
by inflationary cost pressures in 2023
as well as some under
absorption of fixed costs in the Robotics
Division as demand softened towards
the second half of the
year.
Changes in foreign currencies,
including
the impacts from FX/commodity timing
differences summarized in the table
below, negatively impacted
income from operations by approximately
1 percent.
66
Operational EBITA
The reconciliation of Income (loss)
from operations to
Operational EBITA for the Robotics & Discrete
Automation Business area was as
follows:
($ in millions)
2023
2022
2021
Income from operations
446
247
269
Acquisition-related amortization
79
78
83
Restructuring, related and
implementation
costs
6
11
7
Acquisition-
and divestment-related
expenses and integration
costs
14
6
1
Certain other non-operational
items
(10)
(8)
—
FX/commodity timing
differences in income from
operations
1
6
(5)
Operational EBITA
536
340
355
In 2023, Operational EBITA increased 58 percent (increased
60 percent excluding the impact
from changes
in foreign currency exchange rates)
compared to 2022, primarily
due to the reasons described
under “Income
from operations”, excluding
the explanations related to
the reconciling items in the table
above.
Corporate and Other
Net loss from operations for Corporate
and Other was as follows:
($ in millions)
2023
2022
2021
Corporate headquarters
and stewardship
(557)
(430)
(399)
Other corporate costs
(18)
(25)
(29)
Loss from equity-accounted
companies
(6)
(101)
(102)
Fair value adjustment on
equity securities
(2)
(4)
94
Regulatory penalty in
connection with Kusile
project
—
(313)
—
Net gain (loss) from sale
of businesses
(1)
—
43
(3)
Corporate brand income
from Hitachi Energy
39
57
89
Corporate real estate
103
66
41
E-mobility Division
(234)
19
14
Divested businesses and
other non-core activities
(37)
(117)
(72)
Total Corporate and Other
(712)
(805)
(367)
(1)
2022 includes
gain on sale
of the remaining
19.9 percent
investment
in Hitachi
Energy Ltd.
In 2023, the net loss from operations within
Corporate and Other decreased
by $93 million to $712 million
compared to 2022. This decrease was primarily
driven by the impact of
certain charges incurred in 2022
including the regulatory penalties
in connection with the Kusile project and
the loss from equity-accounted
companies recorded for our investment
in Hitachi Energy, which was sold in December 2022,
partially offset
by the net loss from operations in
the E-mobility Division in 2023.
Corporate
In 2023, Corporate headquarters and
stewardship costs increased
by $127 million, mainly due to higher
external consulting costs for system
implementations and related
process design, as well as higher
costs in
2023 for employee short-term incentive
compensation.
Corporate brand income results from
granting the use of the ABB
Brand to Hitachi Energy, the fair value of
which was initially determined
on the date of the divestment of the former
Power Grids business in 2020.
A
portion of the proceeds received
for the sale was allocated to
the fair value of the granting of the use
of the
brand and is being amortized
over the expected period of benefit
received by Hitachi Energy.
67
Corporate real estate primarily includes
income and expenses
from property rentals and gains from
the sale
of real estate properties. In 2023, income
from operations in corporate real estate
included gains from the
sale of real estate properties of approximately
$102 million compared to $73
million in 2022.
Other corporate costs consists of operational
costs of Corporate Treasury and other
minor items.
Other - E-mobility
Commencing in 2023, the E-mobility Division
became an independent
Division and separate operating
segment within ABB. Previously, the Division was managed
in the Electrification Business area.
In connection
with this change, the results of the
Division for all periods are reported
within Corporate and Other as
the
Division does not meet any of the
size thresholds in any period
to be considered a reportable segment.
In 2023, the E-mobility Division reported
a net loss from operations
of $234 million compared to income
from
operations of $19 million in
2022. The loss in 2023 was impacted
by combined charges in
connection with
excess and obsolete components and
unfavorable inventory purchase
commitments of $70 million,
restructuring, related and implementation
costs of $27 million
and higher costs for system implementations
and related process design. The amount
in 2023 also reflects higher
personnel costs as the Division
continues its growth strategy as the
revenues within the Division
grew 33 percent. The change compared
to
2022 also reflects $54 million of gains
recorded in 2022 for net fair value
gains on investments.
The E-mobility Division experienced
revenue growth of 89 percent from
2021 to 2022. The income from
operations in 2022 included
the fair value gains as described
above, while in 2021 it included
$17 million of
fair value gains. The Division also
experienced increases in
administrative costs in 2022 as it
expanded its
cost base in anticipation of significant
revenue growth.
Other - Divested businesses
and other non-core activities
The results of operations for certain
divested businesses and
other non
‑
core activities are presented in
Corporate and Other. Divested businesses include
the high-voltage cables
business, steel structures
business and the oil & gas EPC business.
Other continuing non
‑
core activities include the execution
and
wind
‑
down of certain legacy EPC and other
contracts.
In 2023 and 2022, the amounts represent
charges and losses relating
to divested businesses and the
winding down of the remaining
EPC projects. We recorded losses of $37 million
in 2023, down significantly
from 2022, in which we recorded a
restructuring expense of $195 million
in connection with the exit of
the full
train retrofit business primarily for
contract settlement costs, partially
offset by the reversal of a provision
of
$61 million that we had previously
recorded related to one of our divested
businesses based on a
settlement
proposal issued by the ruling
court.
At December 31, 2023, our remaining
non
‑
core activities primarily include
the completion of the remaining
EPC contracts for substations and
oil & gas.
—
Liquidity and capital resources
Principal sources of funding
We meet our liquidity needs principally
using cash from operations, proceeds from
the issuance of debt
instruments (bonds and commercial
paper), and short
‑
term bank borrowings. In 2023,
we also received funds
from the sale of our Power Conversion
Division.
68
Our net debt is shown in the table
below:
December 31, ($ in millions)
2023
2022
Short-term debt and current
maturities of long-term
debt
2,607
2,535
Long-term debt
5,221
5,143
Cash and equivalents
(3,891)
(4,156)
Restricted cash - current
(18)
(18)
Marketable securities and
short-term investments
(1,928)
(725)
Net debt
(defined as the sum
of the above lines)
1,991
2,779
During 2023, although we continued
to return high amounts of cash to shareholders
in the form of dividends
and purchases of treasury stock, we
significantly increased cash from
operating activities, resulting
in a
decrease in net debt,
as presented in the table
above.
During 2023, our net debt decreased
$788 million to a net debt position
of $1,991 million at December
31,
2023. The effect of exchange rate movements
increased net debt by approximately
$433 million.
In 2023, we
received net proceeds of $553 million
for the sales
of businesses.
We generated cash flows from operating
activities during 2023
of $4,290 million and sold treasury
stock in relation to our employee
share plans for
$154 million. We also issued shares in our
subsidiary ABB E-Mobility
to third parties in private placements
for
$328 million. These items were mostly
offset by amounts for purchases
of treasury shares of $1,258
million,
including $909 million relating
to the announced buybacks
of our shares,
as well as $1,713 million for
the
payment of the dividend to our shareholders.
We made net purchases of property, plant and equipment
and
intangible assets of $623 million
and made payments of dividends
to noncontrolling shareholders
totaling
$93 million.
See “Financial position”, “Investing activities”
and “Financing activities”
for further details.
Our Corporate Treasury is responsible
for providing a range of treasury management
services to our Group
companies, including investing
cash in excess of current business requirements.
At December 31, 2023
and
2022, the proportion of our aggregate
“Cash and equivalents”
(including restricted cash) and “Marketable
securities and short
‑
term investments” managed
by Corporate Treasury amounted to approximately
59 percent and 51 percent, respectively.
Our investment strategy for cash
(in excess of current business
requirements) has generally
been to invest in
short-term time deposits with maturities
of less than 3 months, supplemented
at times by investments in
money market funds and in some
cases, government securities. We actively
monitor credit risk in our
investment and derivative portfolios.
Credit risk exposures are
controlled in accordance with
policies
approved by our senior management
to identify, measure, monitor and control credit risks.
We have minimum
rating requirements for our counterparts
and closely monitor
developments in the credit markets
making
appropriate changes to our investment
policy as deemed
necessary. In addition to minimum rating criteria,
we have strict investment parameters
and specific approved
instruments as well as restrictions
on the types
of investments we make. These parameters
are closely monitored on
an ongoing basis and amended
as we
consider necessary.
Our cash is held in various currencies
around the world. Approximately 51 percent
of our cash and
equivalents held at December 31,
2023, was in U.S. dollars, while
the most significant foreign currencies
in
which cash and equivalents
was held was euros (15 percent) and Chinese
Renminbi (5 percent).
We believe the ongoing cash flows generated
from our business, supplemented,
when necessary, through
access to the capital markets (including
short
‑
term commercial paper) and
our credit facilities are sufficient to
support business operations, capital
expenditures, business acquisitions,
the payment of dividends to
shareholders and contributions
to pension plans. Consequently, we believe that our ability
to obtain funding
from these sources will continue
to provide the cash flows necessary
to satisfy our working capital and
capital
expenditure requirements, as well
as meet our debt repayments and
other financial commitments
for the next
12 months. See “Contractual obligations
and commitments”.
69
Due to the nature of our operations,
including the timing of annual
incentive payments to employees,
our
cash flow from operations generally
tends to be weaker in the first half
of the year than in the second half
of
the year.
Debt and interest rates
Total
outstanding debt was as follows:
December 31, ($ in millions)
2023
2022
Short-term debt and current
maturities of long-term
debt
2,607
2,535
Long-term debt:
Bonds
5,051
4,944
Other long-term debt
170
199
Total debt
7,828
7,678
In 2023, while the reduction of commercial
paper outstanding
and the repayment of long-term debt due
in
2023 offset the reclassifications to short-term
of long-term debt due in 2024,
movements in foreign exchange
rates resulted in a small increase
of short-term debt of 3 percent.
At December 31, 2023, Long-term debt
was $78 million higher compared
to the end of 2022. We issued five
new instruments in 2023 which remain
classified as Long-term debt at
December 31, 2023
(CHF 325 million
1.965% Bonds due 2026,
EUR 500 million 3.25% Instruments
due 2027,
CHF 150 million 1.9775%
Bonds
due 2028,
EUR 750 million 3.375% Instruments
due 2031,
and CHF 275 million 2.1125% Bonds due 2033).
This was more than offset by the reclassification
to current of the EUR 700 million
0.625% Instruments due
2024, EUR 500 million floating
rate Instruments due 2024, EUR 750
million 0.75% Instruments due 2024,
and
CHF 150 million 0.3% Bonds due 2024.
Decreases in interest rates also
resulted in an increase in our long-
term debt of approximately $97 million
due to the application of fair value
hedge accounting on certain
outstanding instruments.
Our debt has been obtained
in a range of currencies and
maturities and with various interest
rate terms. For
certain of our debt obligations,
we use derivatives to manage
the fixed interest rate exposure. For example,
we use interest rate swaps and cross-currency
interest rate swaps to effectively
convert fixed rate debt into
floating rate liabilities. After considering
the effects of interest rate swaps and cross-currency
interest rate
swaps,
at December 31, 2023, the effective
average interest rate on
our floating rate long-term debt
(including current maturities) of
$2,907 million and our fixed rate long-term
debt (including current
maturities)
of $4,834 million was 4.8 percent and 2.7
percent, respectively. This compares with an
effective rate of
2.8 percent for floating rate long-term
debt of $3,459 million
and 2.2 percent for fixed rate long-term
debt of
$2,771 million at December 31, 2022.
For a discussion of our use of derivatives
to modify the interest characteristics
of certain of our individual
bond issuances, see “Note 12 - Debt”
to our Consolidated Financial
Statements.
Credit facility
In December 2019, we replaced our previous
multicurrency revolving credit
facility with a new $2 billion
multicurrency revolving credit facility, maturing in 2024.
In 2021 we exercised our option to
extend the
maturity of this facility to 2026.
No amount was drawn under
the facility
at December 31, 2023 and
2022. The
facility is available for general corporate
purposes and contains cross-default
clauses whereby an event
of
default would occur if we were
to default on indebtedness, as defined
in the facility, at or above a specified
threshold. In February 2023,
we amended and restated our
facility for the purpose of addressing
the
discontinuation of LIBOR. Under the amended
and restated credit facility, the margin is unchanged,
but
advances in USD are referenced to
CME Term SOFR, whilst advances in CHF and GBP are referenced
to
overnight SARON and SONIA,
respectively,
and subject to applicable
credit adjustment spreads.
70
The credit facility does not contain
financial covenants that would
restrict our ability to pay dividends
or raise
additional funds in the capital
markets. For further details of the
credit facility, see “Note 12 - Debt” to our
Consolidated Financial
Statements.
Commercial paper
At December 31, 2023, we had
two commercial paper programs
in place:
•
commercial paper in the United States,
and
•
currencies.
At December 31, 2023 and 2022, there
were no amounts
outstanding under the $2
billion program in the
United States.
At December 31, 2023, there was no
amount outstanding under
the $2 billion Euro-commercial
paper
program while at December 31, 2022,
there was $1,383 million
outstanding.
European program for the issuance of debt
The European program for the issuance
of debt allows the issuance
of up to the equivalent of $8 billion
in
certain debt instruments. The terms
of the program do
not obligate any third party to extend
credit to us and
the terms and possibility of issuing
any debt under the program
are determined with respect to,
and as of the
date of issuance of, each debt instrument.
At December 31, 2023, six
bonds (principal amount of
EUR 700 million due in 2024,
principal amount of EUR 500
million due in 2024, principal
amount of
EUR 750 million due in 2024,
principal amount of EUR 500
million due in 2027, principal
amount of
EUR 800 million due in 2030,
and principal amount of EUR 750 million
due in 2031) having a combined
carrying amount of $4,259 million
were outstanding under the program.
The carrying amount of the five
bonds outstanding under the program
at December 31, 2022, was $3,444
million.
Credit ratings
Credit ratings are assessments by
the rating agencies of the credit
risk associated with ABB and
are based
on information provided by us or other
sources that the rating
agencies consider reliable.
Higher ratings
generally result in lower borrowing
costs and increased access to capital markets.
Our ratings are of
“investment grade” which is defined
as Baa3 (or above) from
Moody’s and BBB− (or above) from Standard
&
Poor’s.
At December 31, 2023
and 2022, our long-term debt was
rated A3 by Moody’s and with a Stable
outlook. At
December 31, 2023
and 2022, our long-term debt was
rated A- by Standard & Poor’s and
with a Stable
outlook.
71
Limitations on transfers of funds
Currency and other local regulatory
limitations related to the transfer
of funds exist in a number of
countries
where we operate or otherwise have
bank deposits,
including: Argentina, Egypt, India,
Indonesia, Malaysia,
the Russian Federation, South Africa,
South Korea, Thailand,
Turkiye and Vietnam. Funds, other than regular
dividends, fees or loan repayments,
cannot be readily transferred
offshore from these countries and are
therefore deposited and used for working
capital needs in those countries.
In addition, there are certain
countries where, for tax reasons, it
is not considered optimal
to transfer the cash offshore. Consequently,
these funds are not available
within Corporate Treasury to meet short-term cash
obligations outside the
relevant country. The above-described funds are reported
as cash in our Consolidated Balance
Sheets, but
we do not consider these funds immediately
available for the repayment of debt
outside the respective
countries where the cash is situated,
including those described
above. At December 31, 2023
and 2022, the
balance of “Cash and equivalents”
and “Marketable securities
and other short-term investments”
under such
limitations (either regulatory or sub-optimal
from a tax perspective) totaled $1,479
million and $1,381 million,
respectively.
During 2023, we continued to direct our
subsidiaries in countries
with restrictions to place such
cash with our
core banks or investment grade banks,
where possible, in order to
minimize credit risk on such cash
positions. We continue to closely monitor
the situation to ensure bank
counterparty risks are minimized.
—
Financial position
Balance sheets
December 31, ($ in millions)
2023
2022
% Change
Current assets
Cash and equivalents
3,891
4,156
(6)%
Restricted cash
18
18
0%
Marketable securities and
short-term investments
1,928
725
166%
Receivables, net
7,446
6,858
9%
Contract assets
1,090
954
14%
Inventories, net
6,149
6,028
2%
Prepaid expenses
235
230
2%
Other current assets
520
601
(13)%
Total current assets
21,277
19,570
9%
For a discussion on Cash and equivalents,
see sections “Liquidity and
Capital Resources—Principal
sources
of funding” and “Cash flows” for
further details.
Marketable securities and short-term
investments increased
in 2023. The change primarily reflects
higher
amounts placed in bank time deposits
and an increase in amounts
placed in money market funds classified
as equity securities (see “Note 5 - Cash
and equivalents, marketable
securities and short-term investments”
to our Consolidated Financial
Statements).
Receivables, net, increased 9 percent (7
percent in local currencies)
reflecting the higher revenues in
all
Business areas primarily a result of
higher business in
2023 compared to 2022.
Contract assets increased 14 percent (12
percent in local currencies)
due to the higher level of business
activity in all Business areas as well
as timing of invoices issued. The increase
is primarily driven by
the
Process Automation Business area.
72
Inventories, net, increased 2 percent
primarily due to movements in foreign
currencies. In local currency,
Inventories, net, decreased 1 percent,
reflecting a net decrease
from acquisitions and divestments
of
approximately 1 percent. Inventory was
stable on increased business
volumes as the previous year included
some stockpiling of certain key components
due to supply chain challenges.
December 31, ($ in millions)
2023
2022
% Change
Current liabilities
Accounts payable, trade
4,847
4,904
(1)%
Contract liabilities
2,844
2,216
28%
Short-term debt and current
maturities of long-term
debt
2,607
2,535
3%
Current operating leases
249
220
13%
Provisions for warranties
1,210
1,028
18%
Other provisions
1,201
1,171
3%
Other current liabilities
5,046
4,455
13%
Total current liabilities
18,004
16,529
9%
Accounts payable, trade, decreased
1 percent (3 percent in local
currencies) reflecting some decrease
in
average days payable in 2023
compared to 2022.
Contract liabilities increased
28 percent (27 percent in local
currency) primarily due to higher levels
of
progress billings and advances
at the end of 2023 compared to 2022.
The increase reflects higher levels
in
all Business areas except for Robotics
& Discrete Automation.
The increase in short-term debt
and current maturities of long-term
debt in 2023
reflects the reclassification
to
current of the EUR 700 million
0.625% Instruments due 2024, EUR 500
million Floating Rate Instruments
due
2024, EUR 750 million 0.75% Instruments
due 2024 and the CHF 280 million
0.3% Bonds due 2024,
offset
by the repayment at maturity of
the EUR 700 million 0.625%
Instruments due 2023 and the CHF
275 million
0% Bonds due 2023 as well as by
the full repayment of commercial
paper borrowings under the
Euro-commercial program in 2023.
Movements in foreign
currency rates increased short-term
debt by
6 percent.
Current operating leases includes
the portion of the operating lease
liabilities that are due to be paid
in the
next 12 months. For a summary of
operating lease liabilities, see “Note
14 - Leases” to our Consolidated
Financial Statements.
Provisions for warranties increased 18
percent (15 percent in local
currencies). The increase reflects
the
higher provisioning in 2023
on increased revenues as well
as increases in expected costs for certain
newer
product lines.
For details on the change in the
Provisions
for warranties, see “Note 15 - Commitments
and
contingencies” to our Consolidated
Financial Statements.
December 31, ($ in millions)
2023
2022
% Change
Non-current assets
Property, plant and equipment, net
4,142
3,911
6%
Operating lease right-of-use
assets
893
841
6%
Investments in equity-accounted
companies
187
130
44%
Prepaid pension and other
employee benefits
780
916
(15)%
Intangible assets, net
1,223
1,406
(13)%
Goodwill
10,561
10,511
0%
Deferred taxes
1,381
1,396
(1)%
Other non-current assets
496
467
6%
Total non-current assets
19,663
19,578
0%
In 2023, Property, plant and equipment, net,
increased 6 percent (3 percent
in local currencies) as capital
expenditures exceeded the annual
depreciation expense.
73
In 2023, Goodwill remained flat (flat in
local currencies). While
currency movements increased
goodwill by
1 percent, the net impact of acquisitions
and divestments
mostly offset this movement.
Intangible assets, net, decreased 13 percent
(15 percent in local currencies).
The decrease primarily
represents the amortization recorded
during the year. While the divestment of
the Power Conversion division
decreased Intangible assets, net, by 5
percent this was mostly offset by other
acquisitions in 2023. For
additional information on
goodwill and intangible assets see “Note 11 - Goodwill and
intangible assets” to our
Consolidated Financial
Statements.
Prepaid pension and other
employee benefits decreased 15
percent (22 percent in local currencies).
For
additional information on
Pension and employee benefits see “Note
17 - Employee benefits”
to our
Consolidated Financial
Statements.
In 2023, Deferred taxes decreased 1 percent
(4 percent in local currencies).
For details on deferred tax
assets see “Note 16 - Income taxes”
to our Consolidated Financial
Statements.
December 31, ($ in millions)
2023
2022
% Change
Non-current liabilities
Long-term debt
5,221
5,143
2%
Non-current operating leases
666
651
2%
Pension and other employee
benefits
686
719
(5)%
Deferred taxes
669
729
(8)%
Other non-current liabilities
1,548
2,105
(26)%
Total non-current liabilities
8,790
9,347
(6)%
Long-term debt increased 2 percent
(decreased 3 percent in local
currencies).
The balance at December 31,
2023, includes five instruments newly issued
in 2023: (i) CHF 325 million
1.965% Bonds due 2026,
(ii) EUR 500 million 3.25% Instruments
due 2027,
(iii) CHF 150 million 1.9775%
Bonds due 2028,
(iv) EUR 750 million 3.375% Instruments
due 2031 and (v) CHF 275 million
2.1125% Bonds due 2033.
The
increase was more than offset by the reclassification
to current of the EUR 700
million 0.625% Instruments
due 2024, EUR 500 million Floating
Rate Instruments due 2024, EUR 750
million 0.75% Instruments due
2024 and CHF 280 million 0.3%
Bonds due 2024.
For additional information
on Long-term debt, see “Liquidity
and Capital Resources—Debt
and interest rates” as well as “Note
12 - Debt” to our Consolidated
Financial
Statements.
Non-current operating leases includes
the portion of the operating lease
liabilities that are due to be paid
in
more than 12 months.
Pension and employee benefits
decreased 5 percent (6 percent in
local currencies).
For additional
information on Pension and employee
benefits see “Note 17 - Employee
benefits” to our Consolidated
Financial Statements.
For a breakdown of Other non
‑
current liabilities, see “Note 13
- Other provisions, other current
liabilities and
other non-current liabilities” to our Consolidated
Financial Statements.
74
Cash flows
The Consolidated Statements of Cash
Flows are shown on a continuing
operations basis,
with the effects of
discontinued operations shown
in aggregate for each major cash flow activity
and also include the impact
from changes in restricted cash.
The Consolidated Statements of Cash
Flows can be summarized as follows:
($ in millions)
2023
2022
2021
Net cash provided by
operating activities
4,290
1,287
3,330
Net cash provided by
(used in) investing activities
(1,615)
981
2,307
Net cash used in financing
activities
(2,897)
(2,394)
(4,968)
Effects of exchange rate changes
on cash and equivalents
(43)
(189)
(81)
Net change in cash and
equivalents and restricted
cash
(265)
(315)
588
Operating activities
($ in millions)
2023
2022
2021
Net income
3,824
2,594
4,650
Loss from discontinued
operations, net of
tax
24
43
80
Depreciation and amortization
780
814
893
Total
adjustments to reconcile
net income to net cash
provided by
operating activities
(excluding depreciation
and amortization)
(200)
(434)
(2,593)
Total
changes in operating
assets and liabilities
(127)
(1,683)
308
Net cash provided by operating
activities — continuing
operations
4,301
1,334
3,338
Net cash used in operating
activities — discontinued
operations
(11)
(47)
(8)
Cash flows from operating activities
in continuing operations
in 2023 provided net cash of $4,301
million,
more than three times the amount reported
in 2022. In 2023, we had significantly
higher cash effective net
income (i.e. net income from continuing
operations adjusted for depreciation,
amortization and other non-
cash items) reflecting the increase in
business volumes and
operating margins. Lower cash
flows in 2022
were also partially due to costs relating
to business restructurings
as well as costs for the spin-off of the
Turbocharging Division and other business
portfolio transactions.
In 2022, the amount also includes
payments of approximately $315
million in relation to regulatory
penalties for the Kusile project.
Our cash flows in 2023 improved
on stronger working capital
management especially in
the area of
inventories which contributed
more than $1 billion of improvements
in cash flows with some additional
modest improvements in the
timing of collections of cash
from customers. In 2023, we were able
to keep our
working capital steady even while
realizing increasing business volumes
and some inflation-driven cost and
price changes. This compares to
the increase in working capital in
2022 which was driven by the significant
buildup of inventories. In 2023
and 2022, there were no significant
cash flows from operating
activities of
discontinued operations.
75
Investing activities
($ in millions)
2023
2022
2021
Purchases of investments
(1,957)
(321)
(1,528)
Purchases of property, plant and equipment
and intangible assets
(770)
(762)
(820)
Acquisition of businesses
(net of cash acquired)
and
increases in cost-
and equity-accounted
companies
(225)
(288)
(241)
Proceeds from sales of investments
610
697
2,272
Proceeds from maturity
of investments
149
73
81
Proceeds from sales of
property, plant and equipment
147
127
93
Proceeds from sales of
businesses (net of
transaction costs and
cash
disposed) and cost-
and equity-accounted
companies
553
1,541
2,958
Net cash from settlement
of foreign currency
derivatives
(109)
(166)
(121)
Changes in loans receivable,
net
3
320
(19)
Other investing activities
7
(14)
(4)
Net cash provided by
(used in) investing
activities — continuing
operations
(1,592)
1,207
2,671
Net cash used in investing
activities — discontinued
operations
(23)
(226)
(364)
Net cash used in investing activities
for continuing operations
in 2023
was $1,592 million compared
to
$1,207 million provided
by investing activities during 2022, a change
of $2,799 million. This difference
primarily represents changes in
amounts invested in money
market funds as well as other short-term
investments as the significantly higher
operating cash flows generated
in 2023 resulted in higher
investments
made, especially at the end of the
year. In 2023, net proceeds from sales of businesses
was lower at
$553 million,
primarily representing the sale
of our Power Conversion Division,
while in 2022 we received
net
proceeds in connection with the sale
of our remaining equity-method
investment in Hitachi Energy of
$1,552
million. In addition, during 2022,
Changes in loans receivable, net, includes
funds collected from a
subsidiary of Accelleron in October
2022, related to a short-term intercompany
loan granted in anticipation
of
the Turbocharging Division spin-off.
The following presents purchases
of property, plant and equipment and intangible
assets by significant asset
category:
($ in millions)
2023
2022
2021
Construction in progress
532
540
479
Purchase of machinery
and equipment
176
127
150
Purchase of land and buildings
11
26
158
Purchase of intangible
assets
51
69
33
Purchases of property, plant and equipment
and intangible assets
770
762
820
There were no significant acquisitions
in 2023 while the amount in 2022
primarily reflects the amount paid
to
acquire In-Charge.
Cash flows used in investing activities
for discontinued operations
includes amounts relating to the original
sale of the Power Grids business
to Hitachi in 2020. Certain amounts
related to the purchase price were
subject to adjustment, including
the final settlement for working
capital balances as well as other payments
which were contractually due to be
transferred to Hitachi in periods
after the initial sale.
In 2023 and 2022,
payments totaling $23 million and
$227 million, respectively, were made.
76
Financing activities
($ in millions)
2023
2022
2021
Net changes in debt with
maturities of 90 days or
less
(1,365)
1,366
(83)
Increase in debt
2,586
3,849
1,400
Repayment of debt
(1,567)
(2,703)
(1,538)
Delivery of shares
154
394
826
Purchase of treasury
stock
(1,258)
(3,553)
(3,708)
Dividends paid
(1,713)
(1,698)
(1,726)
Cash associated with
the spin-off of the Turbocharging
Division
—
(172)
—
Dividends paid to noncontrolling
shareholders
(93)
(99)
(98)
Proceeds from issuance
of subsidiary shares
328
216
—
Other financing activities
31
6
(41)
Net cash used in financing
activities — continuing
operations
(2,897)
(2,394)
(4,968)
Net cash provided by
financing activities
— discontinued
operations
—
—
—
Our financing cash flow activities primarily
include debt transactions
(both from the issuance of
debt
securities and borrowings directly
from banks), share transactions
(including share transactions
in
consolidated subsidiaries) and
payments of distributions to controlling
and noncontrolling shareholders.
In 2023, the net outflow for debt with
maturities of 90 days or less related
to net repayments of amounts
outstanding under the Euro-commercial
paper program and various
local country borrowings.
In 2023, “Increase in debt” primarily represents
initial borrowings for terms longer
than 90 days under the
Euro-commercial paper program
of $400 million and borrowings
under the following five long-term debt
transactions (total cashflow amount at
date of borrowings of approximately
$2,170 million):
•
•
•
•
•
In 2023, “Repayment of debt”
includes the repayment at maturity of
the EUR 700 million 0.625%
Instruments
and CHF 275 million 0% Bonds and
repayments of $418 million
under the Euro-commercial paper
program
for borrowings having terms longer than
90 days.
“Delivery of shares” in 2023
primarily reflects cash received
from the exercise of options in connection
with
our Management Incentive Plan (resulting
in a delivery of 6 million shares).
All shares were delivered
out of
Treasury stock.
“Proceeds from issuance of subsidiary
shares” in 2023 relates to the sale
of shares by ABB E-mobility
Holdings Ltd through a private placement
of $328 million.
In 2023, “Purchase of treasury stock” reflects
$909 million of cash payments
to purchase 25 million of our
own shares in connection with the announced
share buyback programs. It also
reflects $349 million paid
to
purchase 9 million shares on
the open market during the year.
77
Contractual obligations and commitments
The contractual obligations presented
in the table below represent our estimates
of future payments under
fixed contractual obligations and
commitments. These amounts may differ
from those reported in our
Consolidated Balance
Sheet at December 31, 2023. Changes
in our business needs, cancellation
provisions
and changes in interest rates, as well
as actions by third parties and
other factors, may cause these
estimates to change. Therefore, our actual
payments in future periods may
vary from those presented below.
The table below summarizes certain
of our cash requirements for known
contractual obligations and
principal
and interest payments under our
debt instruments and purchase
obligations at December 31, 2023, and
the
timing thereof.
For details of future operating
and finance lease payments,
see “Note 14 - Leases” to our
Consolidated Financial
Statements.
At December 31, 2023 ($ in
millions)
Current
Non-current
Total
Long-term debt obligations
2,507
5,237
7,744
Interest payments related
to long-term debt obligations
131
910
1,041
Purchase obligations
3,150
1,297
4,447
Total
5,788
7,444
13,232
In the table above, the “Long
‑
term debt obligations”
reflect the cash amounts
to be repaid upon maturity of
those debt obligations. The cash
obligations above will differ from Long
‑
term debt due to the impacts of
fair
value hedge accounting
adjustments and premiums or discounts
on certain debt.
We have determined the interest payments
related to long
‑
term debt obligations by reference
to the
payments due under the terms of our
debt obligations at the
time such obligations were
incurred. However,
we use interest rate swaps to modify
the interest characteristics of certain
of our debt obligations. The net
effect of these swaps may increase or decrease
the actual amount of our cash interest
payment obligations,
which may differ from those stated in the
above table. For further details
on our debt obligations and
the
related hedges, see “Note 12 - Debt”
to our Consolidated Financial
Statements.
Purchase obligations are defined
as agreements to purchase goods
and services that are enforceable
and
legally binding, that specify all
significant terms, including
the quantities to be purchased, price
provisions and
the approximate timing of the
transactions. Purchase obligations
includes procurement contracts for
raw
materials, sub-contracted work, supplies
and services. Purchase obligations
include amounts recorded as
well as amounts that are not recorded
in the Consolidated Balance
Sheets.
Off
‑
balance sheet arrangements
Commercial commitments
We disclose the maximum potential exposure
of certain guarantees, as well
as possible recourse provisions
that may allow us to recover from
third parties amounts paid
out under such guarantees. The maximum
potential exposure does not allow
any discounting of our assessment of actual
exposure under the
guarantees. The information below
reflects our maximum potential exposure
under the guarantees, which is
higher than our assessment of the
expected exposure.
78
Guarantees
The following table provides
quantitative data regarding our
third
‑
party guarantees. The maximum
potential
payments represent a worst
‑
case scenario, and do not
reflect our expected outcomes.
Maximum potential payments
December 31, ($ in millions)
2023
2022
Performance guarantees
3,451
4,300
Financial guarantees
94
96
Total
3,545
4,396
The carrying amount of liabilities
recorded in the Consolidated
Balance Sheets reflects our best estimate of
future payments, which we may incur
as part of fulfilling our guarantee
obligations. In respect of the above
guarantees, the carrying amounts
of liabilities at December 31, 2023
and 2022,
were not significant.
In addition, in the normal course
of bidding for and executing
certain projects, we have entered
into standby
letters of credit, bid/performance bonds
and surety bonds (collectively “performance
bonds”) with various
financial institutions. Customers
can draw on such performance
bonds in the event that we do not fulfill
our
contractual obligations. We would then have
an obligation to reimburse the
financial institution for amounts
paid under the performance bonds.
At December 31, 2023
and 2022, the total outstanding
performance
bonds aggregated to $3.1 billion
and $2.9 billion, respectively. There have been no significant
amounts
reimbursed to financial institutions
under these types of arrangements
in 2023 and 2022.
For additional descriptions of our performance,
financial and indemnification
guarantees see “Note 15 -
Commitments and contingencies”
to our Consolidated Financial
Statements.
Item 6.
Directors, Senior Management
and Employees
—
Summary of corporate governance
approach
Corporate governance - general principles
ABB is committed to the highest international
standards of corporate governance
and this is reinforced in its
structure, processes and rules as
outlined in this report. In line
with this, ABB complies with the general
principles as set forth in the Swiss
Code of Best Practice for Corporate
Governance, as well as those of
the
capital markets where its shares are
listed and traded. In addition
to the provisions of the Swiss Code of
Obligations, ABB’s key principles and
rules on corporate governance
are laid down in ABB’s Articles of
Incorporation, the ABB Ltd Board
Governance Rules (which include
the governance rules of ABB’s Board
committees and the ABB Ltd Related
Party Transaction Policy, which defines the criteria to determine
the
independence of the members of
ABB Ltd’s Board of Directors), and
the ABB Code of Conduct.
These
documents are available on
ABB’s website at
https://new.abb.com/about/corporate-governance
. It is the duty
of ABB’s Board of Directors (the Board)
to review and amend or propose
amendments to those documents
from time to time to reflect the
most recent developments and practices,
as well as to ensure compliance
with
applicable laws and regulations.
Shareholders and other interested parties
may communicate with the
Chairman of the Board or the independent
directors by writing to ABB Ltd (Attn: Chairman
of the
Board/independent directors), at Affolternstrasse
44, CH-8050 Zurich, Switzerland.
Swiss corporate law has been revised,
effective as of January 1, 2023. The
main objectives of the revision
were to strengthen shareholder
rights, improve corporate governance
and modernize corporate law
in
general. Swiss corporations are required
to amend their articles of incorporation
and other organizational
regulations, as applicable, for compliance
with the new law by the end of 2024
at the latest. The shareholders
of ABB approved the necessary
changes to ABB’s Articles of Incorporation
as proposed by the Board at
ABB’s Annual General Meeting in March
2023.
79
Compensation governance and Board and EC compensation
Information about ABB’s compensation governance
as well as Board and Executive Committee
(EC)
compensation and shareholdings
is provided in the section titled "Compensation"
below.
—
Board of Directors
Board and Board committees (2023–2024 Board term)
Board of Directors
Chairman:
Gunnar Brock
Denise C. Johnson
Vice
‑
Chairman:
David Constable
Jennifer Xin-Zhe Li
Frederico Fleury Curado
Geraldine Matchett
Lars Förberg
David Meline
Finance, Audit and Compliance
Committee
Governance and Nomination
Committee
Compensation
Committee
David Meline (chairman)
Peter R. Voser (chairman)
Frederico Fleury Curado
(chairman)
Gunnar Brock
Lars Förberg
David Constable
Denise C. Johnson
Jennifer Xin-Zhe Li
Jennifer Xin
‑
Zhe Li
Geraldine Matchett
Jacob Wallenberg
Board governance
The Board
The Board defines the ultimate direction
of the business of ABB and
issues the necessary instructions.
It
determines the organization of the
ABB Group and appoints, removes
and supervises the persons entrusted
with the executive management
and representation of ABB. The internal
organizational structure and
the
definition of the areas of responsibility
of the Board, as well
as the information and control instruments
vis-à-vis the Executive Committee
are set forth in the ABB Ltd
Board Governance Rules (available
at
https://new.abb.com/about/corporate-governance
).
The Board takes decisions as a whole,
supported by its three committees:
the Finance, Audit and
Compliance Committee (FACC), the Governance and
Nomination Committee (GNC), and
the Compensation
Committee (CC). These committees
assist the Board in its tasks and
report regularly to the Board.
The Board
and its committees meet regularly
throughout the year.
The directors and officers of a Swiss corporation
are bound, as specified in
the Swiss Code of Obligations,
to
perform their duties with all due
care, to safeguard the interests of
the corporation in good
faith and to extend
equal treatment to shareholders
in like circumstances. Prior to proposing
new candidates for election
to the
Board, checks are performed
to ensure that they are independent
and that there are no conflicts of interest.
80
The Swiss Code of Obligations does
not specify what standard
of due care is required of the directors
of a
corporate board. However, it is generally held
by Swiss legal scholars and
jurisprudence that the directors
must have the requisite capability
and skills
to fulfill their function, and must
devote the necessary time to
the
discharge of their duties. Moreover, the directors
must exercise all due
care that a prudent and diligent
director would have taken in like
circumstances. Finally, the directors are required
to take actions in the best
interests of the corporation and may
not take any actions that may be
harmful to the corporation.
Although the Swiss Code of Obligations
does not discuss specifically
conflicts of interest for board
members,
the ABB Ltd Board Governance Rules
(available at
https://new.abb.com/about/corporate-governance
) state
that Board members shall avoid
entering into any situation
in which their personal or financial
interests
may
conflict with the interests of ABB.
Chairman of the Board
The Chairman is elected by the shareholders
to represent their interests in creating
sustainable value
through
effective governance. In addition, the
Chairman (1) takes provisional
decisions on behalf of the Board on
urgent matters where a regular Board
decision cannot be obtained,
(2) calls for Board meetings and sets the
related agendas, (3) interacts with
the CEO and other EC members
on a more frequent basis
outside of
Board meetings and (4) represents
the Board internally and
in the public sphere.
Vice-Chairman of the Board
The Vice
‑
Chairman is elected by the Board
and handles the responsibilities
of the Chairman to the extent
the
Chairman is unable to do so or would
have a conflict of interest in doing
so. He also acts as
counselor/advisor to the Chairman
on any matters that
are Company or Board relevant and as
appropriate or
as the Chairman may require
and with a particular focus on strategic
aspects related to the Company
and its
business in general. In addition,
the Vice
‑
Chairman takes such other actions
as may be decided by the
Board
or requested by the Chairman.
Finance, Audit and Compliance Committee
The FACC is responsible for overseeing (1) the integrity
of ABB’s financial statements,
(2) ABB’s compliance
with legal, tax and regulatory requirements,
(3) the external auditors’ qualifications
and independence, (4) the
performance and role of ABB’s internal audit
function and the performance of
the external auditors, (5) ABB’s
capital structure, funding requirements
and financial and risk policies, and
(6) ABB’s implementation and
maintenance of an integrity program and
internal controls designed
to mitigate integrity risk.
The FACC must comprise three or more independent
directors who have a thorough understanding
of
finance and accounting. The Chairman
of the Board and, upon invitation
by the committee’s chairman, the
CEO or other members of the Executive
Committee may participate in the
committee meetings, provided
that
any potential conflict of interest is
avoided and confidentiality
of the discussions is maintained.
In addition, the
chief integrity officer, the head of internal audit and
the external auditors participate
in the meetings as
appropriate. The Board has determined
that David Meline, chairman of
the FACC, is an audit committee
financial expert,
in accordance with the rules
of the New York Stock Exchange.
Governance and Nomination Committee
The GNC is responsible for (1) overseeing
corporate governance practices within
ABB, (2) overseeing ABB’s
sustainability agenda (including
corporate social responsibility, health, safety and environment),
(3) nominating candidates for the
Board, the role of the CEO and other
positions on the Executive
Committee,
and (4) succession planning
and employment matters relating
to the Board and the Executive
Committee. The GNC is also responsible
for maintaining an orientation
program for new Board members and
an ongoing education
program for existing Board members.
The GNC must comprise three
or more independent directors. Upon
invitation by the committee’s
chairman,
the CEO or other members of the
Executive Committee may participate
in the committee meetings,
provided
that any potential conflict of interest is
avoided and confidentiality
of the discussions is maintained.
Compensation Committee
The CC is responsible for compensation
matters relating to the Board
and the Executive Committee.
81
The CC must comprise three or
more directors who are elected
by the shareholders. The Chairman
of the
Board and, upon invitation by the committee’s
chairman, the CEO or other members
of the Executive
Committee may participate in the
committee meetings, provided
that any potential conflict of interest is
avoided and confidentiality of
the discussions is maintained.
Board membership
Board composition
In proposing individuals to be elected
to the Board, the Board seeks
to align the composition and
skills of the
Board with the Company’s strategic needs,
business portfolio, geographic
reach and culture. The Board
strives for diversity in all aspects including
gender, nationalities, ethnicity, geographic/regional experience
and business experience. In addition,
the average tenure of the members
of the Board should be
well
‑
balanced. The Board also considers
the number of other mandates of each
Board member to ensure
that he/she will have sufficient time to dedicate
to his/her role as an ABB Board member.
Elections and term of office
The members of the Board of Directors
and the Chairman
of the Board as well as the members
of the
Compensation Committee are elected
by the shareholders at the general
meeting of shareholders for a term
of office extending until completion
of the next ordinary general
meeting of shareholders. Members whose
terms of office have expired shall be
immediately eligible for re
‑
election. ABB’s Articles of Incorporation
(available at
https://new.abb.com/about/corporate-governance
) do not provide for the retirement of directors
based on their age. However, an age limit for members
of the Board is set forth in
the ABB Ltd Board
Governance Rules (available
at
https://new.abb.com/about/corporate-governance
), although waivers are
possible and subject to Board discretion.
If the office of the Chairman of the
Board of Directors or any position
on the Compensation Committee becomes
vacant during a Board term,
the Board of Directors may appoint
(shall appoint in the case of the Chairman
of the Board) another individual
from among its members to that
position for the remainder of that
term. The Board of Directors
shall consist of no less than
7 and no more
than 13 members.
Members of the Board (2023–2024 Board term)
Board Experience
Corporate Officer
Experience
Other Business Experience
Global Experience
Country of Origin /
Nationality
Gender
Non
-
Executive
Independent
Board Member
ABB Board
Tenure (years)
Other Public
Board
Experience
CEO
CFO
Operations
Risk
Management
Sustainability
Digital /
Technology
Peter R. Voser
9
●
●
●
●
●
●
●
●
CH
M
Yes
Yes
Jacob Wallenberg
25
●
●
●
●
●
●
●
SE
M
Yes
Yes
Gunnar Brock
6
●
●
●
●
●
●
SE
M
Yes
Yes
David Constable
9
●
●
●
●
●
●
CA, US
M
Yes
Yes
Frederico Fleury Curado
8
●
●
●
●
●
●
●
BR, PT
M
Yes
Yes
Lars Förberg
7
●
●
●
●
●
SE, CH
M
Yes
Yes
Denise C. Johnson
1
●
●
●
●
●
●
US
F
Yes
Yes
Jennifer Xin-Zhe Li
6
●
●
●
●
●
●
●
CN, CA
F
Yes
Yes
Geraldine Matchett
6
●
●
●
●
●
CH, UK, FR
F
Yes
Yes
David Meline
8
●
●
●
●
US, CH
M
Yes
Yes
82
Peter R. Voser
and Chairman of ABB’s Board of
Directors since April 2015. He was
also ABB’s Chief Executive Officer
from April 2019 to February 2020.
He is a member of the board of directors
of IBM
Corporation (US). He is also a member
of the
board of directors of Temasek Holdings (Private)
Limited (Singapore) as well
as chairman of the
board of PSA International Pte Ltd (Singapore),
one of its subsidiaries. In addition,
he is the
chairman of the board of trustees of
the St. Gallen
Foundation for International Studies.
He was
previously the chief executive officer of
Royal
Dutch Shell plc (The Netherlands).
Mr. Voser was
born in 1958 and is a Swiss citizen.
Jacob Wallenberg
member of ABB’s Board of
Directors since June 1999 and Vice-
Chairman since April 2015. He
is
the chairman of the board of
Investor AB (Sweden). He is vice
‑
chairman of the
boards of Telefonaktiebolaget LM Ericsson,
Wallenberg Investments AB, FAM AB and
Patricia Industries (all Sweden).
He is also a
member of the board of directors of
the Knut and
Alice Wallenberg Foundation as well as a
member of the nomination committee
of SAS AB
(both Sweden). Mr. Wallenberg was born in 1956
and is a Swedish citizen.
Gunnar Brock
of ABB’s Board of Directors since
March 2018. He is chairman of
the
boards of directors of Neptunia
Invest AB and Stena AB (both
Sweden) and a member of the boards
of directors
of Investor AB and Patricia Industries
(both
Sweden). He was formerly president
and chief
executive officer of Atlas Copco AB (Sweden).
Mr. Brock was born in 1950 and is a Swedish
citizen.
David Constable
member of ABB’s Board of
Directors since April 2015. He is
the
chairman of the board of directors
and chief executive officer of Fluor
Corporation (US). He was formerly
the chief
executive officer and president as well
as a
member of the board of directors of
Sasol Limited
(South Africa). He joined Sasol after
more than 29
years with Fluor Corporation (US).
Mr. Constable
was born in 1961 and is a Canadian
and US
citizen.
Frederico Fleury Curado
member of ABB’s Board of
Directors since April 2016. He is
a
member of the boards of directors
of Transocean Ltd. (Switzerland)
and LATAM
Airlines Group S.A. (Chile). Through
April 2023, he was a member of
the board of
directors of Ultrapar S.A. (Brazil). He
was
formerly the chief executive officer of Ultrapar
S.A. and Embraer S.A. (both Brazil).
Mr. Curado
was born in 1961 and is a Brazilian
and
Portuguese citizen.
Lars Förberg
ABB’s Board of Directors since April
2017. He is co
‑
founder and
managing partner of Cevian Capital.
Mr. Förberg was born in 1965 and is
a Swedish and Swiss citizen.
Denise C. Johnson
member of ABB’s Board of
Directors since March 2023. She is
a member of the boards of directors
of the US National Mining
Association, the National Association
of
Manufacturers and the US Chamber
of
Commerce (all US). Through December
2023,
she was a member of the board
of directors of the
Mosaic Company (US). Ms. Johnson
is group
president of Caterpillar Inc. (US),
responsible for
Resource Industries. Before
joining Caterpillar in
2011, she worked for General Motors (GM) in
different managerial roles in the US and as
president and managing director
of GM in Brazil.
Ms. Johnson was born in 1966
and is a US
citizen.
83
Jennifer Xin-Zhe Li
member of ABB’s Board of
Directors since March 2018. She is
a member of the boards of directors
of SAP SE (Germany) and Full
Truck Alliance Co. Ltd. (Cayman Islands/P.R.C.).
Through February 2023, she was
a member of
the board of directors of Kone Oy
(Finland).
Ms. Li is a founder and general
partner of
Changcheng Investment Partners
(P.R.C.),
a
private investment fund. From 2008
to 2018, she
served as chief financial officer of Baidu
Inc.
(P.R.C.)
and chief executive officer of
Baidu
Capital (P.R.C.). Prior to that, Ms. Li spent 14
years with General Motors, holding
various senior
finance positions, including
chief financial officer
of GM China and corporate controller
for GMAC
North American Operations.
Ms. Li was born in
1967 and is a Canadian
citizen.
Geraldine Matchett
member of ABB’s Board of
Directors since March 2018.
Through September 2023, she was
the
co-chief executive officer and
the chief financial officer of DSM-Firmenich
(Switzerland), and prior to the DSM-Firmenich
merger of DSM (The Netherlands). She
was
previously the chief financial officer of SGS
Ltd
(Switzerland). Prior to joining
SGS she worked as
an auditor at Deloitte Ltd (Switzerland)
and
KPMG LLP (UK). Ms. Matchett was
born in 1972
and is a Swiss, British and French
citizen.
David Meline
ABB’s Board of Directors since April
2016. He is a member of the boards
of directors of HP Inc. and Pacific
Biosciences of California, Inc. (both
US). From 2011 through 2022, he held chief
financial officer roles at Moderna Inc., Amgen
Inc.
and the 3M Company (all US).
From 2008
through 2011 he was the corporate controller and
chief accounting officer of the 3M Company
(US).
Prior to joining 3M, Mr. Meline worked for more
than 20 years for General Motors Company
(US).
Mr. Meline was born in 1957 and is a US and
Swiss citizen.
As of December 31, 2023, none of
the Board members held
any official functions or political posts.
Further
information on ABB’s Board members
can be found on ABB’s website under the
ABB Board of Directors link
(available at
https://new.abb.com/about/corporate-governance
).
Board meetings and attendance
The Board and its committees have
regularly scheduled meetings
throughout the year. These meetings are
supplemented by additional
meetings (either in person or by conference
call), as necessary. Board meetings
are convened by the Chairman or upon
request by any other Board member
or the CEO. Documentation
covering the various items of
the agenda for each Board meeting
is sent out in advance to each
Board
member in order to allow each member
time to study the covered matters
prior to the meetings. Each Board
meeting has a private session without
management or others being
present. Decisions made at the Board
meetings are recorded in written
minutes of the meetings. Some decisions
are also taken by circular
resolution.
The table below shows the number of
meetings held during
2023 by the Board and its committees,
their
average duration, as well as the attendance
of the individual Board
members. The Board meetings shown
include a strategic retreat attended
by the members of the
Board and the EC.
84
2023 Board and Board
Committee Meetings
Pre Annual General Meeting
2023
Post Annual General
Meeting 2023
Board
Board
Meetings and attendance
Mtg.
Conf.
Call
FACC
GNC
CC
Mtg.
Conf.
Call
FACC
GNC
CC
Average duration (hours)
7.75
1
2.75
1.75
1.75
7.75
1.25
3.25
1.25
1.25
Number of meetings
1
1
3
2
2
4
2
4
3
5
Meetings attended:
Peter R. Voser
1
1
2
4
2
3
Jacob Wallenberg
1
1
2
4
1
3
Gunnar Brock
1
1
3
4
2
4
David Constable
1
1
2
4
2
5
Frederico Fleury Curado
1
1
2
4
2
5
Lars Förberg
1
1
2
4
2
3
Denise C. Johnson
(1)
4
2
4
Jennifer Xin-Zhe Li
1
1
1
2
4
2
3
4
Geraldine Matchett
1
1
3
4
1
3
David Meline
1
1
3
4
2
4
Satish Pai
(2)
1
1
2
(1)
Elected at ABB’s Annual General Meeting 2023.
(2)
Did not stand for re-election at ABB’s Annual General Meeting 2023.
Mandates of Board members outside the ABB Group
No member of the Board may hold
more than ten additional
mandates,
of which no more than four may be
in
listed companies. Certain types
of mandates, such as those
in our subsidiaries, those in the same
group of
companies and those in non
‑
profit and charitable institutions,
are not subject to those limits.
Additional details
can be found in Article 38 of ABB’s Articles
of Incorporation (available
at
https://new.abb.com/about/corporate-governance
).
Business relationships between ABB and its Board members
This section describes important business
relationships between ABB and
its Board members, or companies
and organizations represented
by them.
Fluor Corporation (Fluor) is an important
customer of ABB. ABB
sells primarily electrical switchgears,
control
systems and electrical solutions
through its Electrification
and Process Automation businesses
to Fluor.
David Constable is the chairman of
the board of directors and CEO of
Fluor.
Caterpillar Inc. (Caterpillar) is an important
customer of ABB. ABB
sells primarily motors and generators
through its Motion business to Caterpillar. Denise
Johnson is a group president of Caterpillar.
After reviewing the level of business
with Fluor and Caterpillar, the Board has determined
that ABB’s
business relationships
with these companies are not unusual
in their nature or conditions and do not
constitute material business relationships.
As a result, the Board concluded
that all members of the Board are
independent.
These determinations were made in
accordance with ABB Ltd's
Related Party Transaction Policy, which is
contained in the ABB Ltd Board
Governance Rules (available
at
https://new.abb.com/about/corporate-
governance
).
85
Information and control systems of the Board vis-à-vis the Executive Committee
Information from the Executive Committee
In accordance with the ABB Board
Governance Rules (available
at
https://new.abb.com/about/corporate-
governance
), the CEO reports regularly to the Board
about ABB’s overall business and
when circumstances
require on any extraordinary events
that may arise.
This includes:
•
•
•
matters of strategy and compliance);
and
•
At each Board meeting, Board
members are briefed by
the Chairman, CEO, CFO and other
EC members on
ABB’s business performance and on
material developments affecting ABB.
Outside of Board meetings,
Board members generally channel
any requests for information
through the Chairman. Board members
also
obtain information through offsite retreats
with the Executive Committee and
visits to ABB sites. In addition,
Board members obtain information
through the Board committees in which
they participate and which are
also attended by relevant EC members
and management representatives
from human resources, finance,
legal and the business.
Internal Audit
ABB has an Internal Audit team
that provides independent objective
assurance and other services
to help
ensure that ABB operates in accordance
with applicable laws as well as internal
policies and procedures.
Internal Audit reports to the FACC and to the CFO. The
FACC reviews and approves the internal audit plan,
and material changes to the plan.
Investigations of potential
fraud and inappropriate business
conduct are an
integral part of the internal audit
process. Depending on circumstances,
Internal Audit may act together
with
ABB’s Integrity Investigations and Monitoring
department,
which is part of ABB’s Integrity function.
Internal
Audit reports on a regular basis
its main observations and recommendations
to the relevant members of
the
EC and to the FACC as appropriate.
Risk Management
ABB has an enterprise risk management
program (ERM) in place which
takes into account ABB’s size and
complexity. ERM provides the EC and the Board with a
comprehensive and holistic
view of the risks facing
the business. ERM involves managing
the acceptance of risk to achieve
the objectives of the business.
The
ERM process is typically cyclical
in nature, conveying the idea
of continuous refinement of the risk
management approach in a dynamic
business environment. Furthermore,
ABB runs a mitigation process
for
the identified risks that is key to
the success of this process. ERM
assessments are both top down
and
bottom up. They cover strategic,
financial, and operational
risks, both current and long term. Key
risks
identified and managed
in 2023 were those related to information
and cyber security,
availability of
components and price volatility, lack of qualified and
available resources and
geopolitical instability. ERM
results are reported to the FACC and the entire Board.
This information becomes part of
the overall strategic
and risk discussions by the Board
to help create value for stakeholders.
86
Information to the Board and the Finance, Audit and Compliance Committee
Supervisory and control instruments
vis-à-vis the auditors
Our auditors, KPMG, attend each
meeting of the FACC and each meeting includes
a private session between
the auditors and the FACC without management
being present. In 2023, the
FACC had 7 meetings (either in
person or via telephone call). On at
least an annual basis, the
FACC reviews and discusses with the external
auditors all significant relationships
that the auditors have with the Company
that could impair their
independence. The FACC reviews the auditor engagement
letter and the audit plan including
discussion of
scope, staffing, locations and general
audit approach. The FACC also reviews and
evaluates the auditors’
judgment on the quality and appropriateness
of the Company’s accounting principles
as applied in the
financial reporting. In addition, the
FACC approves in advance any non-audit services
to be performed by the
auditors.
At least annually, the FACC obtains and reviews a report by the auditors
that includes discussion on:
•
•
•
•
auditors and management as well
as the related ramifications;
and
•
or schedule of audit differences.
Taking into account the opinions of management, the FACC evaluates the qualifications,
independence and
performance of the auditors. The
FACC reports the material elements of its supervision
of the auditors to the
Board and on an annual basis
recommends to the Board the auditors
to be proposed for election at
the
general meeting of shareholders.
87
—
Executive Committee
Composition of the Executive Committee (at December 31, 2023)
Björn Rosengren
Chief Executive Officer
CORPORATE OFFICERS
BUSINESS AREA PRESIDENTS
Timo Ihamuotila
Morten Wierod
Chief Financial Officer
Electrification
Carolina Granat
Peter Terwiesch
Chief Human Resources Officer
Process Automation
Karin Lepasoon
Tarak
Mehta
Chief Communications and Sustainability
Officer
Motion
Sami Atiya
Robotics & Discrete Automation
Executive Committee responsibilities and organization
The Board has delegated the executive
management of ABB to the CEO.
The CEO and,
under his direction,
the other members of the Executive
Committee are responsible
for ABB’s overall business and affairs and
day-to-day management. The CEO
reports to the Board regularly, and whenever
extraordinary circumstances
so require, on the course of ABB’s business
and financial performance
and on all organizational
and
personnel matters, transactions and
other issues material to the
Group. Each member of the Executive
Committee is appointed and discharged
by the Board.
Members of the Executive Committee (at December 31, 2023):
Björn Rosengren
Chief Executive Officer and member
of the Executive Committee
effective March 2020. He is a
member of the board of directors of
the World Childhood Foundation
(Sweden).
Before joining ABB, he was the president
and
chief executive officer of Sandvik AB
(Sweden)
since 2015. Prior to that, Mr. Rosengren was
the
chief executive officer of Wärtsilä Corporation
(Finland) from 2011 to 2015. He held a variety of
management roles at Atlas Copco
AB (Sweden)
from 1998 to 2011. Mr. Rosengren was born in
1959 and is a Swedish citizen.
Timo Ihamuotila
Chief Financial Officer and member
of the Executive Committee
effective April 2017. He is a
member of the board of directors of
SoftwareONE Holding AG (Switzerland).
Through
May 2023, he was a member of the board
of
directors of Hitachi Energy Ltd
(Switzerland).
From 2009 to 2016, Mr. Ihamuotila was chief
financial officer and an executive vice president
of
the Nokia Corporation (Finland).
From 1999 to
2009, he held various senior
roles with Nokia.
Mr. Ihamuotila was born in 1966 and is a Finnish
citizen.
88
Carolina Granat
Chief Human Resources Officer and
member of the Executive Committee
effective January 2021. She joined
ABB in 2020 as Head of People
Development. Prior to that, she was globally
responsible for human resources
at the machining
solutions business area of Sandvik
AB (Sweden).
Ms. Granat was born in 1972 and
is a Swedish
citizen.
Karin Lepasoon
Communications and Sustainability
Officer and member of the Executive
Committee effective October 2022.
She joined ABB from Vattenfall,
where she served as head of group
communications and public
& regulatory affairs
and member of the company’s group executive
management team. Prior to that, Ms.
Lepasoon
also served as head of global marketing
and
communications at SEB, director of
sustainability,
communications and HR at Nordic Capital,
head
of strategy and chief of staff at Skanska, and
held
various other roles in the area of communications.
Ms. Lepasoon was born in 1968 and
is a Swedish
citizen.
Morten Wierod
President of the Electrification
business area effective April 2022
and has been a member of the
Executive Committee since April
2019, when he was appointed
President of the
Motion business area. From 2015
until April 2019,
he was the Managing Director of
the Drives
business unit in the Robotics and Motion
division.
During 2011 to 2015, Mr. Wierod was the
Managing Director of the Control
Products
business unit in the Low Voltage Products
division. Between 1998 to 2011, he held various
management roles with ABB.
Mr. Wierod was born
in 1972 and is a Norwegian
citizen.
Peter Terwiesch
President of the Process
Automation business area and
member of the Executive
Committee effective January 2015
(Process Automation known as
Industrial
Automation from 2017 until 2020).
He is a
member of the board of directors of
Hilti AG
(Liechtenstein). From 2011 to 2014,
Mr. Terwiesch
was Head of ABB’s Central Europe
region. He was ABB’s Chief Technology Officer
from 2005 to 2011. From 1994 to 2005, he held
several positions with ABB. Mr. Terwiesch was
born in 1966 and is a German and Swiss
citizen.
Tarak
Mehta
President of the Motion business
area effective April 2022 and has
been a member of the Executive
Committee since October 2010.
He
is a member of the board of directors
of Prysmian
S.p.A. (Italy). He was President
of the
Electrification business area since April
2019 and
President of the Electrification
Products division
from 2016 to 2019. From October 2010
through
December 2015, he was President of
the Low
Voltage Products division. From 2007 to 2010, he
was Head of ABB’s transformers business.
Between 1998 and 2006, he held
several
management positions with ABB. Mr. Mehta was
born in 1966 and is a US and Swiss
citizen.
Sami Atiya
of the Robotics & Discrete
Automation business area effective
April 2019 and has been a member
of the Executive Committee since
June 2016. He is a member of
the board of
directors of SGS SA (Switzerland). He
had
previously been President of the Robotics
and
Motion division since January
2017. From June to
December 2016 he was President
of the Discrete
Automation and Motion division. Prior
to joining
ABB, Mr. Atiya held senior roles at Siemens in
Germany from 1997 to 2015, including
as chief
executive officer of the mobility and logistics
division in the infrastructure and cities
sector from
2011. Mr.
Atiya was born in 1964 and
is a
German citizen.
89
On October 30, 2023, ABB announced
that
Mathias Gaertner
has been appointed General
Counsel and Company Secretary
and a member of
the Executive Committee. He will
join ABB in 2024
from Holcim, a global construction materials
company,
where he has been head legal
&
compliance and a member of its group
executive
committee since 2021. Mr. Gaertner was born in
1973
and is a German citizen.
Further information about the members
of the
Executive Committee can be
found on ABB’s
website under the Executive Committee
link
(available at
https://new.abb.com/about/corporate-
governance
).
Mandates of EC members outside the ABB Group
No member of the EC may hold more
than five additional mandates,
of which no more than one
may be in a
listed company. Certain types of mandates, such as
those in our subsidiaries,
those in the same group of
companies and those in non
‑
profit and charitable institutions,
are not subject to those limits.
Additional details
can be found in Article 38 of ABB’s Articles
of Incorporation (available
at
https://new.abb.com/about/corporate-governance
).
Business relationships between ABB and its EC members
The Company has determined that
there are no important business
relationships between ABB and
its EC
members, or companies and organizations
represented by them. This determination
was made in
accordance with ABB Ltd's Related
Party Transaction Policy, which is contained in the ABB Ltd Board
Governance Rules (available
at
https://new.abb.com/about/corporate-governance
).
—
Shares
Share capital of ABB
At December 31, 2023, ABB’s ordinary share
capital (including
treasury shares) as registered with the
commercial register amounted
to CHF 225,840,309, divided into
1,882,002,575 fully paid registered
shares
with a par value of CHF 0.12 per share.
ABB Ltd’s shares are listed on the SIX Swiss
Exchange and the NASDAQ
OMX Stockholm Exchange.
On
April 25, 2023, ABB announced
its plans to delist its American
Depositary Receipts (ADR) from
the New York
Stock Exchange, and ultimately
to seek to deregister its ADRs and
the underlying shares under
the US
Securities Act of 1934. The delisting
became effective on May 23, 2023, and
the ADR program was
converted into a sponsored Level
I ADR program,
trading on the US over-the-counter
market.
At
December 31, 2023, ABB Ltd had
a market capitalization based
on outstanding shares (total number of
outstanding shares: 1,841,507,246)
of approximately CHF 67 billion
($82 billion, SEK 820 billion). The only
consolidated subsidiary
in the ABB Group with listed shares
is ABB India Limited, Bangalore,
India, which is
listed on the BSE Ltd. (Bombay
Stock Exchange) and the National
Stock Exchange of India. At December
31,
2023, ABB Ltd, Switzerland, directly
or indirectly owned 75 percent
of ABB India Limited, Bangalore,
India,
which at that time had a market
capitalization of approximately
INR 990 billion.
90
Stock exchange listings (at December 31, 2023)
Stock exchange
Security
Ticker symbol
ISIN code
SIX Swiss Exchange
ABB Ltd, Zurich, share
ABBN
CH0012221716
SIX Swiss Exchange
ABB Ltd, Zurich, share
buyback
(second trading line)
ABBNE
CH0357679619
NASDAQ OMX Stockholm
Exchange
ABB Ltd, Zurich, share
ABB
CH0012221716
BSE Ltd. (Bombay Stock
Exchange)
ABB India Limited, Bangalore,
share
ABB
(1)
INE117A01022
National Stock Exchange
of India
ABB India Limited, Bangalore,
share
ABB
INE117A01022
(1)
Also called
Scrip ID.
Share repurchases and cancellation
Following the introduction of a capital
band as approved by ABB’s
shareholders at its Annual General
Meeting 2023, the Board of Directors
resolved to cancel 82,742,500 shares
repurchased under ABB’s
2021/22 and 2022/23 share buyback
programs. These shares
were cancelled in June 2023, resulting
in a
reduced total number of issued
ABB Ltd shares of 1,882,002,575.
In April 2023, ABB launched a follow-up
share buyback program of up to $1 billion.
This new program is
consistent with ABB’s capital allocation
principles and its capital structure
optimization program targeting
to
maintain a strong investment grade
rating.
Under that share buyback
program, ABB repurchased a
total of
17,167,000 shares as per December
31, 2023.
ABB intends to use the capital band
(see “Capital band” below) again
for cancellation of shares repurchased
under the share buyback program 2023/24.
Further information on ABB’s share buyback
programs can be found at
https://global.abb/group/en/investors/investor-and-shareholder-resources/share-buybacks
.
In addition, ABB repurchased a total of
9,100,000 shares as per December
31, 2023, primarily for use in
connection with employee share
programs. Further information
can be found at
https://www.abb.com/investorrelations
.
Changes to the ordinary share capital
Except for the share cancellations
described above and in ABB’s Annual
Report
2022
and 2021 on Form
20-F, there were no other changes to ABB’s ordinary share capital
during 2023, 2022 and 2021.
Convertible bonds and options
ABB does not have any bonds outstanding
that are convertible into ABB shares.
For information about
options on shares issued by ABB, please
refer to “Note 19 – Stockholders'
equity” to ABB’s Consolidated
Financial Statements.
91
Contingent share capital
At December 31, 2023, ABB’s share capital
may be increased
by an amount not to exceed CHF 24,000,000
through the issuance of up to 200,000,000
fully paid registered shares
with a par value of CHF 0.12 per share
through the exercise of conversion
rights and/or warrants granted in
connection with the issuance
on national
or international capital markets of
newly or already issued
bonds or other financial market
instruments. If this
contingent share capital were fully
issued,
this would increase the existing share
capital by approximately
10.6
percent.
The contingent share capital has
not changed during
the last three years.
At December 31, 2023, ABB’s share capital
may be increased
by an amount not to exceed CHF 1,200,000
through the issuance of up to 10,000,000
fully paid registered shares
with a par value of CHF 0.12 per
share
through the exercise of warrant rights
granted to its shareholders. If this
contingent share capital
were fully
issued,
this would increase the existing share
capital by approximately 0.5 percent.
This contingent share
capital has not changed during
the last three years. The Board may grant
warrant rights not taken up by
shareholders for other purposes in
the interest of ABB.
The pre
‑
emptive rights of the shareholders
are excluded in connection
with the issuance of convertible
or
warrant-bearing bonds
or other financial market instruments
or the grant of warrant rights.
The then current
owners of conversion rights and/or
warrants will be entitled to subscribe
for new shares. The conditions
of the
conversion rights and/or warrants will
be determined by the Board.
The acquisition of shares through
the exercise of warrants and
each subsequent transfer of
the shares will be
subject to the restrictions of ABB’s
Articles of Incorporation (see “Limitations
on transferability of shares
and
nominee
registration” in the Shareholders section
below) (available at
https://new.abb.com/about/corporate-
governance
).
In connection with the issuance
of convertible or warrant-bearing
bonds or other financial market instruments,
the Board is authorized to restrict or deny
the advance subscription
rights of shareholders if such bonds
or
other financial market instruments are
for the purpose of financing
or refinancing the acquisition
of an
enterprise, parts of an enterprise,
participations or new investments
or an issuance on national
or
international capital markets.
If the Board denies advance subscription
rights, the convertible or
warrant
‑
bearing bonds or other financial
market instruments will be issued
at the relevant market conditions
and the new shares will be issued
pursuant to the relevant market
conditions taking into account
the share
price and/or other comparable instruments
having a market price. Conversion
rights may be exercised during
a maximum ten
‑
year period, and warrants may be
exercised during a maximum
seven
‑
year period, in each
case from the date of the respective
issuance. The advance
subscription rights of the shareholders
may be
granted indirectly.
At December 31, 2023, ABB’s share capital
may be increased
by an amount not to exceed CHF 11,284,656
through the issuance of up to 94,038,800
fully paid shares with a par
value of CHF 0.12 per share to
employees. If this contingent share
capital were fully issued,
this would increase the existing share
capital by
approximately 5.0 percent.
This contingent share capital
has not changed during the last
three years. The
pre
‑
emptive and advance subscription
rights of ABB’s shareholders
are excluded. The shares or rights to
subscribe for shares will be issued
to employees pursuant to one or
more regulations to be issued by
the
Board, taking into account performance,
functions, level of responsibility
and profitability criteria. ABB
may
issue shares or subscription rights
to employees at a price lower
than that quoted on a stock exchange.
The
acquisition of shares within the context
of employee share
ownership and each subsequent
transfer of the
shares will be subject to the restrictions
of ABB’s Articles of Incorporation
(see “Limitations on transferability
of shares and nominee registration”
in the Shareholders section
below).
92
Capital band
In line with the revised provisions of
the Swiss Code of Obligations
effective since January 1, 2023,
shareholders approved
at ABB’s Annual General Meeting 2023
the introduction of a capital band
ranging
from CHF 212,192,469 (lower limit)
to CHF 259,346,349
(upper limit), i.e. from 90 percent
to 110 percent of
the share capital entered in the
commercial register at that time.
The capital band replaced the authorized
capital, which expired in March 2023
and no longer exists under the
revised law.
Within this capital band, the Board of
Directors is authorized
to increase or reduce the share capital
once or
several times until March 23, 2028, or
until an earlier expiry
of the capital band. In the event of a capital
increase within the capital band,
the Board is authorized,
to the extent necessary, to determine the date of
issue of new shares, the issue price,
the type of contribution, the conditions
for the exercise of pre
‑
emptive
rights and the beginning date
for dividend entitlement. In
this regard, the Board may issue
new shares by
means of a firm underwriting through
a financial institution, a syndicate
of financial institutions or another
third
party and a subsequent offer of these shares
to the existing shareholders
or third parties (if the pre-emptive
rights of the existing shareholders
have been withdrawn or have
not been duly exercised).
The Board is
entitled to permit,
to restrict or to exclude the
trade with pre-emptive rights. It may
permit the expiration of
pre
‑
emptive rights that have not been
duly exercised,
or it may place such rights
or shares as to which
pre
‑
emptive rights have been granted,
but not duly exercised,
at market conditions or may use
them
otherwise in the interest of the Company. The Board is
further authorized to restrict or deny
the pre
‑
emptive
rights of shareholders and allocate
such rights to third parties
if the shares are to be used (1) for
the
acquisition of an enterprise, parts
of an enterprise, or participations,
or for new investments, or, in case of a
share placement, for the financing
or refinancing of such transactions; or
(2) for the purpose of broadening
the shareholder constituency in connection
with a listing of shares on domestic
or foreign stock exchanges.
The subscription and the acquisition
of the new shares, as well as each
subsequent transfer of the
shares,
will be subject to the restrictions of
ABB’s Articles of Incorporation
(available at
https://new.abb.com/about/corporate-governance
).
If ABB’s share capital increases as a result
of an increase from ABB’s contingent
capital, the upper and lower
limits of the capital band shall
increase in an amount corresponding
to such increase in the share capital.
In the event of a capital reduction
within the capital band, the Board
of Directors is authorized,
to the extent
necessary, to determine the use of the reduction amount.
ABB used the capital band for cancellation
of shares repurchased
under the share buyback programs
2021/22 and 2022/23 and
intends to use it again for cancellation
of shares repurchased under the share
buyback program 2023/24 (see “Share
repurchases and cancellation”
above).
Exclusion of pre-emptive or advance subscription rights
Until March 23, 2028, or an earlier
expiry of the capital band,
the total number of newly issued shares
which
may be issued with the restriction
or withdrawal of (advance)
subscription rights from (i) ABB’s contingent
share capital and from (ii) ABB’s capital
band in any event shall not exceed
196,474,500 shares,
i. e. 10 percent of the share capital entered
in the commercial register
at the time when the capital band
was
introduced.
—
Shareholders
Shareholder structure
At December 31, 2023, the total number
of shareholders directly registered
with ABB Ltd was approximately
88,000 and another 550,000
shareholders held shares
indirectly through nominees. In total,
as of that date,
ABB had approximately 638,000 shareholders.
93
Significant shareholders
Under the Swiss Financial
Market Infrastructure Act, shareholders
and groups of shareholders acting
in
concert who directly or indirectly
acquire or sell shares of a listed
Swiss corporation or rights
based thereon
and thereby reach, exceed or fall
below the thresholds of 3 percent,
5 percent, 10 percent, 15 percent,
20 percent, 25 percent, 33
1
/
3
2
/
3
notify the corporation and the SIX Swiss
Exchange of such holdings.
Based on the disclosure notifications
made to ABB and the SIX Swiss
Exchange, the following
shareholders hold or control
voting rights of
3 percent or more of ABB Ltd’s issued
shares. Except where
indicated otherwise, the shareholdings
described below are based
on the notices provided to ABB and the
SIX Swiss Exchange and do
not reflect
any subsequent changes in shareholdings
and share capital and votes.
Investor AB, Sweden, disclosed to ABB
and the SIX Swiss Exchange
that as per November 9, 2015, it
owned
232,165,142 ABB Ltd shares and controlled
10.03 percent of the voting rights
in ABB Ltd
.
In its latest
quarterly financial report, Investor AB,
Sweden, disclosed that as per December
31, 2023, it owned
265,385,142 ABB Ltd shares and
controlled 14.1 percent of
the voting rights in ABB Ltd. The number
of
shares held by Investor AB does
not include shares held by Mr. Jacob Wallenberg, the chairman
of Investor
AB and a director of ABB, in his individual
capacity.
BlackRock,
Inc., U.S.A., disclosed to
ABB and the SIX Swiss Exchange
that as per June 1, 2023, it owned
82,027,197 ABB Ltd shares and controlled
5.05 percent of the voting rights
in ABB Ltd.
At December 31, 2023, to the best
of ABB’s knowledge, no other shareholder
held 3 percent or more of
ABB’s total share capital and voting rights
as registered in the commercial
register on that date.
ABB Ltd has no cross shareholdings
in excess of 5 percent of capital, or voting
rights with any other
company.
Announcements related to disclosure
notifications made by shareholders
during 2023
can be found via the
search facility on the platform of
the Disclosure Office of the SIX Swiss Exchange:
ag.com/en/resources/notifications-market-participants/significant-shareholders.html
#/.
Under ABB’s Articles of Incorporation (available
at
https://new.abb.com/about/corporate-governance
), each
registered share represents one vote.
Significant shareholders
do not have different voting rights. To our
knowledge, we are not directly or indirectly
owned or controlled
by any government or by any other
corporation or person.
Shareholders’ rights
Shareholders have the right to receive
dividends, to vote and
to execute such other rights as granted
under
Swiss law and the Articles of Incorporation
(available at
https://new.abb.com/about/corporate-governance
).
Right to vote
ABB has one class of shares and
each registered share carries
one vote at the general meeting of
shareholders. Voting rights may be exercised only
after a shareholder has been
registered in the share
register of ABB as a shareholder
with the right to vote, or with Euroclear
Sweden AB (Euroclear), which
maintains a subregister of the share
register of ABB.
A shareholder may be represented
at the general meeting
of shareholders by the independent
proxy elected
by the shareholders (“Unabhängiger
Stimmrechtsvertreter”), its legal representative
or, by means of a written
proxy, any other proxy who need not be a shareholder. If the Company
does not have an independent
proxy,
the Board of Directors shall appoint
the independent proxy for the next
general meeting of shareholders.
All
shares held by one shareholder
may be represented by one representative
only.
94
For practical reasons shareholders
must be registered in the share register
no later than 6 business
days
before the general meeting of shareholders
in order to be entitled
to vote. Except for the cases described
under “Limitations on transferability
of shares and nominee
registration”
below, there are no voting rights
restrictions limiting ABB’s shareholders’
rights.
Powers of General Meeting of Shareholders
The ordinary general meeting
of shareholders must be held
each year within 6 months after the
close of the
fiscal year of the Company; the business
report, the compensation
report,
the auditors’ reports,
and the report
on non-financial matters shall be made
available to the shareholders
by no later than 20 days prior to the
meeting.
The following powers shall
be vested exclusively in the general
meeting of shareholders:
•
•
members of the Compensation Committee,
the auditors and the independent
proxy;
•
•
balance sheet, in particular with regard
to dividends;
•
required for this purpose;
•
•
Committee pursuant to Article 34 of
the Articles of Incorporation;
•
management;
•
•
•
shareholders by law or under
the Articles of Incorporation or that are
submitted to the general
meeting of shareholders by the Board
of Directors, subject to Article 716a
of the Swiss Code of
Obligations.
Resolutions and elections at General
Meetings of Shareholders
Unless otherwise required
by law or the Company’s Articles of Incorporation,
the general meeting of
shareholders shall pass resolutions
and decide elections upon a majority of
the votes represented.
One or more shareholders who, alone
or together, hold at least 0.02 percent of the
share capital or votes may
demand that an item be included
on the agenda or that a proposal
relating to an agenda item be included
in
the notice convening the general
meeting of shareholders. Such a request
must be received by the Company
in writing at least 40 days prior to
the meeting and shall specify the agenda
items and the proposal or
proposals together with a brief statement
of the reasons.
ABB’s Articles of Incorporation do not
contain provisions on the convocation
of the general meeting of
shareholders that differ from the applicable
legal provisions.
95
Shareholders’ dividend rights
The unconsolidated statutory financial
statements of ABB Ltd are prepared
in accordance with Swiss law.
Based on these financial statements,
dividends may be paid only
if ABB Ltd has sufficient distributable
profits
from previous years or sufficient free
reserves to allow the distribution
of a dividend. Swiss law requires
that
ABB Ltd retain at least 5 percent
of its annual net profits as legal
reserves until these reserves amount
to at
least 20 percent of ABB Ltd’s share
capital. Any net profits remaining
in excess of those reserves are
at the
disposal of the general meeting
of shareholders.
Under Swiss law, ABB Ltd may only pay out a dividend
if it has been proposed by a shareholder
or the Board
of Directors and approved at a general
meeting of shareholders, and
the auditors confirm that the dividend
conforms to statutory law and ABB’s Articles
of Incorporation. In practice,
the general meeting of
shareholders usually approves
dividends as proposed by the Board of
Directors.
Dividends are usually due
and payable no earlier than 2 trading
days after the shareholders’ resolution
and
the ex
‑
date for dividends is normally
2 trading days after the shareholders’
resolution approving the dividend.
Dividends are paid out to the holders
that are registered on the record
date. Euroclear administers
the
payment of those shares registered with
it. Under Swiss law, dividends not collected
within 5 years after the
due date accrue to ABB Ltd and are
allocated to its profit reserves.
As ABB Ltd pays cash dividends,
if any, in
Swiss francs (subject to the exception
for certain shareholders in
Sweden described below),
exchange rate
fluctuations will affect the US dollar
amounts received by holders
of ADSs upon conversion of
those cash
dividends from Swiss francs.
For shareholders who are residents
of Sweden, ABB has established
a dividend access facility (for up to
600,004,716 shares). With respect
to any annual dividend payment
for which this facility is made available,
shareholders who register with
Euroclear may elect to receive
the dividend from ABB Norden Holding
AB in
Swedish krona (in an amount equivalent
to the dividend paid in
Swiss francs) without deduction of
Swiss
withholding tax. For further information
on the dividend access facility, see ABB’s Articles
of Incorporation.
Limitations on transferability of
shares and nominee registration
ABB may decline a registration with
voting rights if a shareholder
does not declare that it has acquired
the
shares in its own name and for its
own account, that there
is no agreement on the redemption
of the relevant
shares and that it bears the economic
risk associated with the shares.
If the shareholder refuses to
make
such declarations, it will be registered
as a shareholder without
voting rights. A person failing
to expressly
declare in its registration application
that it holds the shares for its own account
(a nominee) will be entered
in
the share register with voting rights,
provided that such nominee
has entered into an agreement with ABB
concerning its status, and further provided
that the nominee is subject
to recognized bank or financial
market
supervision. In special cases, the Board
may grant exemptions. There were
no exemptions granted in 2023.
The limitation on the transferability
of shares may be removed
by an amendment of ABB’s Articles
of
Incorporation by a shareholders’
resolution requiring
two-thirds of the votes represented
at the general
meeting of shareholders.
No restriction on trading of shares
No restrictions are imposed on
the transferability of ABB shares.
The registration of shareholders
in the ABB
share register, Euroclear and the ADS register kept
by Citibank does not affect transferability
of ABB shares
or ADSs. Registered ABB shareholders
or ADR holders may therefore
purchase or sell their ABB
shares or
ADRs at any time, including
before a general meeting of shareholders
regardless of the record date.
The
record date serves only to determine
the right to vote at a general
meeting of shareholders.
Duty to make a public tender
offer
ABB’s Articles of Incorporation do not
contain any provisions raising
the threshold (opting up) or waiving
the
duty (opting out) to make a public
tender offer pursuant to Article 135
of the Swiss Act on Financial
Market
Infrastructures and Market Conduct in
Securities and Derivatives
Trading.
96
—
Other governance information
ABB Group organizational structure
ABB Ltd, Switzerland,
is the ultimate parent company
of the ABB Group. It is the sole shareholder
of ABB
Asea Brown Boveri Ltd, which directly or
indirectly owns the other companies
in the ABB Group. "Item 4.
Information on the Company—Organizational
structure" sets forth, as of December
31, 2023, the name, place
of incorporationand ownership
interest of the significant direct and indirect
subsidiaries of ABB Ltd. ABB’s
operational group structure is described
in ABB’s Financial Report 2023.
Management contracts
There are no management contracts
between ABB and companies
or natural persons not belonging
to the
ABB Group.
Change of control clauses
Board members, Executive Committee
members, and other members of senior
management do not receive
any special benefits in the event
of a change of control. From 2021,
the rules for the Long-Term Incentive
Plan (LTIP) have been amended to no longer provide
for accelerated vesting upon
a change of control.
Employee participation programs
In order to align its employees’
interests with the business
goals and financial results of
the Company, ABB
operates a number of incentive plans,
linked to ABB’s shares, such as
the Employee Share Acquisition
Plan
and the LTIP.
For a more detailed description
of these incentive plans, please
refer to “Note 18 –
Share-based payment arrangements”
to ABB’s Consolidated Financial
Statements.
General blackout periods for trading ABB securities
During the 30 days prior to the day of
publication of the ABB Group’s quarterly
financial results, as well as on
such day, the members of the Board of Directors and
the Executive Committee as well
as certain employees
of ABB, as specified in ABB’s internal
policies,
are prohibited from trading in ABB Ltd
securities and any
related financial instruments.
No exceptions were granted
to this rule in 2023.
97
—
Compensation
Compensation at a glance
─
Board compensation
Compensation for the 2023–2024
term of office
The aggregate Board compensation
for the 2023–2024
term of office
(CHF 4,380,000) was within the maximum
amount (CHF 4,400,000)
approved at the 2023 Annual General
Meeting (AGM).
Compensation Exhibit 1: Board
compensation (in CHF)
for the 2023–2024 term of
office
Aggregate compensation
4,380,000
Approved compensation amount
4,400,000
Share ownership of Board members
Except for one member, who joined the Board in 2023,
all other Board
members held ABB shares at December
31, 2023, worth at least 300 percent
of their 2023 Board compensation.
Compensation Exhibit 2: Board
members shareholding (at
December 31, 2023) in %
of 2023 total compensation
*
*
Based on share price of CHF 31.24, the 2023
Long-Term Incentive Plan (LTIP
)
reference price, and shares held at December 31,
2023.
98
─
Executive Committee
(EC) compensation
Compensation structure as from
2023
Compensation Exhibit 3: EC
compensation structure as
from 2023
Fixed compensation –
base salary and benefits
Variable compensation
–
short-term incentive (AIP)
Variable compensation
–
long-term incentive (LTIP)
Wealth at risk/
Share ownership
Purpose and
link to
strategy
Facilitates attraction and
retention of talented EC
members; base salary
compensates for the role and
relevant experience; benefits
protect against risk
Rewards annual Company,
business area, functional and
individual performance.
Aligned with the Company’s
Annual Performance Plan
Rewards Company
performance over a three-
year period and encourages
creation of long-term,
sustainable value for
shareholders. Aligned with
the Company’s Long-Term
Performance Plan
Aligns individual’s personal
wealth at risk directly to the
ABB share price, and EC
members’ interests with those
of shareholders to maintain
focus on ABB's long-term
success
Operation
Salary in cash, benefits in
kind, and pension
contributions
Annual awards, payable in
cash after a one-year
performance period; malus
and clawback provisions to
be implemented from 2024
Annual grants in shares
which may vest after three
years, and are subject to
performance conditions;
malus and clawback
provisions in place
Individuals are required to
hold ABB shares
Opportunity
level
(as % of
base salary)
Based on scope of
responsibilities, personal
experience,
and skillset
CEO
500% of annual salary (net of
taxes)
* EC members with legacy employment
contracts have a Target LTIP
grant of
100%, and Max LTIP opportunity of
200%. The higher LTIP opportunity for
the newer EC members is largely offset
by lower pension and other benefit
costs.
Other EC members
400% of annual salary (net of
taxes)
Performance
indicators
Changes to base salary
consider individual
performance, future
potential, broadening of
responsibilities, and
external benchmarking
Exposure to ABB share price
99
Total EC compensation for 2023
The aggregate EC compensation for
2023 (CHF 40,642,468) was within
the maximum amount approved
at
the 2022
AGM (CHF 45,900,000).
Compensation Exhibit 4: EC
compensation (in CHF)
for 2023
Effective aggregate compensation
40,642,468
Approved aggregate compensation
45,900,000
The largest portion of the CEO’s 2023 total
compensation was delivered
via performance driven variable
compensation (55 percent), represented
by short-term and long-term
incentives. For the other EC members,
on an aggregate level, variable
compensation represented 52 percent of
their 2023 compensation. The
following chart shows the composition
of the 2023 total compensation
for the EC members at December
31,
2023.
Compensation Exhibit 5:
2023 total compensation mix (in
CHF) for the CEO and
other EC members on aggregate
level*
* Composed of actual base salary, 2023 AIP, 2023 LTIP grant,
pension, and other benefits. 2023 AIP
represents accrued short-term incentive for the
year 2023, which will be paid
in 2024, after the publication of ABB's financial
results. The sum of percentage figures may differ from 100 percent
due to
rounding with
one decimal.
Realized variable compensation
in 2023
Realized variable compensation
considers the AIP award and the LTIP award at the end of
their respective
performance cycles, reflecting actual
AIP payment and LTIP vesting, based on achievement
of the respective
plan performance measures.
The outcome of the 2023 AIP was
above the target for all
current EC members (143.3 percent
on average),
and the LTIP that vested in 2023 (2020 LTIP) exceeded the target level, with a
final vesting level of
189.5 percent of target.
100
Compensation Exhibit 6:
2023 AIP outcome compared to
target
Compensation Exhibit 7:
2020 LTIP outcome
compared to target
Realized total compensation in 2023
Considering the stated variable
components above, the realized
total compensation in 2023 was above
the
target total compensation for all EC
members, driven by strong performance
in 2023 and the high level
of
achievement against the targets for
the 2020 LTIP,
which vested in 2023.
Compensation Exhibit 8: Realized
total compensation in 2023
compared to target total compensation
Further details related to the realized
compensation of each EC member
and each compensation
component
are specified in Compensation
Exhibit 48.
101
Share ownership of EC members
EC members may not sell their shares
(except to meet tax and
social security costs related to
share vesting)
until they achieve the required share
ownership level.
Six out of eight EC members exceeded
their share ownership
requirements. The other two
members have
been appointed to the EC in the last
three years.
When considering the number of granted,
but unvested, ABB shares of EC
members at December 31, 2023,
it is expected that the remaining
two most recently appointed
EC members who do not currently
meet their
share ownership requirement
are projected to do so in 2026, after vesting
of the 2023
LTIP grant, and in
2027, after vesting of the 2024 LTIP grant,
respectively.
Compensation Exhibit 9: EC
shareholding compared to
share ownership guideline*
*
Based on share price of CHF 31.24,
the 2023 LTIP reference price, and shares held
at December 31, 2023. Future allocation of granted,
but unvested, shares is based on target achievement
level and relevant plan specific settlement: default settlement of the final 2021 LTIP,
2022
LTIP and 2023 LTIP awards is 100
percent in shares. The value of shares is compared against the
annual base salary net of taxes, at
December
31, 2023.
Compensation governance
The Compensation Report is prepared
in accordance with the Swiss
Code of Obligations, the Directive on
Information relating to Corporate
Governance of the SIX Exchange
Regulation, the rules of the stock
markets
of Sweden and the United States,
where ABB shares were listed
until May 2023, and the principles
of the
Swiss Code of Best Practice
for Corporate Governance of economiesuisse.
102
ABB’s Articles of Incorporation
ABB’s Articles of Incorporation, approved
by its shareholders, contain
provisions on compensation which
govern and outline the principles
of compensation relating to our Board of
Directors and Executive
Committee. They can be found on
ABB’s Corporate Governance
website new.abb.com/about/corporate-
governance and are summarized
below:
•
Compensation Committee
(Articles 28 to 31): The Compensation
Committee (CC) is composed
of a minimum of three members of
the Board and are elected
individually by the shareholders
at
the Annual General Meeting for a
period of one year. It supports the Board in establishing
and
reviewing the compensation
strategy and policy,
determining the
compensation of the Board and
the EC, and in preparing the proposals
to the AGM on compensation
matters. The
responsibilities of the CC are defined
in more detail in the Board Regulations
and Corporate
Governance guidelines, which
are also available on ABB’s Corporate Governance
website.
•
Compensation principles
(Article 33): Compensation
of the members of the Board consists
of
fixed compensation only, which is delivered in cash and
shares (with an option to elect
for shares
only). Compensation of the members
of the EC consists of fixed
and variable compensation.
Variable compensation may comprise short-term and long-term
elements. Compensation
may be
paid in cash, shares, or other benefits.
•
“Say-on-pay” vote
compensation of the Board for
the following Board term and
of the EC for the following
financial
year.
•
Supplementary amount for new
EC members
aggregate compensation amount
is not sufficient to also cover the compensation
of newly
appointed EC members, up to 30 percent
of the last maximum approved
aggregate amount shall
be available as a supplementary
amount to cover the compensation
of such new EC members.
•
Loans
Authority levels in compensation matters
The authority levels of the different bodies
on compensation matters are
detailed in Compensation
Exhibit 10.
Compensation Exhibit 10: Authority
levels in compensation
matters
CEO
CC
Board
AGM
Maximum aggregate compensation
amount for the EC
●
●
●
CEO compensation
●
●
Individual compensation
of other EC members
●
●
Maximum aggregate compensation
amount for the Board
●
●
●
Individual compensation
of Board members
●
●
Compensation Policy
●
●
Compensation Report
●
●
Consultative vote
●
●
Proposal
●
Approval
103
Activities of the CC in 2023
The CC meets as often as business
requires but at least four times
a year. In 2023, the CC held seven
meetings and performed the activities
described in Compensation
Exhibit 11. The CEO, the Chief Human
Resources Officer (CHRO) and the Head
of Performance and
Reward also attend all or part
of the CC
meetings in an advisory capacity. The Chairman of the
CC may decide to invite other executives
upon
consultation with the CEO, as appropriate.
Executives do not attend
the meetings or the parts of the meetings
in which their own compensation
and/or performance are being
discussed. Further details are provided
in the
section “Board of Directors – Meetings
and attendance” of "Item 6. Directors,
Senior Management and
Employees".
Compensation Exhibit 11:
CC activities during 2023
Strategy
Review of EC compensation
structure
Continued monitoring of link
between sustainability
and compensation
Board compensation
Review of compensation
benchmarking
for Board members (bi-annual
activity)
EC compensation
Review of recommendations
on individual compensation
for EC members
Review of the share ownership
of EC members
Review and approval
of compensation for
new and departing
EC members
Performance – relating
to past performance
cycle
Assessment of AIP awards
for 2023
Assessment of achievement
of performance targets
for LTIP awards vesting in 2023
Performance – relating
to forthcoming performance
cycle
Setting of AIP design,
measures and targets
for 2023
Consideration of forecast
AIP outcomes for 2023
Consideration of preliminary
AIP measures and
targets for 2024
Setting of performance
targets for LTIP grants in 2023
Consideration of forecast
achievement against
performance targets
for unvested LTIP grants
Compliance
Review of CC annual
plan
Review of feedback
from Stakeholder Engagement
meetings
Regulatory and market updates
Review of the Compensation
Report for publication
Preparation of maximum
aggregate compensation
for the Board to be submitted
for AGM vote
Preparation of maximum
aggregate compensation
for the EC to be submitted
for AGM vote
The Chairman of the CC reports
to the full Board regularly, usually after each CC meeting.
The minutes of the
CC meetings are available
to the members of the Board.
The CC retains independent, external
advisors for compensation
matters. In 2023 PricewaterhouseCoopers
(PwC) was mandated to provide these
services.
In addition to its CC advisory role,
PwC also provides human
resources, tax, and advisory services
to ABB. Other external
advisors may be employed by
the CC and
management on a case-by-case basis.
Sustainability-related considerations
in ABB’s compensation
There are a range of sustainability-related
considerations which play an
important role in our compensation
philosophy, including the desire to foster a strong link between
ABB’s Sustainability Agenda and
the variable
compensation for the EC and senior
management,
as well as the general
ambition to reinforce its social
contract with its employees.
104
Impact of sustainability performance on variable compensation
Given sustainability is an integral
part of ABB’s strategy and plans,
there is a strong, direct link between
the
Sustainability Agenda and
executive incentives through ABB’s key variable
compensation programs such as
AIP and LTIP.
Regarding the AIP, all EC members have two or three sustainability
goals (out of a maximum of three) in
the
individual component of their respective
plans.
In 2023,
all EC members had an environmental
goal (scope 1 and 2 greenhouse
gas (GHG) emissions
reduction). Most of the EC members had
a social goal, which for the CEO
and business area presidents
was
safety, and for most corporate officers was an increase
in the proportion of women in senior
management
roles (female leaders),
while the CFO had a governance
goal (related to internal controls).
In addition, all EC members had an
integrity goal designed to help
deliver ABB’s obligations under the
Deferred Prosecution Agreement
(DPA) in line with our commitments to the US Department
of Justice.
Regarding the LTIP granted to ABB’s senior management
in 2023,
including the EC, a Company-wide
sustainability performance measure
with a weighting of 20 percent
forms part of the performance
measures.
•
reduction at the end of the three-year
performance period (2023–2025),
compared to the 2019
baseline.
•
measure for the 2024
LTIP will again be GHG emissions
reduction at the end of the three-year
performance period (2024–2026), compared
to the 2019 baseline. See “2024
LTIP grants” below
for the target and award points.
Details of the long-term GHG emissions
reduction targets can be
found in ABB’s Item 4. Information on
the
Company—Sustainability activities.
Programs for ABB employees
In addition to the offer of fair and competitive
compensation to our employees,
ABB also strives to offer
additional programs to reinforce
its social contract with its employees.
Selected key programs and their
links
to our Sustainability Agenda
are summarized in the Compensation
Exhibit 12 below.
Compensation Exhibit
12: Selected programs
for employees
Program
Operation and purpose
Link to ABB’s Sustainability Agenda
Employee Share
Acquisition Plan
(ESAP)
Offered to ca. 100,000 employees in over 60 countries, providing
the opportunity
to purchase shares in ABB one year after the start of a plan, at
a price which will
be fixed at the beginning of each annual plan cycle, and become
ABB
shareholders. The opportunity for share ownership is the same
for permanent full-
time and permanent part-time employees at ABB. This is the
case in all ABB
locations where ESAP is offered.
Supports social goals by aligning
employees’ interests with the interests of
shareholders and maintaining focus on
the long-term success of the Company.
Parental Leave
A global and gender-neutral program, offered to all
employees, which sets out a
minimum standard on paid parental leave that supports all family
types. The
primary caregivers receive 12 weeks of paid leave and the secondary
caregivers
four weeks following the birth of a child or when becoming
a new parent by
adoption or surrogacy
Supports social goals, promotes
wellbeing and the ABB value of “Care”.
Employee
Assistance
A global program, offered to all employees. The program supports
the employee’s
wellbeing by offering paid counseling on emotional health,
family concerns and
workplace concerns.
Supports social goals, promotes
wellbeing and the ABB value of “Care”.
Car or
Transportation
Allowance
Offered to selected employees based on business
need or market practice, with
any car provision being progressively migrated to e-vehicles
or transportation
allowances which can be used to contribute to public transport,
cycle, or other
transport needs.
Supports environmental goals by
addressing changed needs related to
mobility and providing greater flexibility
to opt for more environmentally friendly
solutions.
105
Board compensation policy
The compensation policy for the members
of the Board is designed
to attract and retain experienced
people
to the Board. Compensation considers
the responsibilities, time and
effort required to fulfill their roles on
the
Board and its committees and is generally
positioned at levels similar to other
Swiss listed companies of
comparable size and complexity.
Compensation structure
A fixed fee is payable to the Chairman,
Vice-Chairman and members of
the Board, and additional
fees are
payable for chairing or membership
of a Board committee, except
for the Chairman and Vice-Chairman.
Board members are paid for their service
over an annual Board term that starts
with their election at the
AGM. Payment of fees is made in
semi-annual installments in arrears.
Board members are required to
take 50 percent of their compensation
in shares,
but they may elect to
receive all their fees in shares. The number
of shares delivered is calculated
prior to each semi-annual
payment by dividing the monetary amount
to which the Board members
are entitled by the average closing
price of the ABB share over a predefined
30-day period. The shares are
subject to a three-year restriction
period during which they cannot
be sold, transferred, or pledged.
Any restricted shares are unblocked
when a
Board member leaves the Board.
Implementation of Board compensation
policy
Board fees by role
As mentioned above, the levels
and mix of Board members’
compensation are regularly
compared against
the compensation of non-executive Board
members from a cross-selection
of publicly traded companies in
Switzerland, excluding financial
services, including Alcon, Geberit,
Givaudan, Holcim, Kuehne
+ Nagel,
Logitech, Lonza, Nestle, Novartis,
Richemont, Roche, Sika, Sonova
and Swisscom. Such a review
was last
undertaken in 2023,
and there was no adjustment made
to Board fees for the term of office from
the 2023
AGM to the 2024 AGM, as set out in
Compensation Exhibit 13. There
has been no change to the individual
Board fees since 2015.
Compensation Exhibit 13: Board
fees (in CHF) for the
current term of office
Chairman of the Board
(1)
1,200,000
Vice-Chairman of the Board
(1)
450,000
Member of the Board
290,000
Additional committee fees:
Chairman of FACC
(2)
110,000
Chairman of CC or GNC
(2)
60,000
Member of FACC
(2)
40,000
Member of CC or GNC
(2)
30,000
(1)
The Chairman and the Vice-Chairman do not receive any additional committee fees.
(2)
CC: Compensation Committee,
FACC: Finance, Audit and Compliance Committee,
GNC: Governance and Nomination Committee.
106
Total
Board compensation
The compensation paid to the Board
members for the calendar
year 2023 and for the term of office from the
2023 AGM to the 2024
AGM are disclosed in Compensation
Exhibit 14 below and in Compensation
Exhibits 37 and 38, respectively, in the section “Compensation
tables and share ownership
tables”.
At the 2023 AGM, the shareholders
approved a maximum aggregate
compensation amount of
CHF 4.4 million for the 2023–2024
Board term. This amount equals
the approved amount for the previous
Board term, as both the compensation
per Board member and
the number of Board members remained
unchanged.
The Board compensation to be paid for
the 2023–2024
Board term is CHF 4.38 million and is
therefore within the amount approved
by the shareholders.
Compensation Exhibit 14: Board
compensation (in CHF)
Board term
Board of Directors
2023–2024
2022–2023
Number of members
10
10
Total compensation
4,380,000
4,380,000
Maximum aggregate compensation
amount approved at previous
AGM
4,400,000
4,400,000
Compensation of former Board members
In 2023,
no payment was made
to any former Board member.
Compensation for services rendered
In 2023, ABB did not pay any fees or
compensation to the members
of the Board for services rendered
to
ABB other than those disclosed in
this report.
Share ownership of Board members
The members of the Board collectively
owned less than one percent
of ABB’s total shares outstanding
at
December 31, 2023.
Compensation Exhibit 39 in the section
“Compensation tables
and share ownership tables”
shows the
number of ABB shares held by each
Board member at December 31, 2023
and 2022. Except as described in
this Compensation Exhibit, no
member of the Board and no
person closely linked to a member
of the Board
held any shares of ABB or options
in ABB shares.
Shares delivered to Board members
as part of their compensation
are blocked for a period of three years.
Compensation Exhibit 2 in the section
“Compensation at a glance” shows the
wealth at risk for each Board
member, comparing the value of shares held at December
31, 2023,
with the total compensation
for the
2023–2024
term of office. Except for one member, who joined the Board in
2023, all other Board members
held ABB shares at December 31,
2023, worth at least 300 percent
of their 2023 Board compensation.
External mandates held by ABB Board members
Nine out of ten ABB Board members
held at least one external mandate
in other companies. Detailed
information can be found in Compensation
Exhibit 40 in the section “Compensation
tables and share
ownership tables”.
107
Executive Committee compensation
policy
The EC compensation policy reflects
ABB’s commitment to attract, motivate and
retain people with the talent
necessary to strengthen its position
as a leading global technology
company.
Compensation structure
The compensation structure is designed
to be competitive, based on
performance, and to encourage
executives to deliver outstanding
results and create sustainable
shareholder value without taking excessive
risks. The EC compensation framework
therefore balances fixed and variable
compensation. Variable
compensation is provided through
short-term and long-term incentives
based on strategic, financial
and
sustainability related targets, recognizing
Group, business area and corporate function
performance as well
as individual performance.
This structure is linked to our strategy
and is illustrated in
Compensation Exhibit 3 in the section
“Compensation at a glance”.
A significant portion of total compensation
depends on variable pay
components, which require the
achievement of challenging
performance targets, in alignment
with ABB’s Annual and Long-Term
Performance Plans.
The target AIP award is defined as a
percentage of base salary, currently 100 percent for
all EC members.
There is no award under the AIP
if performance is below threshold
on all financial and individual
performance
measures. When performance exceeds
targets, the maximum award is capped
at 150 percent of the targeted
amount.
The target LTIP grant size is defined as a percentage
of base salary, currently 150 percent for the CEO and
100 to 150 percent for all other EC
members. There will be no
award under the LTIP if performance is below
threshold for all applicable
measures. When performance exceeds
targets, the maximum award
is capped at
200 percent of the conditional
grant.
The Compensation Exhibit below
shows the impact of the application
of the compensation policy introduced
in 2022, on the target compensation
mix for EC members, compared
to the compensation mix applicable
prior to 2022. The new policy provides
a greater emphasis on variable
pay, which is especially reflected in the
long-term compensation component.
Compensation Exhibit
15 illustrates the policy change for
new EC
entrants (excluding the CEO), applying
an entry level salary of CHF 700,000
and an incumbent age of 50
years to reflect the pension benefits.
Compensation Exhibit 15: Policy
for target compensation
mix of EC members (excluding
CEO) appointed prior
to and
after 2022*
*
Note that, by exception, the new mix of target compensation was
not applied to the newly appointed Chief Communications
and
Sustainability Officer, where a target
LTIP of 100 percent of base
salary is applied.
108
Competitive positioning of compensation
The Board considers competitive
market data when setting the compensation
policy for the EC. It is also one
of several factors in positioning
the target compensation
for individual EC members which
include:
•
•
•
Comprehensive EC compensation
benchmark reviews are performed
every other year. The CC last
conducted such a review in 2022.
While each of these peer groups
used in the benchmarking
exercise,
matched the size, scope and
complexity
of ABB, and excluded
companies from the financial
services sector, the application of a specific peer group
depends
on the nature of the role and the source
of relevance. For example,
a stronger emphasis is placed
on the Global Industry peer group
for operational roles and
in compensation design, and
on the
Pan-European Market peer group
for functional roles.
In all cases,
the other two peer groups
are used to
stress test the findings of the primary
peer group (see the summary in Compensation
Exhibit 16 below).
Compensation Exhibit 16: Peer
groups for EC compensation
benchmarking
Peer group
Composition
Companies
Rationale
Global
Industry
A tailored group of 16 global
industry peer companies,
matching the scale and
complexity of ABB
AB SKF,
Alstom, Airbus, Atlas Copco,
Denso, Eaton,
Emerson Electric, Honeywell,
Mitsubishi Electric,
Mitsubishi Heavy Industries, Schneider
Electric,
Schindler, Siemens,
Thermo Fisher Scientific,
Toshiba, Traton
Focus for business
area roles and
benchmarking
compensation design
Pan-
European
Market
A panel of 50 cross-industry
European companies,
matching the scale and
complexity of ABB
See footnote (1)
Focus for Corporate
roles; continuity and
stability of data points
Swiss Market
A panel of 16 Swiss
headquartered companies,
matching the scale and
complexity of ABB
Adecco, Geberit, Givaudan, Glencore,
Kuehne &
Nagel, Holcim, Nestle, Novartis,
Richemont, Roche,
Schindler, SGS, Sika,
STMicroelectronics, Swatch,
Swisscom
Swiss location of
headquarters
(1)
AB InBev, Adidas, Air Liquide,
Associated British Foods, AstraZeneca, BAE Systems, Bayer,
Bouygues, British American Tobacco,
Compass
Group, Continental, CRH, Danone, Endesa, EssilorLuxottica, Fresenius,
Fresenius Medical Care, GlaxoSmithKline, Heidelberg
Materials,
Heineken, Henkel, Hennes & Mauritz, Holcim, Iberdrola, Imperial
Brands, Industria de Diseno Textil,
Jeronimo Martins SGPS, Kuehne +
Nagel, Linde, L’Oreal, Michelin, National Grid,
Naturgy Energy Group, Nokia, Novartis,
Novo Nordisk, OMV, Philips, Rio
Tinto, Safran, Saint
Gobain, Sanofi, SAP,
Schneider Electric, Telefonaktiebolaget
LM Ericsson, Thales, Umicore, Veolia
Environment, Vinci and Vodafone.
It is the intention to position target
compensation for individual
EC members between the median and upper
quartile of the relevant peer group(s)
considering the other factors
referenced above (e.g., the EC
member’s
skills, experience, performance and potential).
The comparison of ABB to its compensation
benchmarking peer
groups is shown in Compensation
Exhibit 17
below.
This data
shows that ABB is typically positioned
at the median of key comparator indicators
(market
capitalization, revenues, and number
of employees) against the
Global Industry and Pan-European Market
peer groups, and at the upper quartile
of the Swiss Market peer group.
The next compensation benchmarking
review will take place in 2024.
109
Compensation Exhibit 17: Comparison
of ABB to compensation
benchmarking peer groups
(1)
Market
capitalization
(2)(3)(4)
Revenues
(2)(4)(5)
Number of
employees
(5)(6)
ABB
58.8
27.5
104,400
Global Industry
Upper Quartile
78.5
36.3
133,924
Median
49.0
31.1
98,118
Lower Quartile
16.6
77,017
Pan-European Market
Upper Quartile
75.4
40.0
124,435
Median
32.6
27.9
89,012
Lower Quartile
20.2
22.7
62,660
Swiss Market
Upper Quartile
65.1
38.2
85,017
Median
32.0
16.4
58,635
Lower Quartile
20.1
9.1
30,348
(1) Data for market capitalization, revenues and number of
employees are sourced from Thomson Reuters.
(2) Market capitalization and revenues are in CHF millions.
(3) Market
capitalization
is averaged
over a period
of three
months (June
20, 2022,
until September
20, 2022).
(4) All currencies have been converted to CHF, where needed, applying full-year
average currency exchange rates based on the
period from
July 1, 2021, to June 30, 2022
.
(5) Revenues and number of employees as
per last financial year prior to October 2022.
(6) Number of employees in full
-time equivalent (FTE) unless FTE information was not available,
then in total number of employees.
Compensation elements
Compensation Exhibit 3 in the section
“Compensation at a glance” sets out
the purpose and link to strategy,
the operation, the opportunity level and
the performance measures. This section
provides further details for
each compensation element.
Fixed compensation – base salary and
benefits
Purpose and link to strategy
Facilitate the attraction and retention
of talented EC members; base salary
compensates for the role and
relevant experience; benefits protect
against risks.
Base salary is paid in cash. Benefits
consist primarily of retirement,
insurance and healthcare
plans that are
designed to provide a reasonable
level of support for the employees and
their dependents in case of
retirement, disability or death.
Opportunity levels
Base salary is set with reference
to the scope of responsibilities,
personal experience and
skills,
and
competitive market data.
Benefit plans are set in line with
the local competitive and legal
environment and are, at a minimum, in
accordance with the legal requirements
of the respective country.
Performance measures and
weighting
Base salary is adjusted considering
the factors set out under
opportunity levels above, the executive’s
performance as well as their future potential.
110
Variable compensation – Annual Incentive Plan (AIP)
Purpose and link to strategy
The AIP is designed to reward
EC members for the Group’s
results, the results of their business area or
corporate function and their individual
performance over a time horizon
of one year and is aligned
with the
Annual Performance Plan approved
by the Board.
Opportunity levels
The AIP opportunity levels for the
EC are 100 percent of base
salary at target with a maximum
opportunity of
150 percent.
Performance measures and
weighting
The AIP structure is designed
to incentivize operational delivery
and underpin our performance
culture. As
such, it is focused on key priorities, with
a maximum of five measures.
•
•
•
to three goals which may include
a combination of quantitative and qualitative
goals.
o
o
combined performance against
all individual goals.
A summary of the composition and
total weighting of the measures
for all EC members is set out in
Compensation Exhibit 18.
Compensation Exhibit 18: Composition
and weighting of AIP measures
for EC members
CEO and corporate officers
(1)
Business area presidents
Common Group financial measure
40%
20%
Other Group financial measures
Up to three measures
n.a.
40%
Business area financial measures
n.a.
Up to three measures
60%
Individual measure
Includes up to three goals (minimum
two
must relate to sustainability)
Includes up to three goals (minimum
two
relate to sustainability)
20%
20%
Total
100%
100%
(1)
Corporate officers include Chief Financial Officer, Chief Human Resources Officer,
General Counsel and Chief Communications and Sustainability Officer.
Other design features
A target will be set for each performance
measure, corresponding
to the expected level of performance that
will generate a target (100 percent) award.
For each measure except the individual
measure, a minimum
level of performance, below which
there is no award (threshold)
and a maximum level of performance,
above
which the award is capped at 150 percent
of the target (maximum), will
also be defined.
111
The payment conditions for financial
AIP measures are summarized in
Compensation Exhibit 19. For
Group
and business area financial
measures, the award percentage
achievements between threshold
and target
level,
as well as between target and maximum
level are determined by linear
interpolations between these
award points.
Compensation Exhibit 19: Pay
ment conditions for the AIP
of EC members
Level of performance
Below threshold
Threshold
Target
Maximum
Award achievement
per financial measure
0%
>0%
100%
150%
The outcomes of the financial
AIP measures are subject to
appropriate discretionary upward
or downward
adjustments by the CC for non-operational
items and other adjustment principles
agreed with the Board, if
and to the extent the CC considers
this appropriate.
In addition,
the CC/Board have discretionary
authority to adjust the results
and/or the AIP award. This
specifically includes a downwards
adjustment based on safety performance,
including fatalities.
From 2024, AIP awards of EC members
are subject to malus and clawback
rules, which include illegal
activities, any financial misstatement
and reputational damage
that have a material impact on
ABB Ltd or one
of its subsidiaries. This means
that the Board may decide not to award
any unpaid short-term incentive
compensation (malus) to EC members
or may seek to recover short-term
incentive compensation that
has
been settled in the past (clawback)
to EC members. Clawback
applies for a period of up to three years
following the date that any AIP award
was paid.
Variable compensation – Long-Term Incentive Plan (LTIP)
Purpose and link to strategy
Rewards the achievement of predefined
performance targets over a
three-year period. Encourages the
creation of long-term, sustainable
shareholder value creation
and is aligned with the Company’s Long-Term
Performance Plan approved by
the Board.
Opportunity levels
The LTIP is offered in the form of Performance Share Unit
(PSU) grants to approximately 100
executives at
ABB. The LTIP described in this report represents the
PSU plan and as such is applicable
to EC members. In
addition, ABB offers another LTIP in the form of Restricted Share
Unit (RSU) grants to approximately
700
employees below the executive
level.
For the CEO, the annual LTIP opportunity level is 150
percent of base salary at target,
with a maximum
opportunity of 300 percent of base salary.
As per the policy change announced
in our 2021 report,
the annual target and maximum
opportunity levels
for EC members appointed from 2023
are 150 percent and 300
percent of annual base salary,
respectively.
The annual LTIP opportunity levels for EC members appointed
prior to 2022 are 100 percent of base
salary
at target, with a maximum opportunity
of 200 percent of base salary.
The Board has the discretionary option
to make no grants in certain circumstances.
The relative opportunity level offered
under ABB’s LTIP is the same for permanent full-time and permanent
part-time employees.
Performance measures and
weighting
The LTIP has,
since 2022,
three performance measures with the
following relative weighting:
112
Earnings Per Share (EPS) – 50 percent
weighting
•
period. The average EPS result is
calculated from the sum of the EPS
for each of the three
relevant years, divided by three.
•
Income from continuing operations,
net of tax, unless the
Board elects to calculate using
Net
income for a particular year.
•
reviewed by the CC on an annual
basis.
•
and are calibrated with an independent
“outside-in” view, considering the growth expectations,
risk profile, investment levels and
profitability levels that
are typical for the industry.
•
Adjustments to the outcome of the EPS
achievement level may be
considered for items which
are not part of, or the result of, the
normal course of business operations
and/or which were not
considered, either by way of inclusion
or exclusion, for the target-setting
of a specific LTIP
launch. Only the net impact of such
adjustments over the vesting
period of the respective LTIP
grant will be considered. The impact
of share buybacks will not be considered
as an adjustment.
The same number of outstanding
shares applicable at the time of the EPS
target setting will also
be applied at the time of vesting.
Total
Shareholder Return (TSR) – 30 percent
weighting
•
grant of the shares and ending
three years later. The evaluation is performed
by an independent
third party.
•
three-year vesting period against a
defined peer group,
which currently includes
3M, Danaher,
Eaton, Emerson Electric, General
Electric, Holcim, Honeywell
Intl., Legrand, Mitsubishi Electric,
Raytheon Technologies, Rockwell, Rolls-Royce, Schneider Electric, Siemens,
and Yokogawa.
•
(P50) of the TSR peer group, i.e.,
there is no vesting for performance
below P50.
•
(P75) achievement level remains
at 200 percent of target (maximum).
There is a linear vesting
for an achievement between P50 and
P75 (100 to 200 percent
of target).
•
points are reviewed by the CC on an
annual basis.
Sustainability – 20 percent weighting
•
related target(s) and award points,
to incentivize material
progress towards our 2030
sustainability strategy commitments.
•
reviewed and approved
by the CC on an annual basis.
•
are not part of, or the result of the normal
course of business operations
and/or which were not
considered, either by way of inclusion
or exclusion, for the target-setting
of a specific LTIP
launch. Only the net impact of such
adjustments over the vesting
period of the respective LTIP
grant will be considered.
113
Other design features
The number of shares to be granted
is determined by dividing
the grant value by the average share price on
the SIX Swiss Exchange over the period
of 20 trading days prior, and 20 trading
days after, the date of
publication of ABB’s full year financial
results. Settlement of the LTIP shares is three years after
grant,
subject to achievement of performance
conditions, defined prior
to grant.
The vesting schedule for the LTIP is shown in the following
Compensation Exhibit 20. The award percentage
achievements between threshold
and target,
as well as between target and
maximum,
are determined by
linear interpolations between
these award points.
Compensation Exhibit 20: Vesting
schedule for the LTIP
of EC members
Level of performance
Below threshold
Threshold*
Target
Maximum
Award achievement
per measure
0%
>0%
100%
200%
*
For the TSR measure, the threshold point equals the target point.
As of the 2023 LTIP offering,
the CC has the discretion
to adjust the formulaic LTIP vesting outcome to reflect
the overall performance of ABB, over
the performance period.
Default settlement of the final LTIP award is 100 percent
in shares, and beginning with
grants made
conditionally in 2020, an automatic sell-to-cover
is in place for employees who
are subject to withholding
taxes.
LTIP shares are subject to malus and clawback rules,
which include illegal activities,
any financial
misstatement and reputational
damage that have a material
impact on ABB Ltd or one of its subsidiaries.
This
means that the Board may decide
not to award any unsettled
or unvested incentive compensation
(malus), or
may seek to recover long-term incentive
compensation that has been
settled in the past (clawback).
Clawback applies for a period
of up to five years following
the originally scheduled
plan specific vesting date.
The CC also has the ability to suspend
the delivery of awards if it is likely that
the Board will determine that
the malus or clawback provisions may
potentially apply (e.g., if
the employee is subject to an external
investigation).
For LTIP grants from 2021, there is no automatic accelerated
vesting of awards in the event
of a change of
control.
For LTIP grants from 2022,
participants are entitled to
receive a cash amount (a
“dividend equivalent
payment”) on each vested award
share that is equal to the total dividends
per share paid by the Company
on
the ABB Ltd share between the grant
date and the delivery date of
the vested award.
Wealth at risk / Share ownership
Purpose and link to strategy
To
align EC members’
personal wealth directly with
the interests of shareholders
to maintain focus on the
long-term success of the Company.
Share ownership program
EC members are normally required
to retain all shares vested from the Company’s
LTIP and any other share-
based compensation until their
share ownership requirement
is met. In circumstances where
there is a
withholding tax obligation, the number
of shares received will
be considered to be the number of
shares
vested minus the shares sold under
the default sell-to-cover facility.
114
The share ownership requirement
is equivalent to a multiple
of the EC member’s annual base
salary, net of
taxes (see Compensation Exhibit 3
in the section “Compensation
at a glance”). These share ownership
requirements are aligned with
market practice and result in a wealth
at risk for each EC member which
is
aligned with shareholder interests.
Only vested shares owned by an EC
member and their spouse count for
the comparison of the actual
share
ownership against the share ownership
requirement.
The CC reviews the status of EC share
ownership on an annual
basis.
Notice period, severance provisions
and non-competition clauses
Employment contracts for EC members
include a notice period
of 12 months, during which they are entitled
to their annual base salary, short-term incentive, and benefits.
In accordance with Swiss law and
ABB’s
Articles of Incorporation, the contracts
for the EC members do not allow
for any severance payment.
Non-compete agreements may be entered
into with the CEO and all other EC
members for a period of
12 months after their employment. Compensation
for such agreements, if any, may not exceed the EC
member’s last total annual
cash remuneration (comprising
of base salary, short-term incentive and benefits).
Implementation of EC compensation
policy
Overview
EC members received aggregate
total compensation of CHF 40.6 million
in 2023,
compared with
CHF 36.0 million in 2022, as summarized
in Compensation Exhibit 21 below
and presented in detail in
Compensation Exhibits 41 and 42.
At the 2022 AGM, the shareholders
approved a maximum aggregate
compensation amount of
CHF 45.9 million for the EC for 2023.
The 2023 EC total compensation
of CHF 40.6 million is therefore within
the approved amount (see Compensation
Exhibit 21).
Compensation Exhibit 21: Total
compensation of EC members
(monetary values
in CHF)
(1)
Calendar year
2023
2022
Base salaries
8,430,879
8,341,720
Pension benefits
4,341,781
4,334,281
Other benefits
(2)
6,041,342
4,894,480
Total fixed compensation
18,814,002
17,570,481
Short-term incentives
(3)
12,088,564
9,879,882
Long-term incentives (fair value
at grant)
(4)
9,739,902
8,557,683
Total variable
compensation
21,828,466
18,437,565
Total compensation
40,642,468
36,008,046
Maximum aggregate compensation
approved at previous AGM
45,900,000
40,000,000
(1)
“Compensation tables and share ownership tables” below. An overview of 2023 realized compensation by individual
is provided in
Compensation Exhibit 48 in the same section.
certain other
items.
results. Short-term variable compensation is
linked to the targets and goals defined in each EC
member’s Annual Incentive Plan.
disclosed
in "Item 6.
Directors,
Senior Management
and Employees"
of the 2022
Annual Report.
As a result,
the grant
fair value
has been
reduced accordingly.
115
The total compensation for the EC in
2023 increased by 12.9 percent
compared to 2022. This mainly reflects
the impact of the strong performance
achieved in the year and
the consequent higher variable
incentives
from both the 2023 AIP awards and
the 2023 LTIP grant fair value, as well as the higher
costs relating to the
2020 LTIP,
which vested in 2023.
Compensation mix
The ratio of fixed to variable compensation
in any given year depends on
the performance of the Company
and individual EC members against
predefined performance
targets.
Compensation Exhibit 5 in the section
“Compensation at a glance” shows
the composition of the total
annual
compensation in 2023 for the CEO and
for the other current EC members on
an aggregate level, specifying
the split of its five compensation components.
The variable portion of the total compensation
in 2023 remains broadly
the same as in the prior year. In 2023,
the variable compensation of the CEO
was 55 percent of his total
annual compensation (previous
year: 56
percent). For the other EC members,
the variable compensation
was 52 percent on average (previous
year:
51 percent).
Note that compensation paid
in 2023 for former EC members is not
included in Compensation
Exhibit 5. This
can be found in Compensation
Exhibit 41.
Compensation elements – 2023 highlights
Base salary
As a result of the regular compensation
review for the EC, the Board and
the CC decided to increase the
salaries of two of the nine EC members
in place in March 2023.
The base salary of Peter Terwiesch was
increased by 3.6 percent to CHF 860,000
and of Morten Wierod by 8.3
percent to CHF 975,000. These
salary
changes were made to reward exceptional
performance of these EC members
and,
in the case of Morten
Wierod, to also reflect a broadening
of responsibilities.
Considering that the other seven EC
members in place in March 2023
had no salary adjustments,
this
corresponded to a 1.3 percent increase
on annual base salaries
for the EC members post March 2023.
Annual Incentive Plan (AIP) –
design
Under the 2023 AIP, all EC members had two Group measures, Group
Operational EBITA margin with a 20
to 40 percent weighting and Group
Operational revenue gross profit
productivity growth with a weighting
of 10
percent.
In addition to these two Group measures,
the CEO and the corporate officers
shared other Group measures,
including Revenues and Free Cash
Flow, with a total weighting of 30 percent.
All business area presidents had,
in addition to the two Group measures,
two measures which were tailored
to business imperatives, with a
total weighting of 50 percent.
These tailored measures were
Operational
EBITA margin,
Operational Free Cash Flow and
Net working capital (13 months % avg).
Compensation Exhibit 22 below
shows the composition and weighting
of the financial measures applied
in
2023 for all EC members under
their AIP, specified by their roles. Definitions of the financial measures
applied for all EC members are set
out in Compensation Exhibit
23.
116
Compensation Exhibit 22: Composition
and weighting of 2023 AIP
measures for EC members
Focus of measure
CEO and
corporate
officers
(1)
President
Electrification
President
Motion
President
Process
Automation
President
Robotics &
Discrete
Automation
Group
financial
measures
Bottom line earnings
Op EBITA margin
40%
Op EBITA margin
20%
Op EBITA margin
20%
Op EBITA margin
20%
Op EBITA margin
20%
Bottom line output
Operational
revenues gross
profit productivity
growth
10%
Operational
revenues gross profit
productivity growth
10%
Operational
revenues gross profit
productivity growth
10%
Operational
revenues gross profit
productivity growth
10%
Operational
revenues gross profit
productivity growth
10%
Other Group
financial
measures
Cash generation
Free Cash Flow
20%
Top line output
Revenues
10%
Business
area financial
measures
Bottom line earnings
Op EBITA margin
30%
Op EBITA margin
30%
Op EBITA margin
30%
Cash generation
Op Free Cash Flow
20%
Op Free Cash Flow
25%
Op Free Cash Flow
20%
Top line input
Revenues
25%
Liquidity and financial health
Net working capital
(13 months % avg)
20%
Individual
measure
GHG emissions, Integrity, Female
leaders, Safety, Internal controls
Function-specific
20%
GHG emissions, Safety, Integrity
Business-specific
20%
Business-specific
20%
Business-specific
20%
Business-specific
20%
Total
100%
100%
100%
100%
100%
(1)
Corporate officers include Chief Financial Officer,
Chief Human Resources Officer,
General Counsel and Chief Communications and
Sustainability Officer.
Compensation Exhibit 23: Definition
of quantitative measures,
applied in 2023
Measure
Description
Operational EBITA
margin
(%)
Operational EBITA,
which is Operational
earnings before interest,
tax, and acquisition-related
amortization, as a percentage
of Operational revenues, which
is total revenues adjusted
for foreign
exchange/commodity timing differences
in total revenues.
Revenues
Amount of consolidated revenues
recognized during the year
in accordance with USGAAP
.
Free Cash Flow (FCF)
Free Cash Flow is calculated
as net cash provided by operating
activities adjusted for: (i)
purchases
of property, plant
and equipment and intangible assets,
and (ii) proceeds from sales
of property, plant
and equipment.
Operational revenue gross
profit productivity growth
(%)
Operational revenue gross profit
productivity is calculated as
the 12-month rolling operational
revenue gross profit divided by
the average number of
total workforce in the last
three months.
Where operational revenue gross
profit is calculated as gross
profit (as defined under
USGAAP)
adjusted for the following non
-operational items to the
extent that they are included
within the
USGAAP gross profit amount: (i)
foreign exchange/commodity timing
differences, (ii) acquisition-
related amortization, (iii) restructuring,
related and implementation
costs, (iv) changes in
obligations
related to divested businesses,
(v) changes in pre-acquisition
estimates, (vi) acquisition
-
and
divestment-related expenses and
integration costs, (vii) other
income/expense relating to the
Power
Grids joint venture and (viii) certain
other non-operational items. Growth
is the change in productivity
over the same period a year
earlier, represented
as a percentage change.
Operational Free Cash
Flow (OFCF)
Cash flows from operating activities
excluding cash paid for interest
and taxes and including
(i) purchases of property,
plant and equipment and intangible
assets, and (ii) proceeds
from sales of
property, plant
and equipment.
Net working capital
(13 months % avg)
Average Net working capital
over 13 consecutive month
-ends (December 2022 through
December
2023), expressed as a percentage
of Operational revenues
(1)
. Calculated using constant exchange
rates.
117
All EC members also had an individual
measure with a 20 percent weighting.
This individual component
was
informed by a combination of up to
three quantitative and qualitative
goals.
In 2023, all three goals related
to
sustainability.
All EC members had an environmental
goal (GHG emissions reduction) and
an integrity goal
designed to help deliver
the Deferred Prosecution Agreement
in line with our commitments
to the US
Department of Justice. In addition,
most of the EC members had
a social goal, which for the CEO
and
business area presidents was related
to safety, and for most of the corporate officers was related
to an
increase in the proportion of women
in senior management
roles (female leaders),
while the CFO had a
governance goal related
to internal controls.
The outcome against the individual
measure was based on a discretionary
judgment of the combined
performance against all three goals.
Outcomes may be subject to appropriate
adjustments for some non-
operational items and other adjustment
principles agreed with the Board.
No adjustments were applied
in
2023.
2023 Annual Incentive Plan (AIP)
– achievements
The 2023 AIP achievements are summarized
in Compensation Exhibit
24 for the CEO and the corporate
officers, and business area presidents, respectively. Individual
AIP outcomes per EC member in comparison
to their target 2023 AIP are set out
in Compensation Exhibit
25.
118
Compensation Exhibit
24: 2023 AIP outcomes
for the CEO and
the corporate officers
(rounded)
2023 AIP outcomes for
the business area presidents
(rounded)
119
Compensation Exhibit 25: Overview
of targeted and realized
2023 AIP values
Group measures
Other Group
measures
Business area
measures
Individual
measure
(1)
Total AIP outcome
percentage
(in % of
target)
Target AIP award
(in CHF)
Actual AIP award
(in CHF)
(2)
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Achievement
Weighting
Outcome
Björn Rosengren
150.0%
50%
75.0%
150.0%
30.0%
45.0%
n.a.
n.a.
n.a.
145.0%
20%
29.0%
149.0%
1,785,000
2,659,650
Timo Ihamuotila
150.0%
50%
75.0%
150.0%
30.0%
45.0%
n.a.
n.a.
n.a.
100.0%
20%
20.0%
140.0%
990,000
1,386,000
Carolina Granat
150.0%
50%
75.0%
150.0%
30.0%
45.0%
n.a.
n.a.
n.a.
150.0%
20%
30.0%
150.0%
725,000
1,087,500
Karin Lepasoon
150.0%
50%
75.0%
150.0%
30.0%
45.0%
n.a.
n.a.
n.a.
150.0%
20%
30.0%
150.0%
600,000
900,000
Sami Atiya
150.0%
30%
45.0%
n.a.
n.a.
n.a.
90.0%
50%
45.0%
150.0%
20%
30.0%
120.0%
800,000
960,000
Tarak Mehta
150.0%
30%
45.0%
n.a.
n.a.
n.a.
150.0%
50%
75.0%
150.0%
20%
30.0%
150.0%
930,000
1,395,000
Peter Terwiesch
150.0%
30%
45.0%
n.a.
n.a.
n.a.
130.2%
50%
65.1%
135.0%
20%
27.0%
137.1%
860,000
1,179,060
Morten Wierod
150.0%
30%
45.0%
n.a.
n.a.
n.a.
150.0%
50%
75.0%
150.0%
20%
30.0%
150.0%
975,000
1,462,500
Total
7,665,000
11,029,710
(1)
Includes, where appropriate, a reduction for a recorded fatality.
(2)
Represents accrued AIP award for the year 2023, which will be paid in 2024, after the publication of ABB's financial results.
CEO retrospective AIP target
disclosure
The following Compensation
Exhibit 26 sets out target and
award points for each measure under
the CEO’s
2023 AIP and its related composition
of the final award level.
This new exhibit is in response
to shareholder
feedback and represents a relevant additional
level of transparency on the alignment
between pay and
performance.
Compensation Exhibit 26: 2023
AIP outcomes for the CEO
(rounded)
(1)
Category
Performance measure
W
eight
Target
(100% award)
Actual
Award
(% of target)
Weighted
award
Group measures
Op EBITA margin (%)
40%
15.2
16.7
150.0%
60.0%
Op revenues gross profit productivity growth (%)
10%
6.4
17.9
150.0%
15.0%
Other Group
measures
Free Cash Flow ($ in millions)
20%
2,353.0
3,569.7
150.0%
30.0%
Revenues ($ in millions)
10%
29,939.1
31,533.9
150.0%
15.0%
Individual
measure
GHG emissions, Safety, Integrity
20%
See
(2)
See
(2)
145.0%
29.0%
Total
149.0%
(1)
The computation of targets as well as the measurement of actual performance against those targets
are based on exchange rates set prior to the start of
the performance period. Therefore, targets and actuals under the AIP do not agree with the equivalent
measure calculated based on the actual results as
presented in the Consolidated Financial Statements
(2)
The achievement of the individual measure is discretionary assessed by the Compensation
Committee and approved by the Board, based on an overall
outcome of all three performance goals under the individual measure. For 2023 these included
a reduction of GHG emissions compared to the 2022
baseline, a reduction of the Lost Time Injury Frequency Rate (LTIFR)
compared to the 2019 baseline, and the delivery of the Deferred Prosecution
Agreement in line with our commitments to the US Department of Justice. See Compensation
Exhibit 27 for the achievement of goals against the individual
measure. Includes a discretionary reduction for a recorded fatality.
Compensation Exhibit 27 sets out
the target, actual and
assessed outcome of the individual
goals for the
CEO which inform the individual
measure. The overall outcome of
the individual measure is a discretionary
judgement based on performance against
all three goals.
120
Compensation Exhibit 27: Achievement
against the 2023 performance
goals under the individual
measure for the CEO
Goal
Performance measure
Target
Actual
Assessment
GHG emissions
Emissions reduction vs 2022 baseline
(1)
11.9%
29.0%
Exceeded target
Safety
Lost Time Injury Frequency Rate
(2)
0.17
0.13
Lower (better) than
target
Integrity
Deliver DPA in line with our commitments
to the DOJ
(3)
Discretionary assessment
by the Board
Discretionary assessment
by the Board
Exceeded goal
Total
145.0%
(1)
ABB’s GHG emissions include direct emissions (scope 1) from burning of fuels (oil, diesel,
gas) at our sites; SF6 emissions in own operations; fleet
emissions and indirect emissions (scope 2) from our use of electricity and district heating/cooling.
(2)
Lost Time Injury Frequency Rate (LTIFR)
covers workplace incidents (ABB facility, project site, customer site) to
ABB employees and contractors; LTIFR
formula = number of lost time incidents and serious injury incidents with time lost *
200,000 / work hours (employees + contractors). Rate per 200,000
work hours (equivalent to 100 persons working one calendar year). Managers with direct
reports are required to complete a minimum of two Safety
Observation Tours
(SOT) before an award is made under LTIFR. The baseline
is represented by the 2019 LTIFR. Includes, where appropriate, a
discretionary reduction for a recorded fatality,
(3)
Contribution to the delivery of our commitments under the Deferred Prosecution Agreement with the US Department
of Justice related
to the Kusile
project.
CEO AIP outcomes in the last four
years
The historical AIP award outcomes
since Björn Rosengren has been
ABB’s CEO are shown in Compensation
Exhibit 28. Over the last four years
vesting has averaged at 119.8 percent of target and 79.8
percent of the
maximum award.
Compensation Exhibit
28: CEO AIP historical
award percentages
Long-Term Incentive (LTIP)
2023 LTIP grants
The estimated value at grant of
the share-based grants to EC members
under the 2023 LTIP was
CHF 8.7 million, compared with CHF 8.6
million in 2022.
The reference price for the 2023
LTIP grant used to determine the number of shares granted
to participants
was CHF 31.24.
The 2023 LTIP is based on three performance measures:
ABB’s EPS, ABB’s TSR and a sustainability
measure.
Targets
and award points under
the EPS measure are considered
as commercially sensitive information and
will only be disclosed retrospectively
after the end of the relevant
LTIP performance period.
121
As in the previous year, ABB kept the achievement
of the EPS threshold point
challenging for the 2023 LTIP
by applying a range between
the EPS target and award points
of plus/minus 11.5 percent of target, to reflect
the perceived EPS volatility during
the performance period.
The peer companies approved
by the Board to determine ABB’s relative
TSR performance for the 2023 LTIP
were as set out in the previous
section “Executive Committee
compensation policy”.
The sustainability measure applied
to the 2022 LTIP was also applied in the 2023 LTIP,
namely the scope 1
and 2 GHG emissions reduction at
the end of the three-year performance
period (2023–2025), compared to
the 2019 baseline, which was
defined without the divested Power
Grids business.
The targets and award
points under the 2023 LTIP have been structured to
reflect ABB’s progress to date,
its long-term ambitions,
and that as the targets get higher, the overall stretch
to achieve them is even more
challenging. Details of the
long-term GHG emissions reduction
targets can be found in ABB’s Item 4.
Information on the Company—
Sustainability activities.
The approved target and award points
for all three performance measures
under the 2023 LTIP are illustrated
in Compensation Exhibit 29 below.
Compensation Exhibit 29: 2023
LTIP target
and award points
Measure
Weighting
Threshold
Target
Maximum
Average EPS
50%
Target
point
-11.5%
Disclosed after
performance period
Target
point
+11.5%
Relative TSR
30%
50th percentile
75th percentile
Reduction of scope 1 and 2 CO
2
emissions
compared to 2019 baseline
20%
75.0%
77.5%
80.0%
Below threshold
point: no
award;
At target point:
100 percent award;
At or above
maximum
point:
capped
at 200 percent
award;
Linear interpolations between award points;
The average EPS target is not prospectively
disclosed for reasons of commercial sensitivity.
2024
LTIP grants
The sustainability measure applied
to the 2022 LTIP and 2023 LTIP will also be applied in the 2024 LTIP,
namely the scope 1 and 2 GHG emissions
reduction at the end of
the three-year performance period
(2024-
2026), compared to the 2019 baseline.
Details of the long-term GHG emissions
reduction targets can be
found in ABB’s Item 4. Information on
the Company—Sustainability
activities.
The target and award points,
as described in Compensation
Exhibit 30, have been structured to
reflect ABB’s
progress to date, its long-term ambitions,
and that as the targets get higher, the overall stretch
to achieve
them becomes more challenging.
•
above the mid-term target of 70 percent.
•
•
achieved in 2025, it would mean
we have delivered our target
five years ahead of our
commitment.
122
Compensation Exhibit 30: Sustainability
target and award points for the
2024 LTIP
Measure
Weighting
Threshold
Target
Maximum
Reduction of scope 1 and 2 CO2
equivalent
emissions compared to 2019
baseline
20%
77.0%
81.0%
85.0%
Below threshold
point: no
award;
At target point: 100 percent award;
At or above
maximum
point: capped
at 200 percent
award;
Linear interpolations
between award
points.
2020 LTIP – achievements
The final number of shares vesting under
the 2020 LTIP grant in 2023 was determined based on
the
achievement level against the predefined
TSR and EPS targets.
The relative ranking of ABB’s TSR
measure against the predefined
peer group of companies for the 2020
LTIP sat on the 83
rd
out of a potential of 200 percent.
The three-year average EPS amounted
to $1.14, which led to a vesting level
of 179.0 percent (previous year:
42.0 percent) out of a potential
200 percent, net of adjustments
for items considered outside the normal
course of business operation and/or
which were not considered
in the target setting of the 2020 LTIP.
Adjustments were made to the EPS
for each of the relevant financial
years to reflect significant unplanned
developments after the LTIP grant, including for the impact
of divestments, M&A related integration
costs and
restructuring costs.
In line with our commitment to retrospectively
disclose the EPS performance
targets for vested LTIP awards,
the three target and award points (threshold,
target and maximum) and
the actual achievement for
the
adjusted 2020 EPS performance
measure are shown in Compensation
Exhibit 31 below.
The average weighted achievement
level of the two performance
measures under the 2020 LTIP was 189.5
percent (out of a maximum 200 percent),
as specified in Compensation
Exhibit 31.
Compensation Exhibit 31: Target
and award points and achievement
levels
of 2020 LTIP
performance measures
Measure
Weighting
Threshold
Target
Maximum
Actual
Relative TSR
50%
25
th
50
th
75
th
83
rd
Achievement level
0%
100%
200%
200.0%
Average EPS ($)
50%
0.84
1.01
1.18
1.14
Achievement level
0%
100%
200%
179.0%
Award as percentage of target
(maximum at 200%)
189.5%
Overview of disclosed and realized
2020 LTIP value
The following table compares the previously
disclosed “fair value”
of the grant to each EC member
and the
actual value of the grant at the time
of vesting.
The following Compensation
Exhibit 32 shows such
comparison for the 2020 LTIP,
that vested in 2023.
123
Compensation Exhibit 32: Realized
value of 2020 LTIP
grant for current EC members
Grant date
Number of
shares
granted
related to
the TSR
measure
(1)
Shares
granted
related to
the EPS
measure
(2)
Total
number
of shares
granted
(3)
Disclosed
grant fair
value
(CHF)
(3)
Vesting date
Vesting
percentage
Number
of vested
shares
(4)
Realized
value
(CHF)
(5)
Björn Rosengren
April 27, 2020
65,858
65,857
131,715
1,970,457
April 27, 2023
189.5%
258,837
8,347,494
Timo Ihamuotila
April 27, 2020
24,536
24,535
49,071
734,103
April 27, 2023
189.5%
96,431
3,109,900
Carolina Granat
n.a.
n.a.
Karin Lepasoon
n.a.
n.a.
Sami Atiya
April 27, 2020
20,662
20,661
41,323
618,193
April 27, 2023
189.5%
81,205
2,618,862
Tarak Mehta
April 27, 2020
23,244
23,244
46,488
695,462
April 27, 2023
189.5%
91,357
2,946,264
Peter Terwiesch
April 27, 2020
20,662
20,661
41,323
618,193
April 27, 2023
189.5%
81,205
2,618,862
Morten Wierod
April 27, 2020
19,370
19,370
38,740
579,552
April 27, 2023
189.5%
76,130
2,455,193
Total
5,215,960
22,096,575
(1)
Actual achievement level of the TSR measure was 200.0 percent.
(2)
Actual achievement level of the EPS measure was 179.0 percent.
(3)
Valued at CHF 14.96, the grant fair value
of the ABB share on the grant date adjusted for expected foregone dividends during the vesting
period.
(4)
The initial granted number of shares has been increased by 3.7 percent to reflect the impact
of the Accelleron spin-off in 2022.
(5)
Valued at CHF 32.25, the closing
price of the ABB share on the day of vesting.
The values presented are gross
and before payment of any
applicable taxes owing
by the recipient. This
indicates the average gross realized
LTIP value was 423.6 percent of the disclosed grant
fair value.
LTIP vesting outcomes in the last five years
The historical LTIP vesting outcomes for the prior five
years are shown in Compensation
Exhibit 33 below.
Over the last five years vesting has
averaged at 106.7 percent
of target and 57.5 percent of
the maximum
award.
Compensation Exhibit
33: LTIP historical actual vesting
percentages
(1)
(1)
According to plan-specific relative weighting of relevant performance measures.
124
Realized total compensation – 2023
We disclose the realized total compensation
for each EC member. Such transparency on
realized
compensation is designed
to aid stakeholders’ understanding
of ABB's link between pay and performance.
Realized compensation
relates to the AIP award and the LTIP award at the end of
their respective
performance cycles, reflecting actual
payment and settlement, based
on achievements of the plan
specific
performance measures.
The following Compensation
Exhibit 34 sets out a high-level comparison
of realized and target total
compensation for each EC member. A detailed summary
table is given in Compensation
Exhibit 48 in the
section “Compensation tables and
share ownership tables“.
Compensation Exhibit 34: Realized
2023 total compensation (in
CHF) compared to target total
compensation
Annual total compensation ratio
This new section is in response
to shareholder feedback and represents
a relevant additional
level of pay
transparency in the Report. It provides
details of the ratio
of the annual total compensation
for the
organization’s highest-paid individual
(our CEO) to the median annual
total compensation for all permanent
ABB employees in Switzerland (excluding
the highest-paid individual).
We consider Switzerland to be the
most relevant location for analyzing
the annual total compensation ratio
since our CEO is also located in Switzerland.
This approach also mitigates
employee footprint and currency
volatility. In any event, ABB’s data access does not currently
allow for the inclusion of all relevant
compensation elements of all ABB
employees in all countries
in which we operate.
At the time of publication of the Report,
the allocation of annual short-term
incentive awards to eligible
employees in Switzerland for 2023
has not been concluded.
We therefore report the ratio for
the year 2022,
for which we know relevant short-term
incentive awards.
125
The calculated ratio comprises paid
base salary, paid short-term incentive, paid
pension benefits, paid other
benefits and granted long-term incentive
as compensation
elements. The short-term incentive
represents the
bonus paid in 2023 (for the year 2022),
and the long-term incentive
represents the grant fair value,
in line with
the disclosure for the 2022 CEO
compensation in this report.
The analysis excludes non-permanent
employees (i.e., interns, apprentices,
trainees, temporary workers) or
international assignees, but includes
part-time employees if they were employed
at December 31, 2022.
Compensation elements of part-time
employees and new
hires during the year 2022 are extrapolated
to
represent full-time equivalent and
full year equivalent figures.
Values of granted long-term incentive, pension benefits and
other benefits are considered
for the employee
with the median total cash compensation,
comprising of annual
base salary and 2022 short-term
incentive
award.
As disclosed in our Annual Report 2022,
the CEO’s total compensation
for 2022 was CHF 8,074,656. Based
on the same compensation elements
as stated above for the CEO,
the median 2022 total compensation
for
employees in Switzerland was
CHF 161,280. The resulting
median
If the ratio would consider the CEO’s annual
total compensation to the average
annual total compensation for
all permanent ABB employees in Switzerland
(excluding the CEO), rather than
the median, the resulting
average ratio
Other compensation – 2023
Members of the EC are eligible
to participate in the Employee Share
Acquisition Plan (ESAP), a savings plan
based on stock options, which is open
to employees around the world.
Five members of the EC participated
in the 20th annual ESAP launch of
the plan in 2023. EC members who
participated will, upon vesting,
each
be entitled to acquire up to 330
ABB shares at CHF 30.49 per
share, the market share price at
the start of the
2023 launch.
For a more detailed description
of the ESAP,
please refer to “Note 18 – Share
‑
based payment arrangements”
in our Consolidated Financial
Statements.
In 2023, ABB did not pay any fees or
compensation to the members
of the EC for services rendered
to ABB
other than those disclosed in this
report. Except as disclosed
in the section “Executive Committee – Business
relationships between ABB and
its EC members” in "Item 6. Directors,
Senior Management and Employees",
the Company did not pay any additional
fees or compensation
in 2023 to persons closely linked
to a member
of the EC for services rendered to
ABB.
Share ownership of EC members
Six out of eight EC members have
met and exceeded their share
ownership requirement. The other
two
members
have been appointed to the EC
in the last three years.
The individual shareholding
in comparison to
the relevant share ownership requirement
is shown in Compensation
Exhibit 9 in the section “Compensation
at a glance”.
The EC members collectively owned
less than one percent of ABB’s total shares
outstanding at
December 31, 2023.
At December 31, 2023,
EC members held ABB shares
and conditional rights to receive
shares, as shown in
Compensation Exhibit 46 in the section
“Compensation tables and
share ownership tables” below. Their
holdings at December 31, 2022, are shown
in Compensation Exhibit
47 in the same section.
Except as described in Compensation
Exhibits 46 and 47, no member of
the EC and no person closely
linked
to a member of the EC held any shares
of ABB or options on ABB shares at
December 31, 2023 and 2022.
126
External Board mandates held by EC members
Four out of eight EC members held
at least one external mandate
in other companies. Detailed information
can be found in Compensation
Exhibit 43 in the section “Compensation
tables and share ownership
tables”.
Changes applicable to EC members
Terms of
appointment for new EC members
The new General Counsel and Company
Secretary, Mathias Gärtner, will be appointed in 2024, with an
annual base salary of CHF 800,000, a
target short-term incentive
of 100 percent of annual base
salary and a
target long-term incentive of 150 percent
of annual base salary. Mathias Gärtner is eligible
for standard EC
benefits.
He will receive a replacement
share grant to compensate for his
forgone equity grants with his previous
employer. The value of forfeited performance share
units and options grants
will be replaced with an ABB
performance share unit grant and
the value of forfeited restricted share unit
grants will be replaced with an
ABB restricted share unit grant.
Terms of
departure for EC members
The previous General Counsel and
Company Secretary, Andrea Antonelli, stepped down
from the EC as per
May 31, 2023,
and will depart from ABB on
June 30, 2024, reflecting his contractual
notice period of 12
months plus extension of such period
by one month due to illness.
He is entitled to receive compensation
and
benefits up to the point of his departure.
This includes a contractually
agreed pro-rata short-term incentive
payment of CHF 283,300 for the period
January 1 to June 30, 2024. His unvested
shares granted under the
2022 and 2023 LTIP will be treated according to contractual
terms.
Compensation of former EC members
In 2023, certain former EC members
received contractual compensation
for the period after leaving the EC,
as shown in Compensation Exhibit
41, footnote (5).
Votes
on compensation at the 2024
AGM
As illustrated in Compensation Exhibit
35, the Board’s proposals
to shareholders at the 2024
AGM will relate
to Board compensation for the 2024–2025
term of office and EC compensation
for the calendar year 2025.
There will also be a non-binding
consultative vote on the Compensation
Report 2023.
127
Compensation Exhibit 35: Shareholders
will have three separate
votes on compensation at
the 2024 AGM
The voting results at ABB’s AGM in 2023
were as follows:
●
●
●
In determining the proposed maximum
aggregate EC compensation
for 2025, the Board intends to take into
consideration the criteria set forth in Compensation
Exhibit 36. Given the variable
nature of a major portion of
the compensation components,
the proposed maximum aggregate
EC compensation will accordingly
be
higher than the actual compensation
paid or awarded, as it must cover
the potential maximum value
of each
component of compensation.
The increase in maximum aggregate EC
compensation for 2025
compared to 2024
is mainly influenced by
the application of the adjusted,
more performance-oriented compensation
mix for EC entrants and the
anticipated costs related to the
vesting of 2022
LTIP awards.
128
Compensation Exhibit 36: Overview
of key factors affecting
the determination of maximum
aggregate EC compensation
129
Compensation tables and share
ownership tables
Compensation Exhibit 37: Board
compensation in 2023 and
2022
Paid in 2023
Paid in 2022
November
Board term
2023–2024
May
Board term
2022–2023
Total compensation
paid in 2023
(3)
November
Board term
2022–2023
May
Board term
2021–2022
Total compensation
paid in 2022
(3)
Name
Settled in cash
(1)
Settled in shares
–
number of shares
received
(2)
Settled in cash
(1)
Settled in shares
–
number of shares
received
(2)
Settled in cash
(1)
Settled in shares
–
number of shares
received
(2)
Settled in cash
(1)
Settled in shares
–
number of shares
received
(2)
CHF
CHF
CHF
CHF
CHF
CHF
Peter Voser, Chairman
(4)
—
17,462
—
18,607
1,200,000
—
21,565
—
18,296
1,200,000
Jacob Wallenberg
(5)
112,500
2,624
112,500
2,796
450,000
112,500
3,257
112,500
2,763
450,000
Gunnar Brock
(6)
82,500
1,924
82,500
2,048
330,000
82,500
2,388
82,500
2,026
330,000
David Constable
(7)
80,000
1,866
80,000
1,988
320,000
80,000
2,316
80,000
1,964
320,000
Frederico Curado
(8)
—
3,876
—
4,130
350,000
—
4,799
—
4,075
350,000
Lars Förberg
(9)
—
4,628
—
4,945
320,000
—
5,736
—
4,870
320,000
Denise Johnson
(10)
—
3,929
—
—
165,000
—
—
—
—
—
Jennifer Xin-Zhe Li
(11)
87,500
1,890
87,500
2,018
350,000
87,500
2,338
87,500
1,986
350,000
Geraldine Matchett
(12)
82,500
2,376
82,500
2,683
330,000
82,500
3,121
82,500
2,647
330,000
David Meline
(13)
100,000
2,332
100,000
2,485
400,000
100,000
2,895
100,000
2,456
400,000
Satish Pai
(14)
—
—
—
3,341
165,000
—
4,523
82,500
1,872
330,000
Total
545,000
42,907
545,000
45,041
4,380,000
545,000
52,938
627,500
42,955
4,380,000
(1)
Represents gross amounts paid, prior to deductions for social security, withholding tax, etc.
(2)
Number of shares per Board member is calculated based on net amount due after deductions for social security, withholding tax, etc.
(3)
In addition to the Board remuneration stated in the above table, in 2023 and 2022 the Company paid CHF 235,498 and CHF 248,489, respectively, in related
mandatory social security payments.
(4)
Chairman of the ABB Ltd Board and of the Governance and Nomination Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving
100 percent of his compensation in the form of ABB shares.
(5)
Vice-Chairman of the ABB Ltd Board and member of the Governance and Nomination Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is
receiving 50 percent of his compensation in the form of ABB shares.
(6)
Member of the Finance, Audit and Compliance Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 50 percent of his compensation in
the form of ABB shares.
(7)
Member of the Compensation Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 50 percent of his compensation in the form of ABB
shares.
(8)
Chairman of the Compensation Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 100 percent of his compensation in the form of
ABB shares.
(9)
Member of the Governance and Nomination Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 100 percent of his compensation in
the form of ABB shares.
(10)
Member of the Finance, Audit and Compliance Committee for the 2023–2024 Board term; is receiving 100 percent of her compensation in the form of ABB shares.
(11)
Member of the Compensation Committee and of the Governance and Nomination Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving
50 percent of her compensation in the form of ABB shares.
(12)
Member of the Finance, Audit and Compliance Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 50 percent of her compensation in
the form of ABB shares.
(13)
Chairman of the Finance, Audit and Compliance Committee for the 2021–2022, 2022–2023 and 2023–2024 Board terms; is receiving 50 percent of his compensation in
the form of ABB shares.
(14)
Member of the Finance, Audit and Compliance Committee for the 2021–2022 and 2022–2023 Board terms; received 50 percent of his compensation in the form of ABB
shares for the 2021–2022 Board term and 100 percent of his compensation in the form of ABB shares for the 2022–2023 Board term. Did not stand for election in 2023.
130
Compensation Exhibit 38: Board
compensation for the Board
terms 2023–2024 and
2022–2023
Board term
2023–2024
Board term
2022–2023
Name
Specific Board roles
CHF
CHF
Peter Voser
Chairman of the Board and Chairman GNC for 2023–2024 and
2022–2023 terms
1,200,000
1,200,000
Jacob Wallenberg
Vice-Chairman of the Board and Member GNC for 2023
–2024 and 2022–2023 terms
450,000
450,000
Gunnar Brock
Member FACC for 2023–2024 and 2022–2023
terms
330,000
330,000
David Constable
Member CC for 2023–2024 and 2022–2023 terms
320,000
320,000
Frederico Curado
Chairman CC for 2023–2024 and 2022–2023 terms
350,000
350,000
Lars Förberg
Member GNC for 2023–2024 and 2022–2023 terms
320,000
320,000
Denise Johnson
Member FACC for 2023–2024 term
330,000
—
Jennifer Xin-Zhe Li
Member CC and Member GNC for 2023–2024 and 2022–2023
terms
350,000
350,000
Geraldine Matchett
Member FACC for 2023–2024 and 2022–2023
terms
330,000
330,000
David Meline
Chairman FACC for 2023–2024 and 2022
–2023 terms
400,000
400,000
Satish Pai
Member FACC for 2022–2023 term
—
330,000
Total
4,380,000
4,380,000
Key:
CC: Compensation Committee
FACC: Finance, Audit and Compliance Committee
GNC: Governance and Nomination Committee
Compensation Exhibit 39: Board
ownership of ABB
shares
Total number of shares held
Name
December 31, 2023
December 31, 2022
Peter Voser
215,876
231,807
Jacob Wallenberg
251,318
245,898
Gunnar Brock
41,785
37,813
David Constable
46,319
42,465
Frederico Curado
57,181
49,175
Lars Förberg
80,095
70,522
Denise Johnson
3,929
—
Jennifer Xin-Zhe Li
45,812
41,904
Geraldine Matchett
36,023
30,964
David Meline
(1)
47,948
43,131
Satish Pai
—
34,827
Total
826,286
828,506
(1) Includes 3,150 shares held by the spouse.
131
Compensation Exhibit 40: Board
members with external mandates
at December 31, 2023
Name
Company
Listed company
Chair of the Board
Member of the
Board
Chair of a
Committee
Member of a
Committee
CEO
Member of the EC
Peter Voser
IBM Corporation,
Armonk, United
States
●
●
●
●
Temasek Holdings (Private)
Limited,
Singapore, Singapore
●
●
●
PSA International Pte Ltd, Singapore, Singapore
●
Jacob Wallenberg
Investor AB, Stockholm, Sweden
●
●
●
●
Telefonaktiebolaget L.M.
Ericsson AB, Stockholm, Sweden
●
●
●
SAS AB, Stockholm, Sweden
(1)
●
●
FAM AB (Foundation Asset Management),
Stockholm,
Sweden
●
Wallenberg Investments AB,
Stockholm, Sweden
●
Patricia Industries AB, Stockholm, Sweden
●
Gunnar Brock
Investor AB, Stockholm, Sweden
●
●
●
Neptunia Invest AB,
Stockholm, Sweden
●
Stena AB, Stockholm, Sweden
●
●
Patricia Industries AB,
Stockholm, Sweden
●
David Constable
Fluor Corporation,
Irving, United States
●
●
●
Frederico Curado
Transocean Ltd., Zug, Switzerland
●
●
●
●
LATAM
Airlines Group, Santiago, Chile
●
●
●
●
Lars Förberg
Cevian Capital AB,
Stockholm, Sweden
●
Denise Johnson
Caterpillar Inc., Deerfield, United States
●
●
The Mosaic Company, Tampa,
United States
●
●
●
Jennifer Xin-Zhe Li
Changcheng Investment Partners, Beijing, China
●
SAP SE, Walldorf, Germany
●
●
●
●
Full Truck Alliance Co. Ltd., Guizhou / Nanjing,
China
●
●
●
David Meline
HP Inc., Palo Alto, United States
●
●
●
Pacific Biosciences of California Inc., Menlo Park, United
States
●
●
●
(1)
Jacob Wallenberg
is not a
member of the
Board of
Directors of
SAS AB. He is
a member
of their Nomination
Committee,
which is not
a committee
of the Board.
132
Compensation Exhibit 41: EC
compensation in 2023
Cash Compensation
Estimated value of share
-
based grants under the
LTIP in 2023
(4)
2023 Total compensation
(incl. conditional share
-
based grants)
(5)
Name
Base salary
Short
-
term incentive
(1)
Pension benefits
Other benefits
(2)
2023 Total
cash
-
based
compensation
(3)
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Björn Rosengren
1,785,006
2,659,650
775,090
1,759,098
6,978,844
2,714,375
9,693,219
Timo Ihamuotila
990,004
1,386,000
541,130
786,869
3,704,003
1,003,656
4,707,659
Carolina Granat
725,012
1,087,500
440,166
369,285
2,621,963
734,999
3,356,962
Karin Lepasoon
600,000
900,000
254,677
162,089
1,916,766
608,288
2,525,054
Sami Atiya
800,009
960,000
499,122
654,700
2,913,831
811,038
3,724,869
Tarak Mehta
930,009
1,395,000
526,130
746,993
3,598,132
942,817
4,540,949
Peter Terwiesch
855,003
1,179,060
505,595
657,565
3,197,223
871,844
4,069,067
Morten Wierod
962,502
1,462,500
505,842
685,145
3,615,989
988,423
4,604,412
Total Executive Committee members
at December 31, 2023
7,647,545
11,029,710
4,047,752
5,821,744
28,546,751
8,675,440
37,222,191
Andrea Antonelli (EC member until
May 31, 2023)
700,000
980,000
248,685
140,430
2,069,115
1,064,462
3,133,577
Theodor Swedjemark (EC member until
September 30, 2022)
83,334
78,854
45,344
79,168
286,700
—
286,700
Total departing Executive Committee
members
783,334
1,058,854
294,029
219,598
2,355,815
1,064,462
3,420,277
Total
8,430,879
12,088,564
4,341,781
6,041,342
30,902,566
9,739,902
40,642,468
(1)
Represents accrued short-term variable compensation for the year 2023, which will be paid in 2024, after the publication of ABB's financial results. Short-term
variable compensation is linked to the targets and goals defined in each EC member's Annual Incentive Plan. Upon full achievement of these targets and goals, the
short-term variable compensation of the EC members represents 100 percent of their respective base salary. Theodor Swedjemark received a short-term variable
compensation payment in February 2023
related to his termination period, in accordance with the contractual obligations of ABB.
(2)
Other benefits mainly comprise payments related to social security, health insurance, children's education, transportation, tax advice and compensation for foregone
dividends on replacement share grants and certain other items.
(3)
Prepared on an accrual basis.
(4)
The estimated value of the share-based LTIP grants is based on the price of ABB shares on the grant date. On the day of vesting (April 24, 2026), the value of the
share-based awards granted under the LTIP may vary from the above amounts due to changes in ABB's share price and the outcome of the performance factors.
(5)
Payments totaling CHF 308,592 were made in 2023 on behalf of certain other former EC members, representing social security premium payments due on the 2020
LTIP vesting and tax advisory services for the period when they have been active EC members.
133
Compensation Exhibit 42: EC
compensation in 2022
Cash Compensation
Estimated value of share
-
based grants under the
LTIP in 2022
(4)
2022 Total compensation
(incl. conditional share
-
based grants)
(5)
Name
Base salary
Short
-
term incentive
(1)
Pension benefits
Other benefits
(2)
2022 Total
cash
-
based
compensation
(3)
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Björn Rosengren
1,770,840
2,142,000
762,478
988,084
5,663,402
2,411,254
8,074,656
Timo Ihamuotila
986,672
1,188,000
527,648
720,953
3,423,273
891,570
4,314,843
Carolina Granat
720,843
870,000
427,903
352,848
2,371,594
652,920
3,024,514
Andrea Antonelli (EC member as of
March 1, 2022)
583,334
670,833
198,164
245,754
1,698,085
945,595
2,643,680
Karin Lepasoon (EC member as of
October 1, 2022)
150,000
165,000
62,360
38,987
416,347
540,336
956,683
Sami Atiya
(6)
800,009
539,200
487,247
599,994
2,426,450
720,458
3,146,908
Tarak Mehta
930,009
1,337,340
513,481
604,563
3,385,393
837,546
4,222,939
Peter Terwiesch
825,001
1,245,000
485,152
536,952
3,092,105
747,485
3,839,590
Morten Wierod
875,006
1,067,400
471,432
523,912
2,937,750
810,519
3,748,269
Total Executive Committee members
at December 31, 2022
7,641,714
9,224,773
3,935,865
4,612,047
25,414,399
8,557,683
33,972,082
Maria Varsellona (EC member
until
March 31, 2022)
200,002
181,985
114,896
79,223
576,106
—
576,106
Theodor Swedjemark (EC member until
September 30, 2022)
500,004
473,124
283,520
203,210
1,459,858
—
1,459,858
Total departing Executive Committee
members
700,006
655,109
398,416
282,433
2,035,964
—
2,035,964
Total
8,341,720
9,879,882
4,334,281
4,894,480
27,450,363
8,557,683
36,008,046
(1)
Represents accrued short-term variable compensation for the year 2022, which was paid in 2023, after the publication of ABB's financial results. Short-term
variable compensation is linked to the targets and goals defined in each EC member's Annual Incentive Plan. Upon full achievement of these targets and goals,
the short-term variable compensation of the EC members represents 100 percent of their respective base salary. Maria Varsellona received a short-term variable
compensation payment in March 2022 related to her termination period, in accordance with the contractual obligations of ABB.
(2)
Other benefits mainly comprise payments related to social security, health insurance, children's education, transportation, tax advice and compensation for
foregone dividends on replacement share grants and certain other items.
(3)
Prepared on an accrual basis.
(4)
The estimated value of the share-based LTIP grants is based on the price of ABB shares on the grant date. On the day of vesting (April 25, 2025), the value of
the share-based awards granted under the LTIP may vary from the above amounts due to changes in ABB's share price and the outcome of the performance
factors.
(5)
Payments totaling CHF 1,324,301 were made in 2022 on behalf of certain other former EC members, representing social security premium payments due on the
2019 LTIP vesting and tax advisory services for the period when they have been active EC members.
(6)
The disclosure of the number of shares granted under the LTIP in 2022 for Sami Atiya has been corrected from the amount previously disclosed in the 2022
Compensation Report. As a result, the grant fair value has been reduced accordingly.
Compensation Exhibit 43: EC
members with external mandates
at December 31, 2023
Name
Company
Listed company
Chair of the Board
Member of the
Board
Chair of a
Committee
Member of a
Committee
Timo Ihamuotila
SoftwareOne Holding AG, Stans, Switzerland
●
●
●
Oras Invest Oy,
Helsinki, Finland
●
Sami Atiya
SGS SA,
Geneva, Switzerland
●
●
●
●
Tarak Mehta
Prysmian S.p.A., Milan, Italy
●
●
●
Peter Terwiesch
Hilti AG, Schaan, Liechtenstein
●
134
Compensation Exhibit 44: LTIP
grants in 2023
Name
Reference number of shares under
the EPS performance factor of the
2023 launch of the LTIP
(1)
Total estimated value of share
-
based
grants under the EPS performance
factor of the
2023 launch of the
LTIP
(2)(3)
Reference number of shares under
the TSR performance factor of the
2023 launch of the LTIP
(1)
Total estimated value of share
-
based
grants under the TSR performance
factor of the 2023 launch of the
LTIP
(2)(3)
Reference number of shares under
the sustainability performance factor
of the
2023 launch of the LTIP
(1)
Total estimated value of share
-
based
grants under the sustainability
performance factor of the
2023
launch of the LTIP
(2)(3)
Total number of shares granted
under
the 2023 launch of the LTIP
(1)(2)
Total estimated value of share
-
based
grants under the LTIP in 2023
(2)(3)
CHF
CHF
CHF
CHF
Björn Rosengren
(4)
42,854
1,357,187
25,712
814,300
17,142
542,888
85,708
2,714,375
Timo Ihamuotila
15,845
501,812
9,507
301,087
6,339
200,757
31,691
1,003,656
Carolina Granat
11,604
367,499
6,962
220,487
4,642
147,013
23,208
734,999
Karin Lepasoon
(4)
9,603
304,128
5,762
182,483
3,842
121,677
19,207
608,288
Sami Atiya
12,804
405,503
7,682
243,289
5,123
162,246
25,609
811,038
Tarak Mehta
(4)
14,885
471,408
8,931
282,845
5,954
188,564
29,770
942,817
Peter Terwiesch
(4)
13,764
435,906
8,258
261,531
5,507
174,407
27,529
871,844
Morten Wierod
(4)
15,605
494,211
9,363
296,527
6,242
197,685
31,210
988,423
Total Executive Committee
members at December 31, 2023
136,964
4,337,654
82,177
2,602,549
54,791
1,735,237
273,932
8,675,440
(1)
Vesting date April 24, 2026.
(2)
The reference number of shares of the EPS, TSR and sustainability performance factors
are valued using the fair value of the ABB shares on the grant
date.
(3)
Default settlement of the final LTIP
award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to
withholding
taxes. The plan foresees a maximum award of 200 percent of the number of reference shares
granted based on the achievement against the predefined
average EPS, relative TSR and sustainability performance targets. Participants are also entitled to
receive a dividend equivalent payment at the time of
vesting for each awarded share.
(4)
In addition to the above awards, five members of the EC participated in the 20th launch
of the ESAP in 2023, which will allow them to save over a 12-
month period and, in November 2024, use their savings to acquire ABB shares under the
ESAP. Each EC member
who participated in ESAP will, upon
vesting, be entitled to acquire up to 330 ABB shares at an exercise price of CHF 30.49 per share.
135
Compensation Exhibit 45: LTIP
grants in 2022
Name
Reference number of shares under
the EPS performance factor of the
2022 launch of the LTIP
(1)(4)
Total estimated value of share
-
based
grants under the EPS performance
factor of the 2022 launch of the
LTIP
(2)(3)
Reference number of shares under
the TSR performance factor of the
2022 launch of the LTIP
(1)(4)
Total estimated value of share
-
based
grants under the TSR performance
factor of the 2022 launch of the
LTIP
(2)(3)
Reference number of shares under
the sustainability performance factor
of the 2022 launch of the LTIP
(1)(4)
Total estimated value of share
-
based
grants under the sustainability
performance factor of the 2022 launch
of the LTIP
(2)(3)
Total number of shares granted
under
the 2022 launch of the LTIP
(1)(2)(4)
Total estimated value of share
-
based
grants under the LTIP in 2022
(2)(3)
CHF
CHF
CHF
CHF
Björn Rosengren
42,743
1,205,627
25,646
723,353
17,098
482,274
85,487
2,411,254
Timo Ihamuotila
(5)
15,804
445,770
9,482
267,462
6,323
178,338
31,609
891,570
Carolina Granat
11,574
326,460
6,944
195,858
4,630
130,602
23,148
652,920
Andrea Antonelli (EC member as
of March 1, 2022)
16,762
472,797
10,057
283,667
6,706
189,131
33,525
945,595
Karin Lepasoon (EC member as of
October 1, 2022)
(5)
9,578
270,153
5,747
162,075
3,832
108,108
19,157
540,336
Sami Atiya
(6)
12,771
360,215
7,662
216,112
5,110
144,131
25,543
720,458
Tarak Mehta
(5)
14,847
418,773
8,908
251,258
5,939
167,515
29,694
837,546
Peter Terwiesch
(5)
13,250
373,728
7,950
224,231
5,301
149,526
26,501
747,485
Morten Wierod
(5)
14,368
405,259
8,620
243,156
5,748
162,104
28,736
810,519
Total Executive Committee
members at December 31, 2022
151,697
4,278,782
91,016
2,567,172
60,687
1,711,729
303,400
8,557,683
(1)
Vesting date April 25, 2025.
(2)
The reference number of shares of the EPS, TSR and sustainability performance factors are valued
using the fair value of the ABB shares on the grant
date.
(3)
Default settlement of the final LTIP
award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding
taxes. The plan foresees a maximum award of 200 percent of the number of reference shares
granted based on the achievement against the predefined
average EPS, relative TSR and sustainability performance targets. Participants are also entitled to receive
a dividend equivalent payment at the time of
vesting for each awarded share.
(4)
The initial granted number of shares has been increased by 3.7 percent to reflect the impact
of the Accelleron spin-off.
(5)
In addition to the above awards, five members of the EC participated in the 19th launch
of the ESAP in 2022, which allowed them to save over a 12-
month period and, in November 2023, use their savings to acquire ABB shares under the
ESAP. Each EC member who
participated in ESAP was entitled
to acquire up to 360 ABB shares at an exercise price of CHF 27.99 per share.
(6)
The disclosure of the number of shares granted under the LTIP
in 2022 for Sami Atiya has been corrected from the amount previously disclosed in "Item
6. Directors, Senior Management and Employees" of the 2022 Annual Report, reducing the
number by 958.
136
Compensation Exhibit 46: EC
shareholding overview at December
31, 2023
Unvested at December 31, 2023
Name
Total number of
shares held at
December 31,
2023
Reference number of shares
deliverable under the 2021
performance factors (EPS and
TSR) of the LTIP
(1)
Reference number of shares
deliverable under the 2022
performance factors (EPS, TSR
and sustainability) of the LTIP
(1)
Reference number of shares
deliverable under the 2023
performance factors (EPS, TSR
and sustainability) of the LTIP
(1)
(vesting 2024)
(vesting 2025)
(vesting 2026)
Björn Rosengren
262,334
99,450
85,487
85,708
Timo Ihamuotila
202,000
37,830
31,609
31,691
Carolina Granat
(2)
5,200
27,301
23,148
23,208
Karin Lepasoon
360
—
19,157
19,207
Sami Atiya
100,000
31,201
25,543
25,609
Tarak Mehta
134,710
36,271
29,694
29,770
Peter Terwiesch
100,000
31,201
26,501
27,529
Morten Wierod
141,267
31,201
28,736
31,210
Total Executive Committee members
at
December 31, 2023
945,871
294,455
269,875
273,932
(1)
The final 2020 LTIP,
2021 LTIP and 2022 LTIP
awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who
are subject to withholding taxes.
(2)
This includes 1,200 shares held by the spouse.
137
Compensation Exhibit 47: EC
shareholding overview at December
31, 2022
Unvested at December 31, 2022
Name
Total number of
shares held at
December 31,
2022
Reference number of shares
deliverable under the 2020
performance factors (EPS and
TSR) of the LTIP
(1)(2)
Reference number of shares
deliverable under the 2021
performance factors (EPS and
TSR) of the LTIP
(1)(2)
Reference number of shares
deliverable under the 2022
performance factors (EPS, TSR
and sustainability) of the LTIP
(1)(2)
Replacement share grant for
foregone benefits from former
employer
(2)(3)
(vesting 2023)
(vesting 2024)
(vesting 2025)
(vesting 2023)
Björn Rosengren
94,597
136,589
99,450
85,487
19,604
Timo Ihamuotila
189,034
50,887
37,830
31,609
—
Carolina Granat
(4)
5,200
—
27,301
23,148
—
Andrea Antonelli (EC member as of
March 1, 2022)
—
—
7,021
33,525
—
Karin Lepasoon (EC member as of
October 1, 2022)
—
—
—
19,157
—
Sami Atiya
(5)
90,473
42,852
31,201
25,543
—
Tarak Mehta
152,993
48,209
36,271
29,694
—
Peter Terwiesch
132,940
42,852
31,201
26,501
—
Morten Wierod
64,777
40,174
31,201
28,736
—
Total Executive Committee members
at
December 31, 2022
730,014
361,563
301,476
303,400
19,604
(1)
The final 2020 LTIP,
2021 LTIP and 2022 LTIP
awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who
are subject to withholding taxes.
(2)
Initial number of shares granted have been increased by 3.7 percent to reflect the impact
of the spin-off of the Accelleron business.
(3)
The replacement share grant was settled 65 percent in shares and 35 percent in cash.
(4)
This includes 1,200 shares held by the spouse.
(5)
The disclosure of the number of shares granted under the LTIP
in 2022 for Sami Atiya has been corrected from the amount previously disclosed in "Item
6. Directors, Senior Management and Employees" of the 2022 Annual Report, reducing the
number by 958.
138
Compensation Exhibit 48: Targeted
and realized EC total compensation
in 2023
Target
compensation
(in CHF)
Base salary
Pension
benefits
Other
benefits
(1)
Target
short-term
incentive
(2)
Grant fair
value of
2020 LTIP
(3)
Grant fair
value of 2020
replacement
share grant
(4)
Target total
variable
compensation
Target total
compensation
Björn Rosengren
1,785,006
775,090
1,703,295
1,785,000
1,970,457
406,436
4,161,893
8,425,284
Timo Ihamuotila
990,004
541,130
761,604
990,000
734,103
n.a.
1,724,103
4,016,841
Carolina Granat
725,012
440,166
346,158
725,000
n.a.
n.a.
725,000
2,236,336
Karin Lepasoon
600,000
254,677
142,949
600,000
n.a.
n.a.
600,000
1,597,626
Sami Atiya
800,009
499,122
644,492
800,000
618,193
n.a.
1,418,193
3,361,816
Tarak Mehta
930,009
526,130
717,326
930,000
695,462
n.a.
1,625,462
3,798,927
Peter Terwiesch
855,003
505,595
637,209
860,000
618,193
n.a.
1,478,193
3,476,000
Morten Wierod
962,502
505,842
654,043
975,000
579,552
n.a.
1,554,552
3,676,939
Total
7,647,545
4,047,752
5,607,076
7,665,000
5,215,960
406,436
13,287,396
30,589,769
Realized
compensation
(in CHF)
Base salary
Pension
benefits
Other
benefits
(1)(5)
Short-term
incentive
2023
(6)
Realized
value of
2020 LTIP
(7)
Realized
value of 2020
replacement
share grant
(8)
Total variable
compensation
Total
compensation
Björn Rosengren
1,785,006
775,090
1,759,098
2,659,650
8,347,494
626,740
11,633,884
15,953,078
Timo Ihamuotila
990,004
541,130
786,869
1,386,000
3,109,900
n.a.
4,495,900
6,813,903
Carolina Granat
725,012
440,166
369,285
1,087,500
n.a.
n.a.
1,087,500
2,621,963
Karin Lepasoon
600,000
254,677
162,089
900,000
n.a.
n.a.
900,000
1,916,766
Sami Atiya
800,009
499,122
654,700
960,000
2,618,862
n.a.
3,578,862
5,532,693
Tarak Mehta
930,009
526,130
746,993
1,395,000
2,946,264
n.a.
4,341,264
6,544,396
Peter Terwiesch
855,003
505,595
657,565
1,179,060
2,618,862
n.a.
3,797,922
5,816,085
Morten Wierod
962,502
505,842
685,145
1,462,500
2,455,193
n.a.
3,917,693
6,071,182
Total
7,647,545
4,047,752
5,821,744
11,029,710
22,096,575
626,740
33,753,025
51,270,066
Realized
achievement level
Base salary
Pension
benefits
Other
benefits
(1)
Short-term
incentive
2023
(6)
Realized
value of
2020 LTIP
in %
(7)
Realized
value of 2020
replacement
share grant in
%
(8)
Total variable
compensation
Total
compensation
Björn Rosengren
100.0%
100.0%
103.3%
149.0%
423.6%
154.2%
279.5%
189.3%
Timo Ihamuotila
100.0%
100.0%
103.3%
140.0%
423.6%
n.a.
260.8%
169.6%
Carolina Granat
100.0%
100.0%
106.7%
150.0%
n.a.
n.a.
150.0%
117.2%
Karin Lepasoon
100.0%
100.0%
113.4%
150.0%
n.a.
n.a.
150.0%
120.0%
Sami Atiya
100.0%
100.0%
101.6%
120.0%
423.6%
n.a.
252.4%
164.6%
Tarak Mehta
100.0%
100.0%
104.1%
150.0%
423.6%
n.a.
267.1%
172.3%
Peter Terwiesch
100.0%
100.0%
103.2%
137.1%
423.6%
n.a.
256.9%
167.3%
Morten Wierod
100.0%
100.0%
104.8%
150.0%
423.6%
n.a.
252.0%
165.1%
Average
100.0%
100.0%
105.0%
143.3%
423.6%
154.2%
233.6%
158.2%
(1)
Other benefits comprise payments related to social security, health insurance, children's education, transportation, tax advice and certain other items.
(2)
Target short-term incentive corresponds to 100 percent of the latest applicable annual base salary.
(3)
Represents the 2020 LTIP grant date fair value as per April 27, 2020, as disclosed in our Annual Report 2020.
(4)
Represents the 2020 grant fair value related to the second tranche (out of two tranches) of the replacement grant, as disclosed in our Annual Report 2020.
(5)
Differences between realized and target values due to higher social security payments related to AIP awards above target values.
(6)
Represents accrued short-term incentive for the year 2023, which will be paid in 2024, after the publication of ABB's financial results. STI is linked to the targets and
goals defined in each EC member's Annual Incentive Plan.
(7)
Valued at CHF 32.25, the closing price of the ABB share on the day of vesting.
(8)
Valued at CHF 31.97, the closing price of the ABB share on the day of vesting.
139
—
Employees
A
breakdown of our employees by
geographic region is as follows:
December 31,
2023
2022
2021
Europe
51,400
49,700
50,000
The Americas
26,400
26,400
25,600
Asia, Middle East and Africa
30,100
29,000
28,800
Total
107,900
105,100
104,400
The proportion of our employees
that are represented by labor
unions or are subject to collective bargaining
agreements varies based on the labor
practices of each country in which
we operate.
Item 7.
Major Shareholders and Related
Party Transactions
—
Major shareholders
At December 31, 2023, we had approximately
638,000 shareholders.
Approximately 401,000 were
U.S. holders, of which approximately 420
were record holders.
Based on the share register, U.S. holders
(including holders of ADSs) held
approximately 11 percent of the total share capital and
voting rights as
registered in the Commercial Register
on that date.
For information on major shareholders
see “Item 6. Directors, Senior Management
and Employees—
Shareholders—Significant
shareholders”.
—
Related party transactions
Affiliates and associates
In the normal course of our business,
we purchase products from,
sell products to and engage
in other
transactions with entities in which
we hold an equity interest.
The amounts involved in these
transactions are
not material to ABB Ltd. Prior to its
sale in December 2022, our most
significant equity method investment
was in Hitachi Energy Ltd (see “Note 4
- Acquisitions, divestments and equity-accounted
companies”
for
details). Also, in the normal course of
our business, we engage
in transactions with businesses that
we have
divested. We believe that the terms of
the transactions we conduct
with these companies are negotiated
on
an arm’s length basis.
Key management personnel
For information on important business
relationships between
ABB and its Board and EC members,
or
companies and organizations
represented by them, see “Item 6. Directors,
Senior Management and
Employees”
sections entitled “Board of Directors—Business
Relationships between
ABB and its Board
members” and “Executive Committee—Business
Relationships between
ABB and its EC members”.
140
Item 8.
Financial Information
—
Consolidated Statements and
other financial information
See “Item 18. Financial Statements”.
—
Legal proceedings
Regulatory
Based on findings during an
internal investigation, ABB self-reported
to the Securities and Exchange
Commission (SEC) and the Department
of Justice (DoJ), in the United
States, to the Special Investigating
Unit (SIU) and the National Prosecuting
Authority (NPA) in South Africa as well as to various authorities
in
other countries potential suspect
payments and other compliance
concerns in connection with some of our
dealings with Eskom and related
persons. Many of those
parties have expressed an interest
in, or
commenced an investigation into,
these matters and we are cooperating
fully with them. ABB paid
$104 million to Eskom in December
2020 as part of a full
and final settlement with Eskom and
the SIU
relating to improper payments and other
compliance issues associated
with the Controls and Instrumentation
Contract, and its Variation Orders for Units 1 and 2 at Kusile.
We made a provision of approximately
$325 million,
which was recorded in Other income (expense),
net, during the third quarter
of 2022. In
December 2022, ABB settled with
the SEC and DoJ as well as the
authorities in South Africa
and
Switzerland. The matter is still pending
with the authorities in Germany, but we do not believe that we will
need to record any additional
provisions for this matter.
General
In addition, we are aware of proceedings,
or the threat of proceedings, against
us and others in respect of
private claims by customers and other
third parties with regard
to certain actual or alleged
anticompetitive
practices. Also, we are subject to other
claims and legal proceedings,
as well as investigations carried
out by
various law enforcement authorities.
With respect to the above-mentioned
claims, regulatory matters, and
any related proceedings, we will
bear the related costs including
costs necessary to resolve them.
Liabilities recognized
At December 31, 2023 and 2022,
we had aggregate liabilities
of $101 million and $86 million, respectively,
included in “Other provisions” and
“Other non-current liabilities”,
for the above regulatory, compliance and
legal contingencies, and none
of the individual liabilities recognized
was significant. As it is not possible
to
make an informed judgment on,
or reasonably predict, the
outcome of certain matters and as
it is not
possible, based on information
currently available to management,
to estimate the maximum potential
liability
on other matters, there could be adverse
outcomes beyond the amounts
accrued.
—
Dividends and dividend policy
Payment of dividends is subject to
general business conditions,
ABB’s current and expected financial
condition and performance and
other relevant factors including
growth opportunities. ABB’s current dividend
policy is to pay a rising, sustainable
annual dividend per share over
time.
The unconsolidated statutory financial
statements of ABB Ltd are prepared
in accordance with Swiss law.
Based on these financial statements,
dividends may be paid only
if ABB Ltd has sufficient distributable profits
from previous years or sufficient free
reserves to allow the distribution
of a dividend. As a holding
company,
ABB Ltd’s main sources of income are dividend
and interest payments from its subsidiaries.
141
At December 31, 2023, the total unconsolidated
stockholders’ equity of ABB Ltd was
CHF 3,917 million,
including CHF 226 million
representing share capital, CHF 4,982 million
representing reserves and
CHF 1,291 million representing
a reduction of equity for treasury
shares. Of the reserves, CHF 1,291
million
relating to treasury shares and CHF
45 million representing
20 percent of share capital, at December
31,
2023, are restricted by law and not available
for distribution.
With respect to the years
ended December 31, 2019, 2020,
2021 and 2022, ABB Ltd paid
a dividend of
CHF 0.80 (USD 0.82) per share,
CHF 0.80 (USD 0.86) per
share, CHF 0.82 (USD 0.88) per share
and
CHF 0.84 (USD 0.91) per share,
respectively.
The USD amounts for each of
the foregoing dividend
payments
made in CHF have been translated using
the average rates of the months
in which the dividends were
paid.
With respect to the year ended December
31, 2023, ABB Ltd’s Board of Directors
has proposed to pay a
dividend of CHF 0.87 per share to shareholders.
The distribution is subject to approval
by shareholders at
ABB Ltd’s 2024 Annual General Meeting
(AGM).
For further information on dividends
and dividend policy see “Item 6. Directors,
Senior Management and
Employees—Shareholders—Shareholders’
rights—Shareholders’
dividend rights”.
—
Significant changes
Except as otherwise described
in this Annual Report, there
has been no significant change in
our financial
position since December 31, 2023.
Item 9.
The Offer and Listing
—
Markets
The shares of ABB Ltd. are principally
traded on the SIX Swiss Exchange
(under the symbol “ABBN”) and
on
the NASDAQ OMX Stockholm
Exchange (under the symbol “ABB”). ADSs
of ABB Ltd. were traded on
the
New York Stock Exchange (NYSE) under the symbol “ABB” until May
23, 2023.
On May 12, 2023,
we filed
the required Form 25 with the SEC
to delist ABB’s ADSs from trading
on the NYSE. In connection
with the
delisting of our ADSs from the NYSE
which became effective May 23, 2023,
we converted our ADS program
from a sponsored Level II program
into a sponsored Level I program.
The new Level I ADSs were assigned
a
new stock ticker (ABBNY) upon
delisting and are now traded
on the over-the-counter (OTC) markets.
ABB Ltd.’s ADSs are issued under the
Amended and Restated Deposit Agreement,
dated May 7, 2001, as
amended from time to time, with Citibank,
N.A. as depositary. Each ADS represents one share.
There were no suspensions in the
trading of our shares in 2023, 2022
and 2021.
142
Item 10.
Additional Information
—
Description of share capital
and articles of incorporation
This section summarizes the material
provisions of ABB Ltd’s Articles of
Incorporation and the Swiss Code
of
Obligations relating to the shares of
ABB Ltd. The description
is only a summary and is qualified
in its entirety
by ABB Ltd’s Articles of Incorporation, a
copy of which has been filed
as Exhibit 1.1 to this Annual Report,
ABB Ltd’s filings with the commercial register
of the Canton of Zurich (Switzerland)
and Swiss statutory law.
Other than as disclosed below, the information called
for by this Item is set forth in Exhibit 2.4
to this Annual
Report and is incorporated by reference
into this Annual Report.
Registration and Business Purpose
ABB Ltd was registered as a corporation
(
Aktiengesellschaft
) in the commercial register of
the Canton of
Zurich (Switzerland) on March 5, 1999,
under the name of “New ABB Ltd”
and its name was subsequently
changed to “ABB Ltd”. Its commercial
register number is CHE-101.049.653.
ABB Ltd’s purpose, as set forth in Article
2 of its Articles of Incorporation,
is to hold interests in business
enterprises, particularly in enterprises
active in the areas of industry, trade and services.
It may acquire,
encumber, exploit or sell real estate and intellectual
property rights in Switzerland and
abroad and may also
finance other companies. It may engage
in all types of transactions and
may take all measures that appear
appropriate to promote, or that are
related to, its purpose. Finally, in pursuing its purpose,
ABB Ltd shall strive
for long-term sustainable value
creation.
Capital Structure
For a description of ABB Ltd’s capital structure
(including issued shares, contingent
share capital and capital
band)
and its dividend policy, see “Item 6. Directors, Senior
Management and Employees—Shares”
and
“Item 8. Financial Information—Dividends
and Dividend Policy”.
Shareholders’ Meetings
Under Swiss law, the annual general meeting of shareholders
must be held within 6 months after the end
of
ABB Ltd’s fiscal year. Annual general meetings of shareholders
are convened by the board of directors,
liquidators or representatives of bondholders
or, if necessary,
by the statutory auditors.
The board of directors
is further required to convene an
extraordinary general meeting
of shareholders if so resolved
by the
shareholders in a general
meeting of shareholders or if so requested
by one or more shareholders
holding in
aggregate at least 5 percent of
ABB Ltd’s share capital or votes. A general
meeting of shareholders
is
convened by publishing
a notice in the Swiss Official Gazette of Commerce
(
Schweizerisches
Handelsamtsblatt
) at least 20 days prior to the meeting
date. In addition, ABB usually publishes
notices for its
general meetings in certain newspapers
as well as on its website. Such notices
contain information as to
procedures to be followed by shareholders
in order to participate and exercise
voting rights at the
shareholders’
meetings.
One or more shareholders who,
alone or together, hold at least 0.02 percent of
the share capital or votes of
ABB Ltd may demand that an item
be included on the agenda
or that a proposal relating to an agenda
item
be included in the notice convening
the general meeting of shareholders.
Such a request must be received
by
ABB Ltd in writing at least 40 days prior
to the meeting and shall
specify the agenda items and the proposal
or proposals together with a brief
statement of the reasons.
143
The following powers are vested exclusively
in the general meeting
of shareholders:
•
•
Compensation Committee, the auditors
and the independent proxy,
•
•
balance sheet, in particular with regard
to dividends,
•
required for this purpose,
•
•
to Article 34 of ABB Ltd’s Articles of
Incorporation,
•
management,
•
•
•
shareholders by law or under
ABB Ltd’s Articles of Incorporation or that are
submitted to the
general meeting of shareholders
by the Board of Directors,
subject to Art. 716a of the
Swiss
Code of Obligations.
There is no provision in ABB Ltd’s Articles
of Incorporation requiring
a quorum for the holding of
shareholders’
meetings.
Unless otherwise required
by law or ABB Ltd’s Articles of Incorporation, general
meetings
of shareholders
shall pass resolutions and decide
elections upon a majority of the votes
represented. If the first ballot
fails to
result in an election and more than one
candidate is standing
for election, the presiding officer shall order
a
second ballot in which a relative
majority shall be decisive.
A resolution passed with a qualified
majority of at least two-thirds of
the votes represented and of a
majority
of the par value of shares represented
shall be required for resolutions
of a general meeting of shareholders,
in particular, for:
•
•
•
•
•
•
contribution or by set-off against a claim, and
the grant of special benefits,
•
144
•
•
•
•
•
•
•
In addition, the introduction of any provision
in ABB Ltd’s Articles of Incorporation
providing for a qualified
majority must be resolved in accordance
with such qualified majority
voting requirements.
Pursuant to the Swiss Federal Merger
Act, special quorum rules
apply by law to a merger (
Fusion
) (including
a possible squeeze-out merger), de-merger
(
Spaltung
), or conversion (
Umwandlung
) of ABB Ltd.
At general meetings
of shareholders, shareholders
can be represented by the independent
proxy elected by
the shareholders (
unabhängiger Stimmrechtsvertreter
), by their legal representative
or, by means of a written
proxy, any other proxy who need not be a shareholder. All shares held
by one shareholder may be
represented by only one representative.
The presiding officer of the general meeting
of shareholders shall
determine whether resolutions
and elections are to be decided
by open ballot, in writing or electronically. The
presiding officer may at any time order
that an election or resolution
be repeated if, in his view, the results of
the vote are in doubt. In this case,
the preceding election or resolution
shall be deemed to have not occurred.
Only shareholders registered in
ABB Ltd’s share register with the right
to vote are entitled to participate
at
shareholders’
meetings. For practical reasons, shareholders
must be registered in the share register
with the
right to vote no later than 6 business
days prior to a shareholders’
meeting in order to be entitled to
participate and vote at such shareholders’
meeting.
Holders of Euroclear Sweden AB-registered
shares are provided with
financial and other information
on
ABB Ltd in the Swedish language
in accordance with regulatory
requirements and market practice.
For
shares that are registered in the system
of Euroclear Sweden
AB in the name of a nominee, such
information
is to be provided by the nominee.
Borrowing Power
Neither Swiss law nor ABB Ltd’s Articles of
Incorporation restrict in any
way ABB Ltd’s power to borrow and
raise funds. The decision to borrow
funds is taken by or under
the direction of the Board of Directors
or the
Executive Committee, and no shareholders’
resolution is required.
Directors and Officers
For further information regarding
the material provisions of ABB Ltd’s Articles
of Incorporation and the Swiss
Code of Obligations regarding
directors and officers, see “Item 6. Directors,
Senior Management and
Employees—Board of Directors—Board
governance”.
Auditors
The auditors are elected by the shareholders
at the general meeting
of shareholders. Pursuant to ABB Ltd’s
Articles of Incorporation, their term
of office is one year.
145
KPMG AG,
Zurich, Switzerland, assumed
the sole auditing mandate
of the consolidated financial statements
of the ABB Group beginning
in the year ended December 31, 2018.
The auditor in charge and responsible
for
the mandate, Achim Wolper, began serving in this capacity
in respect of the financial
year ended
December 31, 2023.
See “Item 16C. Principal Accountant
Fees and Services”
for information regarding
the fees paid to
KPMG AG.
Revision of Swiss Corporate Law
Swiss corporate law has been revised,
effective as of January 1, 2023. The
main objectives of the revision
were to strengthen shareholder
rights, improve corporate governance
and modernize corporate law
in
general. Swiss corporations are required
to amend their articles of incorporation
and other organizational
regulations, as applicable,
for compliance with the new law
by the end of 2024 at the latest. The shareholders
of ABB approved the necessary
changes to ABB’s Articles of Incorporation
as proposed by the Board of
Directors at ABB’s Annual General
Meeting in March 2023.
—
Material contracts
The following descriptions of the
material provisions of the
referenced agreements do not purport
to be
complete and are subject to, and qualified
in their entirety by reference
to, the agreements which have
been
filed as exhibits to this Annual Report.
Revolving Credit Facilities
On December 16, 2019, ABB entered
into a syndicated $2 billion
five-year revolving credit facility with
the
right to extend for up to two additional
years in accordance with its terms. ABB amended
and restated its
facility on February 16, 2023,
for the purpose of addressing
the discontinuation of LIBOR. For a
description of
the facility, see “Item 5. Operating and Financial Review
and Prospects—Liquidity and Capital
Resources—
Credit Facility” and “Note 12 - Debt”
to our Consolidated Financial
Statements. See Exhibits
4.1 and 4.6 to
this Annual Report.
2012 Notes Indenture
On May 8, 2012, ABB’s subsidiary, ABB Finance (USA) Inc.,
issued $500,000,000 aggregate
principal
amount of 1.625% notes due 2017,
$1,250,000,000 aggregate
principal amount of 2.875% notes due
2022
and $750,000,000 aggregate
principal amount of 4.375% notes due 2042
under an Indenture and a First
Supplemental Indenture,
dated as of May 8, 2012, among
ABB Finance (USA) Inc., ABB and Deutsche
Bank
Trust Company Americas (the “2012 Indenture”).
The notes due in 2017 and
2022 were repaid at maturity. In
2020, the notes due 2042 were subject
to a cash tender offer by the issuer and
redeemed in part. Pursuant
to
the terms of the 2012 Indenture,
ABB has fully and unconditionally
guaranteed payment of principal,
premium, if any, and interest in respect of the outstanding
notes. See Exhibits
4.2 and 4.3 to this Annual
Report.
146
2018 Notes Indenture
On April 3, 2018, ABB’s subsidiary, ABB Finance (USA) Inc., issued
(i) $300,000,000 aggregate
principal
amount of 2.8% notes due 2020 (ii)
$450,000,000 aggregate
principal amount of 3.375% notes,
due 2023,
and (iii) $750,000,000 aggregate
principal amount of 3.8% notes due 2028
under an Indenture and a First
Supplemental Indenture dated,
dated as of April 3, 2018,
among ABB Finance (USA) Inc.,
ABB and Deutsche
Bank Trust Company Americas (the “2018 Indenture”).
The notes due in 2020 were repaid
at maturity. The
notes due 2023 were redeemed
in full in 2020 following the exercise of
ABB’s early redemption option.
The
notes due 2028 were subject to a
cash tender offer in 2020 by the issuer and
redeemed in part. Pursuant
to
the terms of the 2018 Indenture,
ABB has fully and unconditionally
guaranteed payment of principal,
premium, if any, and interest in respect of the outstanding
notes. See Exhibits
4.4 and 4.5 to this Annual
Report.
—
Exchange controls
Other than in connection with Swiss government
sanctions imposed on Belarus, Burundi,
the Central African
Republic, the Democratic Republic
of the Congo, Guinea, the Republic
of Guinea-Bissau, Haiti, the Islamic
Republic of Iran, the Republic
of Iraq, Lebanon, Libya, the Republic
of Mali, Moldova, Myanmar (Burma),
Nicaragua, the Democratic People's
Republic of Korea (North Korea),
Somalia, the Republic of South
Sudan,
Sudan, Syria, Venezuela, Yemen, Zimbabwe, persons and organizations
with connection to the late
Osama bin Laden, the “al Qaeda” group
or the Taliban,
certain persons connected with
the assassination of
Rafik Hariri and sanctions in connection
with the situation in the Ukraine,
there are currently no laws,
decrees
or regulations in Switzerland
that restrict the export or import
of capital, including, but not limited
to, Swiss
foreign exchange controls on payment
of dividends, interest or liquidation
proceeds, if any, to non-Swiss
resident holders of shares. In addition,
there are no limitations imposed by Swiss
law or ABB Ltd’s Articles of
Incorporation on the rights of non-Swiss
residents or non-Swiss citizens
as shareholders to hold
shares or to
vote.
—
Taxation
Swiss Taxation
Withholding Tax on Dividends and Other Distributions
Dividends paid and similar
cash or in-kind distributions that we make
to a holder of shares or ADSs
(including
dividends on liquidation
proceeds and stock dividends and
taxable income resulting from partial
liquidation)
are subject to a Swiss federal
withholding tax at a rate of 35 percent
unless such distribution
qualifies as a
tax-free reorganization under applicable
Swiss legislation. A repurchase of shares by
us for the purpose of a
capital reduction is defined as a partial
liquidation of the Company. In this case, the difference
between the
nominal value of the shares and their
repurchase price is qualified
as taxable income. The same would be
true upon a repurchase of shares
if we were not to dispose of the
repurchased shares within six years
after
the repurchase, or if 10 percent of outstanding
shares were exceeded. We must withhold
the tax from the
gross distribution and pay it to the
Swiss Federal Tax Administration.
147
Obtaining a Refund of Swiss Withholding
Tax for U.S. Residents
The Convention between the Swiss Confederation
and the United States of
America for the Avoidance of
Double Taxation with Respect to Taxes on Income, which was signed on October 2, 1996 (including
any
amendments thereto) and which we will
refer to in the following
discussion as the Treaty, allows U.S. resident
individuals or U.S. corporations to
seek a refund of the Swiss
withholding tax paid in respect
of our shares or
ADSs if they qualify for benefits
under the Treaty. U.S. resident individuals and U.S. corporations
holding less
than 10 percent of the voting rights
in respect of our shares
or ADSs are entitled to seek a refund
of
withholding tax to the extent the
tax withheld exceeds 15 percent
of the gross dividend or other
distribution.
U.S. corporations holding
10 percent or more of the voting
rights of our shares or ADSs are entitled
to seek a
refund of withholding tax to the extent
the tax withheld exceeds
5 percent of the gross dividend
or other
distribution. Qualifying U.S. pension
or other retirement arrangements
and – as from January 1, 2020 –
also
individual retirement saving plans
that do not control the Company
are entitled to seek a full refund
of
withholding tax.
Claims for refunds must be filed
with the Swiss Federal Tax Administration, Eigerstrasse 65,
3003 Bern,
Switzerland, no later than December
31 of the third year following
the calendar year in which the dividend
or
similar distribution became payable.
The form used for obtaining
a refund is Swiss Tax Form 82 (82C for
companies; 82E for other entities;
82I for individuals; 82R for regulated
investment companies (RICs)).
This
form may be obtained from any Swiss
Consulate General
in the United States, from the Swiss
Federal Tax
Administration at the address above
or under
www.estv.admin.ch
. The form must be filled out
in triplicate with
each copy duly completed and signed
before a notary public
in the United States. The form must
be
accompanied by evidence
of the deduction of withholding tax withheld
at the source (including tax voucher
issued by the custodian bank).
Stamp Duties upon Transfer of Securities
The sale of shares or ADSs, whether
by Swiss resident or non-resident
holders, may be subject
to a Swiss
securities transfer stamp duty of up
to 0.15 percent calculated on the sale
proceeds if it occurs through
or
with a Swiss bank or other Swiss
securities dealer as defined
in the Swiss Federal Stamp Tax Act. In addition
to the stamp duty, the sale of shares or ADSs by or through
a member of the SIX Swiss Exchange may
be
subject to a stock exchange levy.
United States Taxes
The following is a summary of
the material U.S. federal
income tax consequences of the ownership
by U.S.
holders (defined below)
of shares or ADSs. This summary does
not purport to address all of the
tax
considerations that may be relevant
to a decision to purchase, own
or dispose of shares or ADSs.
This
summary assumes that U.S. holders
hold shares or ADSs as capital
assets for U.S. federal
income tax
purposes. This summary does not
address tax considerations
applicable to holders that may be subject
to
special tax rules, such as U.S. expatriates,
dealers or traders in
securities or currencies, partnerships
owning
shares or ADSs, tax-exempt entities, banks
and other financial institutions,
regulated investment companies,
traders in securities that elect to apply
a mark-to-market method of
accounting, insurance companies,
holders
that own (or are deemed to own) at
least 10 percent or more (by voting
power or value) of the stock
of ABB,
investors whose functional currency is
not the U.S. dollar, persons subject to the alternative
minimum tax,
persons subject to special tax accounting
rules as a result of any item
of gross income with respect
to the
shares or ADSs being taken into account
in an applicable
financial statement, persons that will
hold shares or
ADSs as part of a position in a straddle
or as part of a hedging
or conversion transaction for U.S. tax
purposes and persons who are
not U.S. holders. This discussion
does not address aspects of U.S.
taxation
other than U.S. federal income
taxation, nor does it address
state, local or foreign tax consequences
of an
investment in shares or ADSs.
This summary is based (i) on the
Internal Revenue Code of 1986, as
amended, U.S. Treasury Regulations
and judicial and administrative
interpretations thereof, in
each case as in effect and available
on the date of
this registration statement and (ii)
in part, on representations
of the depositary and the assumption
that each
obligation in the deposit agreement
and any related agreement will
be performed in accordance with its
terms. The U.S. tax laws and regulations
and the interpretation thereof are
subject to change, which change
could apply retroactively and could
affect the tax consequences described
below.
148
For purposes of this summary, a U.S. holder is a beneficial
owner of shares or ADSs that, for U.S.
federal
income tax purposes, is:
•
•
created or organized in or under
the laws of the United States or
any state, including the District
of Columbia,
•
•
purposes or if (i) a U.S. court can exercise
primary supervision
over its administration and (ii) one
or more U.S. persons have the authority
to control all of its substantial
decisions.
If a partnership (including
any entity or arrangement treated
as a partnership for U.S. federal
income tax
purposes) is a beneficial owner
of shares or ADSs, the treatment of a partner
in the partnership will
generally
depend on the status of the partner
and the activities of the partnership.
If you are a partner in a partnership
that holds shares or ADSs you should
consult your tax advisor.
Each prospective purchaser should
consult the purchaser’s
tax advisor with respect to
the U.S. federal, state,
local and foreign tax consequences
of acquiring, owning or disposing
of shares or ADSs.
Ownership of ADSs in General,
and Exchange of ADSs
for Shares
For U.S. federal income tax purposes,
a holder of ADSs generally
will be treated as the owner of the
shares
represented by the ADSs, and
the following discussion assumes
that such treatment will
be respected. If so,
no gain or loss will be recognized
upon an exchange of shares for ADSs
or an exchange of ADSs for shares.
The U.S. Treasury has expressed concerns that
intermediaries in the chain
of ownership between the holder
of an ADS and the issuer of the
security underlying the ADS may be
taking actions that are inconsistent
with
the beneficial ownership
of the underlying shares. Accordingly, the creditability of
foreign taxes and the
availability of the reduced tax rate
for dividends received
by certain non-corporate U.S. holders,
if any, as
described below, could be affected by actions taken by
intermediaries in the chain of ownership
between the
holder of an ADS and ABB.
Distributions
In general, for U.S. federal income
tax purposes, the gross
amount of distributions (other
than certain
distributions, if any, of shares distributed to all shareholders
of ABB, including holders
of ADSs) made to you
with respect to shares or ADSs, including
the amount of any Swiss taxes
withheld from the distribution, will
constitute dividends and be includible
in gross income in the year received
to the extent of ABB’s current and
accumulated earnings and
profits (as determined under U.S.
federal income tax principles).
149
Non-corporate U.S. holders generally
will be taxed on such distributions
at the lower rates applicable
to
long-term capital gains (i.e., gains from
the sale of capital assets held
for more than one year) with respect
to
distributions during 2022, provided
that the U.S. holder meets certain
holding period and
other requirements
and provided that such distributions
constitute “qualified dividends”
for U.S. federal income tax purposes.
Distributions treated as dividends
will not be treated as “qualified
dividends” if we were to be treated as
a
“passive foreign investment company”
(PFIC) for U.S. federal
income tax purposes in the year that
the
dividend is paid or in the year prior
to the year that the dividend
is paid. Based on certain estimates of its
gross income and gross assets and
the nature of its business, ABB believes
that it will not be classified as
a
PFIC for the taxable year ended December
31, 2022, and does
not expect to be classified as a PFIC
for the
taxable year ending December
31, 2023. ABB’s status in the current
year and in future years will depend
on
its assets and activities in those years.
ABB has no reason to believe
that its assets or activities will
change in
a manner that would cause it to be
classified as a PFIC. However, as PFIC status is a
factual matter that
depends on, among other things,
the composition of the income
and assets, and the market value
of the
assets as reflected in market capitalization,
of ABB and its subsidiaries
that must be determined annually
at
the close of each taxable year, there can be no certainty
regarding ABB’s PFIC status in any
particular year
until the end of that year. Furthermore, because
the value of our gross assets
is likely to be determined in
large part by reference to our market capitalization,
a decline in the value
of our shares or ADSs may result
in
our becoming a PFIC. Accordingly, there can be no assurance
with respect to our status as a PFIC
for our
current taxable year or any future
taxable year. The remainder of this discussion assumes
that ABB will not
be classified as a PFIC. U.S. holders
are urged to consult their
own tax advisors regarding
the availability to
them of the reduced dividend
rate in light of their own particular
circumstances and the consequences
to
them if ABB were to be treated as
a PFIC with respect to any
taxable year.
Dividends paid to U.S. corporate
holders will not be eligible
for the dividends received deduction
generally
allowed to corporate U.S. holders.
If you are a U.S. holder and distributions
with respect to shares
or ADSs exceed ABB’s current and
accumulated earnings and
profits as determined under U.S.
federal income tax principles,
then the excess
generally would be treated
first as a tax-free return of capital
to the extent of your adjusted tax basis
in the
shares or ADSs. Any amount in excess
of the amount of the dividend
and the return of capital generally
would be treated as capital gain. ABB
does not maintain calculations
of its earnings and profits under U.S.
federal income tax principles, so a
U.S. holder should expect all
cash distributions to be reported
as
dividends for U.S. federal income
tax purposes.
If you are a U.S. holder, then dividends paid
in Swiss francs, including the amount
of any Swiss taxes
withheld from the dividends, will
be included in your gross income
in an amount equal to the U.S.
dollar value
of the Swiss francs calculated by reference
to the spot exchange rate in effect on the
day the dividends are
includible in income. In the case of
ADSs, dividends generally
are includible in income on the date
they are
received by the depositary, regardless of whether the payment
is in fact converted into U.S. dollars
at that
time. If dividends paid in Swiss
francs are converted into U.S.
dollars on the day they are includible
in
income, then you generally should
not be required to recognize
foreign currency gain or loss with respect
to
the conversion. However, any gains or losses resulting
from the conversion of Swiss francs
between the time
of the receipt of dividends paid
in Swiss francs and the time the Swiss
francs are converted into U.S.
dollars
will be treated as ordinary income
or loss to you. The amount of any
distribution of property other
than cash
will be the fair market value of
the property on the date of distribution.
150
If you are a U.S. holder, then dividends received
by you with respect to shares or
ADSs will be treated as
foreign source income, which may
be relevant in calculating your
foreign tax credit limitation.
Subject to
certain conditions and limitations,
Swiss tax withheld on dividends
may be deducted from your taxable
income or credited against your U.S.
federal income tax liability. However, to the extent that you would
be
entitled to a refund of Swiss withholding
taxes pursuant to the U.S.-Switzerland
tax treaty, you may not be
eligible for a U.S. foreign tax credit
with respect to the amount
of such withholding taxes which
may be
refunded, even if you fail to claim
the refund. See “—Swiss Taxation—Obtaining a Refund of Swiss
Withholding Tax for U.S. Residents”. The limitation on foreign
taxes eligible for credit is calculated
separately
with respect to specific classes of
income. For this purpose, dividends
distributed by ABB generally
will
constitute passive income. The
rules relating to the determination
of the U.S. foreign tax credit are complex,
and you should consult your tax advisor
to determine whether and to what extent
you would be entitled
to this
credit.
Sale, Exchange or other Taxable Disposition of Shares
or ADSs
If you are a U.S. holder that holds
shares or ADSs as capital
assets, then you generally will
recognize capital
gain or loss for U.S. federal income
tax purposes upon a sale, exchange
or other taxable disposition
of your
shares or ADSs in an amount equal
to the difference between your adjusted
tax basis in the shares or ADSs
and the amount realized on their disposition.
If you are a non-corporate
U.S. holder, the maximum marginal
U.S. federal income tax rate applicable
to the gain is generally lower
than the maximum marginal U.S. federal
income tax rate applicable
to ordinary income (other than certain
dividends) if your holding
period for the
shares or ADSs exceeds one year (i.e.,
long term capital gains). If you are
a U.S. holder, then the gain or
loss, if any, recognized by you generally will be treated
as U.S. source income or loss,
for U.S. foreign tax
credit purposes.
If you are a U.S. holder and you receive
any foreign currency
on the disposition of shares or ADSs,
the
amount realized will be the U.S.
dollar value of the payment received,
translated at the spot rate of exchange
on the date of taxable disposition.
If the shares are treated as traded on
an established securities
market, a
cash basis U.S. holder and an accrual
basis U.S. holder who has made
a special election (which must
be
applied consistently from year
to year and cannot be changed
without the consent of the U.S. Internal
Revenue Service) will determine
the U.S. dollar value of the amount
realized in foreign currency by
translating the amount received at
the spot rate of exchange
on the settlement date of the disposition.
An
accrual basis U.S. holder that does not
make the special election
will recognize U.S. source ordinary
income
or loss as a result of currency
fluctuations between the trade date
and the settlement date of
the disposition
of the shares or ADSs.
Medicare Tax
For taxable years beginning
after December 31, 2012, certain U.S. holders
who are individuals, estates or
trusts must pay a 3.8 percent tax on
the lesser of (i) the U.S. holder’s
“net investment income” for the
relevant
taxable year and (ii) the excess of
the U.S. holder’s modified
adjusted gross income for the taxable
year over
a certain threshold (which in the case
of individuals will be between
$125,000 and $250,000, depending
on
the individual’s circumstances). A U.S.
holder’s net investment income
will generally include its dividend
income and its net gains from
the disposition of shares or ADSs,
unless such income or net gains
are derived
in the ordinary course of the conduct
of a trade or business (other
than a trade or business that consists
of
certain passive or trading activities).
If you are a U.S. holder that is an individual,
estate or trust, you are
urged to consult your tax advisor regarding
the applicability of the Medicare
tax to your income and gains in
respect of your investment in shares or
ADSs.
Information with Respect to Foreign
Financial Assets
Certain U.S. holders who are individuals
(and certain entities) that hold an
interest in “specified foreign
financial assets” (which may include
the shares) are required
to report information relating to such assets,
subject to certain exceptions (including
an exception for shares held in accounts
maintained by certain
financial institutions). Penalties can
apply if U.S. holders fail to
satisfy such reporting requirements.
U.S.
holders should consult their tax advisors
regarding the effect, if any, of this requirement on their ownership
and disposition of the shares.
151
Backup Withholding and Information Reporting
U.S. backup withholding
tax and information reporting requirements
generally apply to certain payments
to
certain non-corporate holders of stock.
Information reporting generally
will apply to payments of dividends
on,
and to proceeds from the sale or
redemption of, shares or ADSs
made within the United States
to a holder of
shares or ADSs (other than an exempt
recipient, including a corporation,
a payee that is not a U.S. holder
that provides an appropriate certification,
and certain other persons).
A payor will be required to withhold
backup withholding tax from any
payments of dividends on, or
the
proceeds from the sale or redemption
of, shares or ADSs within
the United States to you, unless
you are an
exempt recipient, if you fail to furnish
your correct taxpayer identification
number or otherwise fail to establish
an exception from backup withholding
tax requirements. U.S. holders who
are required to establish
their
exempt status may be required
to provide such certification
on U.S. Internal Revenue
Service Form W-9.
Backup withholding is not an additional
tax. The amount of any backup withholding
from a payment to you
may be allowed as a credit against your
U.S. federal income tax liability
and may entitle you to a refund,
provided that the required
information is furnished timely
to the U.S. Internal Revenue
Service.
THE ABOVE SUMMARIES ARE
NOT INTENDED TO CONSTITUTE A
COMPLETE ANALYSIS OF ALL
TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF SHARES OR
ADSs. PROSPECTIVE
PURCHASERS OF SHARES
OR ADSs SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE
TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
—
Documents on display
We are subject to the informational requirements
of the Exchange Act. In accordance
with these
requirements, we file reports and
other information with the SEC.
The SEC maintains a website at
www.sec.gov
information regarding registrants
that file electronically with the SEC.
Our Annual Reports on Form 20-F,
reports on Form 6-K and other information
we submit to the SEC may be
accessed through this website.
—
Annual Report to Security Holders
The Company intends to submit any
annual report provided to security holders
in electronic format as an
exhibit to a current report on Form
6-K.
Item 11.
Quantitative and Qualitative Disclosures
about Market Risk
Market Risk Disclosure
The continuously evolving financial
markets and the dynamic business
environment expose us to changes
in
foreign exchange, interest rate and
other market price risks. We have developed
and implemented
comprehensive policies, procedures,
and controls to identify, mitigate, and monitor financial
risk on a
company-wide basis. To efficiently aggregate and manage financial
risks that could impact our financial
performance, we operate a Corporate
Treasury function. Corporate Treasury provides an
efficient source of
liquidity, financing, risk management and other global
financial services to the ABB
Group companies. Our
policies do not allow Corporate
Treasury or ABB Group companies to perform speculative
trading. Market risk
management activities are focused
on mitigating material financial
risks resulting from our global
operating
and financing activities.
152
Corporate Treasury maintains risk management
control systems to monitor
foreign exchange and interest
rate risks and exposures arising
from our underlying business, as well
as the associated hedge positions.
Our
written policies govern how such
exposures are managed. Financial
risks are monitored using a number
of
analytical techniques including
market value and sensitivity analysis.
The following quantitative analyses
are
based on sensitivity analysis tests,
which assume parallel shifts of
interest rate yield curves and foreign
exchange rates.
Currency Fluctuations and Foreign Exchange Risk
It is our policy to identify and manage
all transactional foreign
exchange exposures to minimize
risk. With the
exception of certain financing
subsidiaries and to the extent certain
operating subsidiaries
are domiciled in
high inflation environments, the functional
currency of each of our companies
is considered to be its local
currency. Our policies require our subsidiaries to hedge
all contracted foreign exchange
exposures, as well
as a portion of their forecast exposures,
against their local currency. These transactions are
undertaken
mainly with Corporate Treasury.
We have foreign exchange transaction
exposures related to our global
operating and financing
activities in
currencies other than the functional
currency in which our entities
operate. Specifically, we are exposed to
foreign exchange risk related to
future earnings, assets or liabilities
denominated in foreign currencies.
The
most significant currency exposures
relate to operations in the Eurozone
area, Sweden and Switzerland.
In
addition, we are exposed to currency
risk associated with translating
our functional currency financial
statements into our reporting currency, which is the U.S.
dollar.
Our operating companies are responsible
for identifying their foreign currency
exposures and entering
into
intercompany derivative contracts
with Corporate Treasury, where legally possible, to hedge
their exposures.
Where local laws restrict our operating
companies from entering
into intercompany derivatives with
Corporate
Treasury,
derivative contracts are entered
into locally with third-party
financial institutions. The intercompany
transactions have the effect of transferring
the operating companies’ currency
risk to Corporate Treasury, but
create no additional market risks
on a consolidated basis. Corporate
Treasury then manages this risk by
entering into offsetting transactions with
third-party financial institutions. According
to our policy, material net
currency exposures are required
to be hedged and are primarily
hedged with forward foreign exchange
contracts. The majority of the
foreign exchange hedge
instruments have, on average, a maturity
of less than
twelve months. Corporate Treasury also hedges
currency risks arising from monetary
intercompany
balances, primarily loans receivable
from other ABB companies.
At December 31, 2023 and 2022,
the net fair value of financial
instruments with exposure to foreign
currency
rate movements was an asset of
$1,053 million and $1,355
million, respectively. The potential loss in fair
value of such financial instruments
from a hypothetical 10 percent
move in foreign exchange
rates against
our position would be approximately
$542 million and $511 million for December 31, 2023 and
2022,
respectively. The analysis reflects the aggregate adverse
foreign exchange impact associated
with
transaction exposures, as well
as translation exposures where
appropriate. Our sensitivity analysis
assumes
a simultaneous shift in exchange rates
against our positions exposed
to foreign exchange risk and as
such
assumes an unlikely adverse case
scenario. Exchange rates rarely
move in the same direction.
Therefore,
the assumption of a simultaneous
shift may overstate the
impact of changing rates on assets and
liabilities
denominated in foreign currencies.
The underlying trade-related transaction
exposures of the industrial
companies are not included
in the quantitative analysis. If these
underlying transaction exposures
were
included, they would tend to have an
offsetting effect on the potential loss
in fair value detailed
above.
Interest Rate Risk
We are exposed to interest rate risk due
to our financing, investing, and
liquidity management activities.
Our
operating companies primarily
invest excess cash with, and receive
funding from, Corporate Treasury on an
arm’s length basis. It is our policy that
the primary third-party funding
and investing activities, as well
as the
monitoring and management
of the resulting interest rate risk,
are the responsibility of Corporate
Treasury.
Corporate Treasury adjusts the duration of
the overall funding portfolio
through derivative instruments in order
to better match underlying
assets and liabilities, as well as minimize
the cost of capital.
153
At December 31, 2023 and 2022,
the net fair value of instruments
subject to Interest Rate Risk was
an asset
of $1,111
million and $1,617 million,
respectively. The potential loss in fair value for such instruments
from a
hypothetical 100 basis points parallel
shift in interest rates against our position
(or a multiple of 100 basis
points where 100 basis points is less
than 10 percent of the interest rate)
would be approximately
$321 million and $163 million,
for December 31, 2023 and 2022,
respectively.
Commodity Risk
We enter into commodity derivatives to
hedge certain of our raw material
exposures. At December 31, 2023
and 2022, the net fair value of commodity
derivatives was an asset of $1 million
and $1 million, respectively.
The potential loss in fair value
for such commodity hedging
derivatives from a hypothetical adverse
10 percent move against our position
in the underlying commodity
prices would be approximately
$13 million
and $10 million for December 31, 2023
and 2022, respectively. A portion of our commodity
derivatives are
denominated in euro. The foreign
exchange risk arising on such contracts
has been excluded
from the
calculation of the potential loss in fair
value from a hypothetical
10 percent move in the underlying
commodity
prices as discussed above.
Item 12.
Description of Securities
Other Than Equity Securities
American Depositary Shares
Depositary fees payable upon
the issuance and cancellation
of ADSs are typically paid
to the depositary bank
by the brokers (on behalf of their
clients) receiving the newly-issued
ADSs from the depositary bank and by
the brokers (on behalf of their clients)
delivering the ADSs to the depositary
bank for cancellation. The
brokers in turn may charge these
transaction fees to their
clients.
Depositary fees payable in connection
with distributions of cash or securities
to ADS holders and the
depositary services fee are charged
by the depositary bank
to the holders of record of ADSs
as of the
applicable ADS record date. The depositary
fees payable for cash distributions
are generally deducted from
the cash being distributed. In the case
of distributions other than cash
(i.e., stock dividends, rights offerings),
the depositary bank charges the
applicable fee to the ADS record
date holders concurrent with
the
distribution. In the case of ADSs
registered in the name of
the investor (whether certificated or
un-certificated
in direct registration), the depositary
bank sends invoices to
the applicable record date ADS holders.
In the
case of ADSs held in brokerage
and custodian accounts via
the central clearing and
settlement system, The
Depository Trust Company (DTC), the depositary
bank, generally collects its fees
through the systems
provided by DTC (whose nominee
is the registered holder of the
ADSs held in DTC) from the brokers
and
custodians holding ADSs in their
DTC accounts. The brokers
and custodians who hold their
clients’
ADSs in
DTC accounts in turn charge
their clients’
accounts the amount of
the fees paid to the depositary banks.
In the event of refusal to pay the depositary
fees, the depositary bank may, under the terms of the deposit
agreement, refuse the requested service
until payment is received
or may set-off the amount of the
depositary fees from any distribution
to be made to the ADS holder.
154
Depositary fees are as follows:
Depositary Service
Fee
Issuance of ADSs
Up to $5.00 per 100 ADSs (or fraction
thereof) issued.
Cancellation of ADSs
Up to $5.00 per 100 ADSs (or fraction
thereof) cancelled.
Distribution of cash dividends or other
cash
distribution
Up to $5.00 per 100 ADSs (or fraction
thereof) held.
Distribution of ADSs pursuant to
(i) stock
dividends or other free stock distributions,
or
(ii) an exercise of rights to purchase
additional ADSs
Up to $5.00 per 100 ADSs (or fraction
thereof) held.
Distribution of securities other than
ADSs or
rights to purchase additional ADSs
Up to $5.00 per 100 ADSs (or fraction
thereof) held.
Depositary service fee
Up to $5.00 per 100 ADSs (or fraction
thereof) held on the
applicable record date(s) established
by the Depositary.
Registration of ADS transfers
Up to $5.00 per 100 ADSs (or fraction
thereof) transferred.
Conversion of ADSs of one series
for ADSs of
another series
Up to $5.00 per 100 ADSs (or fraction
thereof) converted.
Depositary Payments
In 2023, we received reimbursements
from Citibank N.A., the Depositary
Bank of our ADS program, of
approximately $2 million to help
cover costs related to our ADS program.
Those costs, in addition to costs
associated with compliance with
U.S. securities laws, include
expenses such as listing fees, proxy expenses,
printing and distribution of reports,
and other investor relations-related
activities.
PART
II
Item 13.
Defaults, Dividend Arrearages
and Delinquencies
None
Item 14.
Material Modifications to the
Rights of Security Holders and
Use of Proceeds
None
Item 15.
Controls and Procedures
Disclosure controls and procedures
In designing and evaluating
our disclosure controls and procedures, management
recognizes that any
controls and procedures, no matter how
well designed and operated,
can provide only reasonable,
not
absolute, assurance of achieving
the desired control objectives. In
addition, the design of disclosure
controls
and procedures must reflect the
fact that there are resource constraints
and that management
is required to
apply judgment in evaluating the benefits
of possible controls
and procedures relative to
their costs.
Our Chief Executive Officer, Björn Rosengren, and Chief
Financial Officer, Timo Ihamuotila, with the
participation of key corporate senior
management and management
of key corporate functions, performed
an
evaluation of our disclosure controls
and procedures (as defined
in Rule 13a-15(e) of the Exchange
Act) as of
December 31, 2023. Based on that evaluation,
management, including
the Chief Executive Officer and Chief
Financial Officer, has concluded that, as of December
31, 2023, our disclosure controls and procedures
were
effective.
155
Management’s annual report on internal control over financial reporting
The Board of Directors and management
of the ABB Group are responsible
for establishing and maintaining
adequate internal control over
financial reporting as defined
in Rule 13a-15(f) of the Exchange
Act.
Because of its inherent limitations, internal
control over financial
reporting may not prevent or detect
misstatements. Also, projections of
any evaluation of effectiveness to future
periods are subject to the risk
that controls may become inadequate
because of changes in conditions,
or that the degree of compliance
with the policies and procedures
may deteriorate.
Management conducted an assessment
of the effectiveness of internal control
over financial reporting
as of
December 31, 2023. In making this assessment,
management used the criteria
established in Internal
Control—Integrated Framework issued
by the Committee of Sponsoring
Organizations of the Treadway
Commission (2013 framework). Based
on this assessment, management
has concluded that internal
control
over financial reporting was effective
as of December 31, 2023.
Report of the independent registered public accounting firm
KPMG’s opinion on the effectiveness of
the ABB Group’s internal control over
financial reporting as of
December 31, 2023, is included
in “Item 18. Financial Statements”.
Changes in internal control over financial reporting
There have been no changes in
our internal control over financial
reporting that occurred during the
period
covered by this annual report
that have materially affected, or are
reasonably likely to materially
affect, our
internal control over financial
reporting.
Item 16.
[Reserved]
Item 16A.
Audit Committee Financial
Expert
Our Board of Directors has determined
that David Meline, Gunnar Brock, Denise
C. Johnson and
Geraldine Matchett, who serve on
our Finance, Audit and
Compliance Committee (FACC), are independent
for purposes of serving on the audit
committee under Rule 10A-3 of the Exchange
Act and the listing
standards promulgated by the New
York Stock Exchange. The Board has determined that David Meline,
chairman of the FACC, is an audit committee financial
expert, in accordance with the rules
of the New York
Stock Exchange.
Item 16B.
Code of Ethics
Our Board of Directors as well as our
Chief Executive Officer, Chief Financial Officer, principal accounting
officer and persons performing similar
functions are bound to adhere
to our Code of Conduct, which applies
to all employees of all companies
in the ABB Group. Our Code
of Conduct is available on our website
in the
section “Corporate governance”
at
https://global.abb/group/en/about
. ABB intends to satisfy any applicable
disclosure requirement regarding
amendment to, or waiver from, a provision
of our Code of Conduct by
posting such information on our website
at the address and
location specified above.
156
Item 16C.
Principal Accountant Fees and
Services
The aggregate fees for services
rendered by
,
), along with
their respective affiliates for professional
services were as follows:
KPMG
($ in millions)
2023
2022
Audit Fees
42.0
36.6
Audit-Related Fees
4.4
8.6
Tax
Fees
0.3
0.4
Other Fees
—
0.1
Total
46.7
45.7
Audit Fees
Audit fees include the standard
audit work performed each fiscal
year necessary to allow the auditor
to issue
an opinion on our Consolidated
Financial Statements (including
the integrated audit of internal controls over
financial reporting) and to issue
an opinion on the local statutory
financial statements of ABB Ltd and
its
subsidiaries. Audit fees also include
services that can be provided
only by the ABB Group auditor such
as
pre-issuance reviews of quarterly
financial results (no such reviews
have been performed) and comfort letters
delivered to underwriters in connection
with debt and equity offerings. Included
in the 2023
audit fees were
approximately $2.3 million related
to audits
from 2022 and earlier,
which were not agreed until after we had
filed our annual report on Form 20-F with
the SEC on February 24, 2023. Included
in the 2022 audit fees
were approximately $2.8 million
related to audits from 2021
and earlier, which were not agreed until after we
had filed our annual report on
Form 20-F with the SEC on
February 25, 2022.
Audit-Related Fees
These services consisting primarily
of service organization attestation procedures,
carve-out financial
statement audits in relation to
transactional activities, agreed-upon
procedure reports, accounting
consultations, audits of pension
and benefit plans, accounting
advisory services and other attest
services
related to financial reporting that are not
required by statute or regulation.
Tax Fees
Fees for tax services represent
primarily income tax and indirect
tax compliance services as well
as tax
advisory services.
All Other Fees
Fees for other services not included
in the above three categories.
Pre-Approval Procedures and
Policies
In accordance with the requirements
of the U.S. Sarbanes-Oxley Act
of 2002 and rules issued
by the SEC,
we utilize a procedure for the review
and pre-approval of any services
performed by KPMG. The procedure
requires that all proposed engagements
of KPMG for audit and permitted non-audit
services are submitted to
the FACC for approval prior to the beginning
of any such services. In accordance
with this policy, all services
performed by and fees paid to KPMG
in 2023 and 2022 were approved
by the FACC.
Item 16D.
Exemptions from the
Listing Standards for Audit Committees
None
Item 16E.
Purchase of Equity Securities
by Issuer and Affiliated Purchasers
The following table sets out certain
information about purchases
of our own shares made by us
or on our
behalf or by affiliated purchasers:
157
Maximum approximate
Total number
value of shares that
Total number
Average price
of shares purchased
may yet be purchased
of shares
paid per share
as part of publicly
under the programs
2023
purchased
(1)
(in $)
announced programs
(2)(3)
($ in millions)
January 1-31
3,070,000
33.55
3,070,000
1,145
February 1-28
2,826,000
33.96
2,826,000
1,049
March 1-31
1,607,000
33.31
1,607,000
—
April 1-30
2,155,000
35.00
2,155,000
925
May 1-31
1,828,783
36.70
1,828,783
857
June 1-30
1,794,908
38.51
1,794,908
788
July 1-31
5,565,835
40.09
1,715,835
721
August 1-31
2,925,000
38.24
1,825,000
651
September 1-30
2,703,974
36.53
1,703,974
589
October 1-31
3,540,500
34.65
2,440,500
504
November 1-30
3,312,000
36.73
2,212,000
423
December 1-31
2,441,000
42.42
1,491,000
360
Total
33,770,000
24,670,000
(1)
In 2023, 9 million shares were bought outside
of the publicly announced programs. These share purchases were made through
open-market
transactions.
(2)
In March 2022, ABB announced a share
buyback program of up to $3 billion. This program,
which was launched in April 202
2, was executed
on a second trading line on the SIX
Swiss Exchange and ran until ABB’s Annual General
Meeting (AGM) in March 2023.
(3)
In March
2023, ABB
announced
a share
buyback program
of up to
$1 billion.
This program,
which was
launched
in April
2023, is being
executed on a second trading line
on the SIX Swiss Exchange and is
planned to run until the March 2024 AGM.
Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G.
Corporate Governance
Not applicable.
Item 16H.
Mine Safety Disclosure
Not applicable.
Item 16I.
Disclosure Regarding
Foreign Jurisdictions that
Prevent Inspections
Not applicable.
Item 16J.
Insider trading policies
Not applicable.
158
Item 16K.
Cybersecurity.
Information technology (IT) is critical
to many of our operating activities
and is subject to security threats
and
increasingly sophisticated
cyber-attacks. As a result, we
have policies and processes
in place to assess,
identify, and manage the strategic and operational
IT-related risks as a component of our enterprise
risk
management program (ERM).
These risks include the risk
of cyber-attacks on IT, infrastructure and
intellectual property, as well as on cybersecurity for our
offerings and factories. Through roundtables,
risk
workshops, and consideration
of significant business transactions
which could affect our IT risk profile,
material risks from cybersecurity
threats are assessed and
identified. A description of each
material risk and
its potential consequences, along
with the likelihood, impact and velocity
of the risk are documented.
A
response to the risk, indicating a project
or specific action that is in place
or planned to address and
mitigate
the identified risk, is assigned
to the identified risk.
Our IT security policies include
consideration of cybersecurity
risks related to third-party service
providers
utilizing a risk-based approach,
completing certain due diligence
procedures prior to the commencement of
the business relationship. These procedures
include a business
impact analysis and questionnaire
related to
the overall IT security posture of the
third-party organization, as well as internal
responses and controls to
address the identified risks.
The FACC is ultimately responsible for the oversight
of risks from cybersecurity threats.
Information security
and cybersecurity updates from
management are provided as part of
scheduled FACC meetings, with an
open line of communication in
the event of a potential material
cybersecurity incident. Briefings
include
discussion of identified cybersecurity
risks and new cybersecurity
threats, management response,
as well as
the status of previously communicated
incidents, as applicable.
The FACC Chairman determines if
components of the briefing need
to be disseminated to the entire
Board. Additionally, ERM results, including
cybersecurity risks, are reported
to the Board annually.
Management, led by the Company’s Chief
Information Security Officer (CISO),
is responsible for the day-to-
day assessment and management
of our material risks from cybersecurity
threats. Weekly internal updates
are made by his IT security team
to discuss specific cybersecurity
incidents, planned or in progress
responses, ongoing mitigation
processes, and remediation
efforts, as applicable. The CISO has more
than
20 years of experience in the field
of cybersecurity, including more than 13 years working
in the IT services
industry building and delivering
cybersecurity services across various
geographies.
We have experienced occasional
cybersecurity incidents, none of which
has had a material effect on our
business operations. We have observed a
continued increase in attacks
generally against our industrial
control systems as well as against
our customers and the systems we
supply to them, which has posed
and
may in the future pose a risk
to the security of those systems and
networks. Future attacks
could potentially
have significant adverse impact including
the compromise of confidential
information, disruption of our
business, improper use or downtime
of our systems and networks
or those we supplied to our customers,
the
manipulation, corruption, inaccessibility
and destruction of data, defective
products or services, production
downtimes, supply shortages and reputational
harm.
159
PART
III
Item 17.
Financial Statements
We have elected to provide financial
statements and the related information
pursuant to Item 18.
Item 18.
Financial Statements
See pages F-1 to F-76, which are incorporated
herein by reference. All
schedules are omitted as the required
information is inapplicable
or the information is presented in
the Consolidated Financial
Statements or notes
thereto.
160
Item 19.
Exhibits
1.1
(1)
2.1
2.2
2.3
2.4
(1)
4.1
, entered
into between ABB Ltd, certain subsidiaries
of ABB Ltd as borrowers, 19 banks as
mandated lead
arrangers, Citibank Europe PLC, UK
Branch, as facility agent
and euro swingline agent
and
Citibank N.A. as dollar swingline
agent. Incorporated by reference to Exhibit 4.1
to the Annual
Report on Form 20-F filed by ABB
Ltd on February 26,
2020.
4.2
4.3
4.4
4.5
4.6
, between ABB Ltd, certain
subsidiaries of ABB Ltd as original
borrowers, the mandated lead
arrangers,
the original lenders,
Citibank Europe PLC, UK Branch, as
facility agent and euro swingline
agent and Citibank, N.A. as
dollar swingline agent,
relating to the $2,000,000,000
Multicurrency Revolving Credit
agreement
dated December 16, 2019 (incorporated
by reference to Exhibit 4.1 above).
(1)
8.1
(1)
12.1
(1)
12.2
(1)
13.1
161
13.2
15.1
(1)
17.1
(1)
101.INS
XBRL Instance Document - the instance
document does not appear
in the Interactive Data
File
because its XBRL tags are embedded
within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data
File (formatted as inline XBRL
and contained in Exhibit 101)
(1)
*
This document is being furnished
in accordance with SEC Release
Nos. 33-8212 and
34-74551.
(1)
Filed herewith
162
SIGNATURES
The registrant hereby certifies
that it meets all of the requirements
for filing on Form 20-F and that it
has duly caused and authorized
the undersigned to sign this Annual
Report on its behalf.
ABB LTD
By:
/s/ T
IMO
I
HAMUOTILA
Date: February 22, 2024
Name:
Timo Ihamuotila
Title:
Executive Vice President and
Chief Financial Officer
By:
/s/ R
ICHARD
A.
B
ROWN
Date: February 22, 2024
Name:
Richard A. Brown
Title:
Group Senior Vice President and
Chief Counsel Corporate & Finance
F-1
—
Index to Consolidated Financial Statements
and Schedules
Consolidated Financial Statements:
Report of management on internal control
over financial reporting
F-2
Reports of Independent Registered
Public Accounting Firm
F-3
Consolidated Income Statements
for the years ended December
31, 2023, 2022 and 2021
F-6
Consolidated Statements of Comprehensive
Income for the years ended December
31, 2023,
2022 and 2021
F-7
Consolidated Balance
Sheets as of December 31, 2023 and 2022
F-8
Consolidated Statements of Cash
Flows for the years ended
December 31, 2023, 2022 and 2021
F-9
Consolidated Statements of Changes
in Stockholders’
Equity for the years ended December
31,
2023, 2022 and 2021
F-10
Notes to the Consolidated Financial
Statements
F-11
F-2
Report of management on internal control over financial reporting
The Board of Directors and Management
of ABB Ltd and its consolidated
subsidiaries (“ABB”) are
responsible for establishing
and maintaining adequate internal
control over financial reporting. ABB’s
internal
control over financial reporting
is designed to provide reasonable
assurance regarding the reliability of
financial reporting and the preparation
and fair presentation of the published
Consolidated Financial
Statements in accordance with U.S. generally
accepted accounting principles.
Because of its inherent limitations, internal
control over financial
reporting may not prevent or detect
misstatements. Also, projections of
any evaluation of effectiveness to future
periods are subject to the risk
that controls may become inadequate
because of changes in conditions,
or that the degree of compliance
with ABB’s policies and procedures may deteriorate.
Management conducted an assessment
of the effectiveness of internal control
over financial reporting based
on the criteria established in Internal
Control—Integrated Framework
issued by the Committee of
Sponsoring
Organizations of the Treadway Commission
(2013 framework). Based on
this assessment, management
has
concluded that ABB’s internal control
over financial reporting was effective
as of December 31, 2023.
KPMG AG,
the independent registered
public accounting firm who audited
the Company’s consolidated
financial statements included in
this Form 20-F, has issued an opinion on the effectiveness of ABB’s internal
control over financial reporting
as of December 31, 2023, which
is included on page F-5 of this Annual
Report.
/s/ B
JÖRN
R
OSENGREN
Chief Executive Officer
/s/ T
IMO
I
HAMUOTILA
Chief Financial Officer
Zurich, February 22, 2024
F-3
Report of Independent Registered
Public Accounting Firm
To
the Board of Directors and Stockholders of ABB Ltd
Opinion on the Consolidated
Financial Statements
We have audited the accompanying
consolidated balance sheets of
ABB Ltd and subsidiaries (the Company)
as of December 31, 2023 and 2022,
the related consolidated
income statements, statements of
comprehensive income, cash flows,
and changes in stockholders’
equity for each of the years in the
three-year period ended December
31, 2023, and the related notes (collectively, the consolidated
financial
statements). In our opinion, the consolidated
financial statements present fairly, in all material respects,
the
financial position of the Company
as of December 31, 2023
and 2022, and the results of its operations
and its
cash flows for each of the years
in the three-year period ended
December 31, 2023, in conformity with
U.S.
generally accepted accounting
principles.
We also have audited, in accordance with
the standards of the Public Company
Accounting Oversight Board
(United States) (PCAOB), the Company’s internal
control over financial
reporting as of December 31, 2023,
based on criteria established
in Internal Control – Integrated Framework
(2013) issued by the Committee
of
Sponsoring Organizations of the
Treadway Commission, and our report dated
February 22, 2024, expressed
an unqualified opinion
on the effectiveness of the Company’s internal
control over financial reporting.
Basis for Opinion
These consolidated financial
statements are the responsibility
of the Company’s Board of Directors and
management. Our responsibility
is to express an opinion on
these consolidated financial
statements based on
our audits. We are a public accounting
firm registered with the PCAOB and
are required to be independent
with respect to the Company in accordance
with the U.S. federal securities
laws and the applicable
rules and
regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the
PCAOB. Those standards require
that we
plan and perform the audit to obtain
reasonable assurance about
whether the consolidated financial
statements are free of material
misstatement, whether
due to error or fraud. Our audits
included performing
procedures to assess the risks of
material misstatement of the consolidated
financial statements, whether
due to error or fraud, and performing
procedures that respond
to those risks. Such procedures included
examining, on a test basis, evidence
regarding the amounts and
disclosures in the consolidated
financial
statements. Our audits also included
evaluating the accounting
principles used and significant
estimates
made by management, as well
as evaluating the overall presentation
of the consolidated financial
statements. We believe that our audits
provide
a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated
below is a matter arising
from the current period audit of the
consolidated financial
statements that was communicated or required
to be communicated to the audit
committee and that: (1) relates
to accounts or disclosures that are
material to the consolidated
financial
statements and (2) involved our especially
challenging, subjective, or complex
judgments. The
communication of a critical audit
matter does not alter in
any way our opinion on the consolidated
financial
statements, taken as a whole, and we
are not, by communicating
the critical audit matter below, providing a
separate opinion on the critical
audit matter or on the accounts
or disclosures to which it
relates.
Revenue recognition for certain
long-term fixed price contracts
using the percentage-of-completion
method
As discussed in Note 2 to the consolidated
financial statements, revenues from
the sale of customized
products, including long-term fixed price
contracts for integrated
automation and electrification systems
and
solutions are generally recognized
on an over time basis using the percentage-of-completion
method of
accounting. For the year ended December
31, 2023, the Company
reported $27,010 million of revenue
from
sales of products, a portion of which
related to long-term fixed price contracts.
F-4
We identified the evaluation of estimated
costs to complete related
to revenue recognition of certain
long-
term fixed price contracts using the percentage
of-completion method
of accounting as a critical audit matter.
In particular, a high degree of subjective auditor judgment
was required to evaluate the
Company’s estimates
regarding the amount of future direct
materials, labor and subcontract
costs, and indirect costs to
complete
the contracts.
The following are the primary procedures
we performed to address
this critical audit matter. We evaluated the
design and tested the operating effectiveness
of certain internal controls
related to the Company’s revenue
process including controls over
the development of estimates regarding
the amount of future direct materials,
labor and subcontract costs, and indirect
costs. We assessed the Company’s historical
ability to accurately
estimate costs to complete by comparing
historical estimates to actual
results for a selection of contracts.
We
evaluated the estimate of remaining
costs to be incurred for a selection
of contracts by assessing
progress to
date and the nature and complexity
of work to be performed
through interviewing project
managers and
inspecting correspondence, if any, between the Company
and the customer and/or subcontractors.
/s/ KPMG AG
We have served as the Company’s auditor
since 2018.
Zurich, Switzerland
February 22, 2024
F-5
Report of Independent Registered
Public Accounting Firm
To
the Board of Directors and Stockholders of ABB Ltd
Opinion on Internal Control Over
Financial Reporting
We have audited ABB Ltd and subsidiaries’
(the Company) internal control
over financial reporting as of
December 31, 2023, based on criteria
established in Internal
Control – Integrated Framework (2013)
issued
by the Committee of Sponsoring
Organizations of the Treadway Commission
(COSO). In our opinion, the
Company maintained, in all
material respects, effective internal
control over financial reporting
as of
December 31, 2023, based on criteria
established in Internal
Control – Integrated Framework (2013)
issued
by COSO.
We also have audited, in accordance with
the standards of the Public Company
Accounting Oversight Board
(United States) (PCAOB), the
consolidated balance
sheets of the Company as of December 31, 2023
and
2022, the related consolidated
income statements, statements of
comprehensive income, cash
flows and
changes in stockholders’ equity
for each of the years in the three-year
period ended December 31, 2023,
and
the related notes (collectively, the consolidated financial
statements), and our report dated
February 22,
2024, expressed an unqualified
opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s Board of Directors and
management are responsible
for maintaining effective internal control
over financial reporting and
for its assessment of the effectiveness of
internal control over financial
reporting,
included in the accompanying
report of management on internal
control over financial reporting. Our
responsibility is to express an opinion
on the Company’s internal control over
financial reporting based
on our
audit. We are a public accounting firm
registered with the PCAOB and
are required to be independent
with
respect to the Company in accordance
with the U.S. federal
securities laws and the applicable
rules and
regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance
with the standards of the PCAOB.
Those standards require that we
plan and perform the audit to obtain
reasonable assurance about
whether effective internal control over
financial reporting was maintained
in all material respects. Our audit of internal
control over financial reporting
included obtaining an understanding
of internal control over financial reporting,
assessing the risk that a
material weakness exists, and testing
and evaluating the design
and operating effectiveness of internal
control based on the assessed risk.
Our audit also included
performing such other procedures as
we
considered necessary in the circumstances.
We believe that our audit provides a reasonable
basis for our
opinion.
Definition and Limitations
of Internal Control Over Financial
Reporting
A company’s internal control over financial
reporting is a process designed
to provide reasonable assurance
regarding the reliability of financial
reporting and the preparation
of financial statements for external
purposes
in accordance with generally
accepted accounting principles.
A company’s internal control over financial
reporting includes those policies
and procedures that (1) pertain
to the maintenance of records
that, in
reasonable detail, accurately
and fairly reflect the transactions
and dispositions of the assets of the
company;
(2) provide reasonable assurance
that transactions are recorded
as necessary to permit preparation
of
financial statements in accordance with
generally accepted accounting
principles, and that receipts and
expenditures of the company are
being made only in accordance
with authorizations of management
and
directors of the company; and (3) provide
reasonable assurance regarding
prevention or timely detection of
unauthorized acquisition,
use, or disposition of the company’s
assets that could have a material
effect on the
financial statements.
Because of its inherent limitations, internal
control over financial
reporting may not prevent or detect
misstatements. Also, projections of
any evaluation of effectiveness to future
periods are subject to the risk
that controls may become inadequate
because of changes in conditions,
or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ KPMG AG
Zurich, Switzerland
February 22, 2024
F-6
―
ABB Ltd Consolidated Income Statements
Year ended December
31 ($ in millions, except per
share data in $)
2023
2022
2021
Sales of products
Sales of services and other
Total revenues
Cost of sales of products
(
17,938
)
(
16,804
)
(
16,364
)
Cost of services and other
(
3,083
)
(
2,932
)
(
3,114
)
Total cost of sales
(
21,021
)
(
19,736
)
(
19,478
)
Gross profit
Selling, general and administrative
expenses
(
5,543
)
(
5,132
)
(
5,162
)
Non-order related research
and development expenses
(
1,317
)
(
1,166
)
(
1,219
)
Other income (expense),
net
(
75
)
Income from operations
Interest and dividend income
Interest and other finance
expense
(
275
)
(
130
)
(
148
)
Non-operational pension
(cost) credit
Income from continuing
operations before
taxes
Income tax expense
(
930
)
(
757
)
(
1,057
)
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
24
)
(
43
)
(
80
)
Net income
Net income attributable
to noncontrolling
interests and redeemable
noncontrolling interests
(
79
)
(
119
)
(
104
)
Net income attributable
to ABB
Amounts attributable
to ABB shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
24
)
(
42
)
(
79
)
Net income
Basic earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
0.01
)
(
0.02
)
(
0.04
)
Net income
Diluted earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
0.01
)
(
0.02
)
(
0.04
)
Net income
Weighted-average number
of shares outstanding
(in millions) used to
compute:
Basic earnings per share
attributable to ABB
shareholders
Diluted earnings per share
attributable to ABB
shareholders
Due to rounding, numbers presented may not add to the totals
provided.
See accompanying Notes to the
Consolidated Financial Statements
F-7
―
ABB Ltd Consolidated Statements of Comprehensive Income
Year ended December
31 ($ in millions)
2023
2022
2021
Net income
Other comprehensive
income (loss), net of
tax:
Foreign currency translation
adjustments:
Foreign currency translation
adjustments
(
290
)
(
685
)
(
521
)
Net loss on complete
or substantially complete
liquidations of foreign subsidiaries
Changes attributable
to divestments
(
9
)
Foreign currency translation
adjustments
(
281
)
(
639
)
(
530
)
Available-for-sale securities:
Net unrealized gains (losses)
arising during the year
(
23
)
(
10
)
Reclassification adjustments
for net (gains) losses
included in net income
(
5
)
Unrealized gains (losses)
on available-for-sale
securities
(
21
)
(
15
)
Pension and other postretirement
plans:
Prior service (costs)
credits arising during
the year
(
1
)
Net actuarial gains
(losses) arising during
the year
(
282
)
Amortization of prior service
credit included in net
income
(
9
)
(
16
)
(
14
)
Amortization of net actuarial
loss included in net
income
Net losses from settlements
and curtailments included
in net income
Changes attributable
to divestments
(
8
)
(
6
)
Pension and other postretirement
plan adjustments
(
237
)
Derivative instruments
and hedges:
Net unrealized gains (losses)
arising during the year
(
10
)
(
12
)
Reclassification adjustments
for net (gains) losses
included in net income
(
13
)
Changes in derivative
instruments and hedges
(
2
)
(
5
)
Total other comprehensive income
(loss), net of tax
(
509
)
(
405
)
(
83
)
Total comprehensive income, net
of tax
Total
comprehensive
(income) loss attributable
to noncontrolling interests
and
redeemable noncontrolling
interests, net of
tax
(
84
)
(
87
)
(
108
)
Total comprehensive income attributable
to ABB, net of tax
Due to rounding, numbers presented may not add to the totals
provided.
See accompanying Notes to the
Consolidated Financial Statements
F-8
―
ABB Ltd Consolidated Balance Sheets
December 31 ($ in millions,
except share data)
2023
2022
Cash and equivalents
Restricted cash
Marketable securities and
short-term investments
Receivables, net
Contract assets
Inventories, net
Prepaid expenses
Other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use
assets
Investments in equity-accounted
companies
Prepaid pension and other
employee benefits
Intangible assets, net
Goodwill
Deferred taxes
Other non-current assets
Total assets
Accounts payable, trade
Contract liabilities
Short-term debt and current
maturities of long-term
debt
Current operating leases
Provisions for warranties
Other provisions
Other current liabilities
Total current liabilities
Long-term debt
Non-current operating leases
Pension and other employee
benefits
Deferred taxes
Other non-current liabilities
Total liabilities
Commitments and contingencies
nil
nil
Redeemable noncontrolling
interest
Stockholders’ equity:
Common stock, CHF
(
Additional paid-in capital
Retained earnings
Accumulated other comprehensive
loss
(
5,070
)
(
4,556
)
Treasury stock, at cost
(
(
1,414
)
(
3,061
)
Total ABB stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’
equity
Due to rounding, numbers presented may not add to the totals
provided.
See accompanying Notes to the
Consolidated Financial Statements
F-9
―
ABB Ltd Consolidated Statements of Cash Flows
Year ended December
31 ($ in millions)
2023
2022
2021
Operating activities:
Net income
Loss from discontinued operations, net of tax
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Changes in fair values of investments
(
29
)
(
33
)
(
123
)
Pension and other employee benefits
(
48
)
(
125
)
(
216
)
Deferred taxes
(
25
)
(
344
)
(
289
)
Loss from equity-accounted companies
Net loss (gain) from derivatives and foreign exchange
(
55
)
(
23
)
Net gain from sale of property,
plant and equipment
(
116
)
(
84
)
(
38
)
Net loss (gain) from sale of businesses
(
101
)
(
2,193
)
Other
Changes in operating assets and liabilities:
Trade receivables, net
(
661
)
(
831
)
(
142
)
Contract assets and liabilities
Inventories, net
(
3
)
(
1,599
)
(
771
)
Accounts payable, trade
(
106
)
Accrued liabilities
Provisions, net
(
70
)
(
48
)
Income taxes payable and receivable
(
190
)
(
94
)
Other assets and liabilities, net
(
44
)
(
36
)
Net cash provided by operating activities — continuing
operations
Net cash used in operating activities — discontinued operations
(
11
)
(
47
)
(
8
)
Net cash provided by operating activities
Investing activities:
Purchases of investments
(
1,957
)
(
321
)
(
1,528
)
Purchases of property, plant and
equipment and intangible assets
(
770
)
(
762
)
(
820
)
Acquisition of businesses (net of cash acquired) and increases
in cost-
and equity-accounted companies
(
225
)
(
288
)
(
241
)
Proceeds from sales of investments
Proceeds from maturity of investments
Proceeds from sales of property,
plant and equipment
Proceeds from sales of businesses (net of transaction costs
and cash disposed) and
cost-
and equity-accounted companies
Net cash from settlement of foreign currency derivatives
(
109
)
(
166
)
(
121
)
Changes in loans receivable, net
(
19
)
Other investing activities
(
14
)
(
4
)
Net cash provided by (used in) investing activities — continuing
operations
(
1,592
)
Net cash used in investing activities — discontinued
operations
(
23
)
(
226
)
(
364
)
Net cash provided by (used in) investing activities
(
1,615
)
Financing activities:
Net changes in debt with maturities of 90 days or less
(
1,365
)
(
83
)
Increase in debt
Repayment of debt
(
1,567
)
(
2,703
)
(
1,538
)
Delivery of shares
Purchase of treasury stock
(
1,258
)
(
3,553
)
(
3,708
)
Dividends paid
(
1,713
)
(
1,698
)
(
1,726
)
Cash associated with the spin-off of the Turbocharging
Division
(
172
)
Dividends paid to noncontrolling shareholders
(
93
)
(
99
)
(
98
)
Proceeds from issuance of subsidiary shares
Other financing activities
(
41
)
Net cash used in financing activities — continuing
operations
(
2,897
)
(
2,394
)
(
4,968
)
Net cash provided by financing activities — discontinued
operations
Net cash used in financing activities
(
2,897
)
(
2,394
)
(
4,968
)
Effects of exchange rate changes on cash and equivalents
and restricted cash
(
43
)
(
189
)
(
81
)
Net change in cash and equivalents and restricted cash
(
265
)
(
315
)
Cash and equivalents and restricted cash, beginning of period
Cash and equivalents and restricted cash, end of period
Supplementary disclosure of cash flow information:
Interest paid
Income taxes paid
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the
Consolidated Financial Statements
F-10
―
ABB Ltd Consolidated Statements of Changes in Stockholders’ Equity
Accumulated
Additional
other
Total ABB
Non-
Total
Years ended December 31, 2023, 2022 and 2021
Common
paid-in
Retained
comprehensive
Treasury
stockholders’
controlling
stockholders’
($ in millions)
stock
capital
earnings
loss
stock
equity
interests
equity
Balance at January 1, 2021
(
4,002
)
(
3,530
)
Net income
Foreign currency translation
adjustments, net of tax
(
534
)
(
534
)
(
530
)
Effect of change in fair value of
available-for-sale securities, net of tax
(
15
)
(
15
)
(
15
)
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
Change in derivative instruments
and hedges, net of tax
(
5
)
(
5
)
(
5
)
Changes in noncontrolling interests
(
37
)
(
20
)
(
57
)
(
2
)
Dividends to noncontrolling shareholders
(
98
)
(
98
)
Dividends to shareholders
(
1,730
)
(
1,730
)
(
1,730
)
Cancellation of treasury shares
(
10
)
(
17
)
(
3,130
)
Share-based payment arrangements
Purchase of treasury stock
(
3,682
)
(
3,682
)
(
3,682
)
Delivery of shares
(
84
)
(
136
)
Other
Balance at December 31, 2021
(
4,088
)
(
3,010
)
Net income
(1)
Foreign currency translation
adjustments, net of tax
(
608
)
(
608
)
(
31
)
(
639
)
Effect of change in fair value of
available-for-sale securities, net of tax
(
21
)
(
21
)
(
21
)
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
(
1
)
Change in derivative instruments
and hedges, net of tax
Issuance of subsidiary shares
Other changes in noncontrolling interests
(
34
)
(
24
)
Dividends to noncontrolling shareholders
(
100
)
(
100
)
Dividends to shareholders
(
1,700
)
(
1,700
)
(
1,700
)
Spin-off of the Turbocharging Division
(
177
)
(
95
)
(
272
)
(
12
)
(
284
)
Cancellation of treasury shares
(
8
)
(
4
)
(
2,864
)
Share-based payment arrangements
Purchase of treasury stock
(
3,502
)
(
3,502
)
(
3,502
)
Delivery of shares
(
51
)
(
130
)
Other
Balance at December 31, 2022
(
4,556
)
(
3,061
)
Net income
(1)
Foreign currency translation
adjustments, net of tax
(
286
)
(
286
)
(
281
)
Effect of change in fair value of
available-for-sale securities, net of tax
Unrecognized income (expense)
related to pensions and other
postretirement plans, net of tax
(
237
)
(
237
)
(
237
)
Change in derivative instruments
and hedges, net of tax
(
2
)
(
2
)
(
2
)
Issuance of subsidiary shares
Other changes in noncontrolling interests
(
31
)
(
37
)
(
68
)
(
1
)
Dividends to noncontrolling shareholders
(
93
)
(
93
)
Dividends to shareholders
(
1,706
)
(
1,706
)
(
1,706
)
Cancellation of treasury shares
(
7
)
(
201
)
(
2,359
)
Share-based payment arrangements
Purchase of treasury stock
(
1,247
)
(
1,247
)
(
1,247
)
Delivery of shares
(
173
)
Other
(
2
)
(
2
)
Balance at December 31, 2023
(
5,070
)
(
1,414
)
(1) Amounts attributable to noncontrolling interests in 2023 and 2022 exclude net losses of $
reported in the mezzanine equity section on the Consolidated Balance Sheets. See Note 4 for details.
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the
Consolidated Financial Statements
F-11
—
Note 1
The Company
ABB Ltd and its subsidiaries (collectively, the Company) together
form a technology leader in
electrification
and automation, enabling
a more sustainable and resource-efficient future.
The Company’s solutions connect
engineering know-how and
software to optimize how things
are manufactured, moved, powered,
and
operated.
—
Note 2
Significant accounting policies
The following is a summary of
significant accounting policies
followed in the preparation
of these
Consolidated Financial
Statements.
Basis of presentation
The Consolidated Financial
Statements are prepared in accordance
with United States of America
(United
States or U.S.) generally accepted
accounting principles (U.S.
GAAP) and are presented in United
States
dollars ($ or USD) unless otherwise stated.
Due to rounding, numbers
presented may not add to the totals
provided. The par value of capital
stock is denominated in Swiss francs
.
Reclassifications
Certain amounts reported for prior
years in the Consolidated
Financial Statements and the accompanying
Notes have been reclassified to conform
to the current year’s presentation.
These changes relate primarily
to
the reorganization of the Company’s operating
segments (see Note 23 for details).
Scope of consolidation
The Consolidated Financial
Statements include the accounts of ABB Ltd
and companies which are directly
or
indirectly controlled by ABB Ltd. Additionally, the Company
consolidates variable interest
entities if it has
determined that it is the primary beneficiary. Intercompany
accounts and transactions are eliminated.
Investments in joint ventures and affiliated
companies in which the Company
has the ability to exercise
significant influence over operating
and financial policies (generally
through direct or indirect ownership
of
20 percent to 50 percent of the voting
rights and/or board
of director representation), are
recorded in the
Consolidated Financial
Statements using the equity method of accounting.
Translation of foreign currencies and foreign
exchange transactions
The functional currency for most of
the Company’s subsidiaries
is the applicable local currency. The
translation from the applicable
functional currencies into the Company’s
reporting currency is performed
for
balance sheet accounts using exchange
rates in effect at the balance sheet date
and for income statement
accounts using average exchange
rates prevailing during the year. The resulting translation
adjustments are
excluded from the determination
of earnings and are recognized
in Accumulated other comprehensive loss
until the subsidiary is sold, substantially
liquidated or evaluated
for impairment in anticipation of disposal.
Foreign currency exchange gains
and losses, such as those resulting
from foreign currency denominated
receivables or payables, are included
in the determination of earnings, except as
they relate to intercompany
loans that are equity
‑
like in nature with no reasonable
expectation of repayment, which are
recognized in
Accumulated other comprehensive
loss. Exchange gains and losses
are recognized in earnings
and
classified in the line item consistent
with the underlying transaction
or item.
F-12
Discontinued operations
The Company reports a disposal,
or planned disposal, of a component
or a group of components
as a
discontinued operation
if the disposal represents a strategic
shift that has or will have a major
effect on the
Company’s operations and financial
results.
A strategic shift could include
a disposal of a major geographical
area, a major line of business or
other major parts of the Company. A component may be
a reportable
segment or an operating segment,
a reporting unit, a subsidiary, or an asset group.
The assets and liabilities
of a component reported as a
discontinued operation
are presented separately as
held for sale and in discontinued
operations in the Company’s Consolidated
Balance Sheets.
Interest expense that is not directly
attributable to or related
to the Company’s continuing business
or
discontinued business is allocated
to discontinued operations based on
the ratio of net assets to be sold less
debt that is required to be paid as a result
of the planned disposal
transaction to the sum of total net assets
of
the Company plus consolidated
debt. General corporate overhead
is not allocated to discontinued operations.
Operating cycle
For classification of certain current assets
and liabilities, the Company
has elected to use the duration
of
individual contracts as its operating
cycle. Accordingly, there are contract assets and liabilities,
accounts
receivable, inventories and
provisions related to these contracts which
will not be realized
within
that have been classified as current. Long-term
system integration
activities comprise the majority of
the
Company’s activities which have an operating
cycle in excess of
current.
Use of estimates
The preparation of financial statements
in conformity with U.S. GAAP
requires management to make
assumptions and estimates that
directly affect the amounts reported
in the Consolidated Financial
Statements and the accompanying
Notes. These accounting
assumptions and estimates include:
•
unrecognized tax benefits,
•
such as trade and other receivables,
loans and other instruments,
•
and inquiries, environmental
damages, product warranties, self
‑
insurance reserves, regulatory
and other proceedings,
•
‑
related
overhead costs, used in determining
the percentage
‑
of
‑
completion on projects where revenue
is
recognized over time, as well as
the amount of variable consideration
the Company expects to
be entitled to,
•
pension plan assets,
•
programs,
•
•
‑
lived
assets and in testing goodwill
for impairment,
F-13
•
in business combinations, and
•
interests and certain obligations
in connection with divestments.
The actual results and outcomes
may differ from the Company’s estimates and assumptions.
Cash and equivalents
Cash and equivalents include
highly liquid investments with maturities of
three months or less at the date
of
acquisition.
Currency and other local regulatory
limitations related to the transfer
of funds exist in a number of
countries
where the Company operates.
Funds, other than regular
dividends, fees or loan repayments,
cannot be
readily transferred abroad from
these countries and are therefore deposited
and used for working capital
needs locally. These funds are included in cash and equivalents
as they are not considered restricted.
Cash and equivalents that are subject
to contractual restrictions or other
legal obligations and are
not readily
available are classified
as “Restricted cash”.
Marketable securities and short
‑
term investments
Management determines the appropriate
classification of held
‑
to
‑
maturity and available
‑
for
‑
sale debt
securities at the time of purchase.
Debt securities are classified
as held
‑
to
‑
maturity when the Company has
the positive intent and ability to hold
the securities to maturity. Held
‑
to
‑
maturity debt securities are carried
at
amortized cost, adjusted for accretion
of discounts or amortization
of premiums to maturity computed
under
the effective interest method. Such accretion
or amortization is included
in Interest and dividend income.
Marketable debt securities not classified
as held
‑
to
‑
maturity are classified as available
‑
for
‑
sale and reported
at fair value.
Unrealized gains and
losses on available
‑
for
‑
sale debt securities are excluded
from the determination of
earnings and are instead recognized
in the Accumulated other comprehensive
loss component of
stockholders’ equity, net of tax, until realized. Realized
gains and losses on available
‑
for
‑
sale debt securities
are computed based upon the historical
cost of these securities, using
the specific identification method.
Marketable debt securities are
classified as either “Cash and
equivalents” or “Marketable securities
and
short
‑
term investments” according
to their maturity at the time of
acquisition.
Marketable equity securities are generally
classified as “Marketable securities
and short
‑
term investments”,
however,
any marketable securities held as
a long
‑
term investment rather than as
an investment of excess
liquidity are classified as “Other
non
‑
current assets”. Marketable
equity securities are measured at
fair value
with fair value changes reported in
net income. Fair value changes
for marketable equity securities are
generally reported in Interest and other
finance expense,
however,
fair value changes for certain
marketable
equity securities classified as long-term
investments are reported in
Other income (expense),
net.
For debt securities classified as available-for-sale
where fair value has declined
below amortized cost due to
credit losses, the Company records an
allowance for expected
credit losses and adjusts the allowance
in
subsequent periods in Interest and other
finance expense.
All fair value changes other
than those related to
credit risk are reported in Accumulated
other comprehensive loss until
the security is sold.
In addition, equity securities without
readily determinable fair values
are remeasured if there is an
observable
price change in an orderly transaction
for the same investment, or if
a qualitative assessment indicates
that
the investment is impaired and
the fair value of the investment is
less than its carrying amount.
Similar to
other fair value changes as described
above, depending on the nature
of the investment, this
fair value
change is either recorded in Other
income (expense), net or Interest
and other finance expense.
F-14
Accounts receivable and allowance
for expected credit losses
Accounts receivable are recorded
at the invoiced amount. The Company
has a group
‑
wide policy on the
management of credit risk. The policy
includes a credit assessment methodology
to assess the
creditworthiness of customers and assign
to those customers a risk category. Third
‑
party agencies’ ratings
are considered, if available. For customers
where agency ratings are
not available, the customer’s
most
recent financial statements, payment
history and other relevant
information are considered in
the assignment
to a risk category. Customers are assessed at least annually
or more frequently when information on
significant changes in the customer’s
financial position becomes
known. In addition to the assignment
to a
risk category, a credit limit per customer is set.
The Company recognizes an allowance
for credit losses to present the net
amount of receivables expected to
be collected at the balance sheet date.
The allowance is based on the credit
losses expected to arise over
the asset’s contractual term taking into
account historical loss experience,
customer-specific data as well as
forward looking estimates. The Company’s
accounts receivable
are first grouped by the individual
legal entity
which generally has a geographic
concentration of receivables,
resulting in different risk levels for different
entities. Receivables are then further
subdivided within the entity into
pools based on similar risk
characteristics to estimate expected
credit losses. Expected
credit losses are estimated
individually when
the
related assets do not share similar
risk characteristics.
Accounts receivable are written
off when deemed uncollectible
and are recognized as a deduction
from the
allowance for credit losses. Expected
recoveries, which are not
to exceed the amount previously
written off,
are considered in determining
the allowance
balance at the balance sheet date.
The Company, in its normal course of business, transfers
receivables to third parties, generally
without
recourse. The transfer is accounted
for as a sale when the Company has
surrendered control over
the
receivables. Control is deemed
to have been surrendered
when (i) the transferred receivables
have been put
presumptively beyond the reach of
the Company and its creditors,
even in bankruptcy or other receivership,
(ii) the third
‑
party transferees have the right
to pledge or exchange the transferred
receivables, and (iii) the
Company has relinquished
effective control over the transferred receivables
and does not retain the ability
or
obligation to repurchase or redeem
the transferred receivables.
At the time of sale, the sold receivables
are
removed from the Consolidated
Balance Sheets and the related
cash inflows are classified as
operating
activities in the Consolidated Statements
of Cash Flows. Transfers of receivables
that do not meet the
requirements for treatment as sales
are accounted for as secured
borrowings and the related cash
flows are
classified as financing activities in
the Consolidated Statements of
Cash Flows.
Concentrations of credit risk
The Company sells a broad range
of products, systems, services
and software to a wide range
of industrial,
commercial and utility customers as
well as various government
agencies and quasi
‑
governmental agencies
throughout the world. Concentrations
of credit risk with respect to accounts
receivable are limited, as
the
Company’s customer base is comprised
of a large number of individual
customers. Ongoing credit
evaluations of customers’ financial
positions are performed to determine whether
the use of credit support
instruments such as guarantees, letters
of credit or credit insurance
are necessary; collateral is not generally
required. The Company maintains an
allowance for credit losses as discussed
above in “Accounts receivable
and allowance for expected credit
losses”. Such losses, in the aggregate,
are in line with the Company’s
expectations.
It is the Company’s policy to invest
cash in deposits with banks throughout
the world with certain minimum
credit ratings and in high quality, low risk, liquid investments.
The Company actively manages
its credit risk
by routinely reviewing the creditworthiness
of the banks and the investments
held. The Company has not
incurred significant credit losses related
to such investments.
F-15
The Company’s exposure to credit risk
on derivative financial
instruments is the risk that the counterparty
will
fail to meet its obligations. To reduce this risk, the Company
has credit policies that require the
establishment
and periodic review of credit limits
for individual counterparties. In addition,
the Company has entered into
close
‑
out netting agreements with most
derivative counterparties. Close
‑
out netting agreements provide
for
the termination, valuation and net
settlement of some or all
outstanding transactions between
two
counterparties on the occurrence of
one or more pre
‑
defined trigger events. Derivative
instruments are
presented on a gross basis in the
Consolidated Financial
Statements.
Revenue recognition
A customer contract exists if collectability
under the contract is considered
probable, the contract has
commercial substance, contains
payment terms, as well as
the rights and commitments of
both parties, and
has been approved.
The Company offers arrangements with
multiple performance obligations
to meet its customers’ needs.
These arrangements may involve
the delivery of multiple products
and/or performance of services
(such as
installation and training)
and the delivery and/or performance may occur
at different points in time or over
different periods of time. Goods and services
under such arrangements
are evaluated to determine
whether
they form distinct performance obligations
and should be accounted for as
separate revenue transactions.
The Company allocates the sales price
to each distinct performance
obligation based on the price of each
item sold in separate transactions
at the inception of the
arrangement.
The Company generally recognizes
revenues for the sale of non
‑
customized products including
circuit
breakers, modular substation packages,
control products, motors, generators,
drives, robots, measurement
and analytical instrumentation, and
other goods which are manufactured
on a standardized basis
at a point in
time. Revenues are recognized at
the point in time that the customer
obtains control of the goods, which
is
when it has taken title to the products
and assumed the risks and rewards
of ownership of the products
specified in the purchase order or sales
agreement. Generally, the transfer of title and risks
and rewards of
ownership are governed
by the contractually defined shipping
terms. The Company uses various
International Commercial Terms (as promulgated by the International
Chamber of Commerce) in its sales
of
products to third party customers, such
as Ex Works (EXW), Free Carrier
(FCA) and Delivered Duty Paid
(DDP).
Billing terms for these point in time
contracts vary but generally
coincide with delivery to the customer.
Payment is generally due upon
receipt of the invoice, payable
within 90 days or less.
The Company generally recognizes
revenues for the sale of customized
products,
including integrated
automation and electrification systems
and solutions, on an over time basis
using the
percentage
‑
of
‑
completion method of accounting.
These systems are generally
accounted for as a single
performance obligation as the Company
is required to integrate equipment
and services into one deliverable
for the customer. Revenues are recognized as the
systems are customized during the
manufacturing or
integration process and as control is
transferred to the customer as
evidenced by the Company’s right
to
payment for work performed or by
the customer’s ownership
of the work in process. The Company
principally
uses the cost
‑
to
‑
cost method to measure
progress towards completion
on contracts. Under this method,
progress of contracts is measured
by actual costs incurred
in relation to the Company’s best estimate
of total
costs based on the Company’s history of
manufacturing or constructing
similar assets for customers.
Estimated costs are reviewed
and updated routinely for contracts
in progress to reflect changes
in quantity or
pricing of the inputs. The cumulative
effect of any change in estimate is
recorded in the period when
the
change in estimate is determined. Contract
costs include all direct materials,
labor and subcontract costs
and
indirect costs related to contract performance,
such as indirect labor, supplies, tools and
depreciation costs.
F-16
The nature of the Company’s contracts
for the sale of customized
products gives rise to several
types of
variable consideration, including
claims, unpriced change orders, liquidated
damages and penalties. These
amounts are estimated based upon
the most likely amount of consideration
to which the customer or
the
Company will be entitled. The estimated
amounts are included
in the sales price to the extent it is probable
that a significant reversal of cumulative
revenues recognized will
not occur when the uncertainty associated
with the variable consideration
is resolved. All estimates of variable
consideration are reassessed
periodically. Back charges to suppliers or subcontractors
are recognized as a reduction of
cost when it is
determined that recovery of such
cost is probable and the
amounts can be reliably estimated.
Billing terms for these over
‑
time contracts vary but are
generally based on achieving
specified milestones.
The differences between the timing of
revenues recognized and
customer billings result in changes
to
contract assets and contract liabilities.
Payment is generally
due upon receipt of the invoice, payable
within
90 days or less. Contractual retention
amounts billed to customers are generally
due upon expiration of the
contractual warranty period.
Service revenues reflect revenues
earned from the Company’s activities
in providing services to customers
primarily subsequent to the sale and
delivery of a product or complete
system. Such revenues consist
of
maintenance type contracts, repair
services, equipment upgrades,
field service activities that include
personnel and accompanying
spare parts, training, and installation and
commissioning of products as a
stand-alone service or as part of a
service contract. The Company
generally recognizes revenues
from
service transactions as services are
performed or at the point in time that
the customer obtains control
of the
spare parts. For long-term service contracts
including monitoring
and maintenance services, revenues
are
recognized on a straight-line
basis over the term of the contract consistent
with the nature, timing and
extent
of the services or, if the performance pattern is other
than straight line, as the services
are provided based
on
costs incurred relative to total expected
costs.
In limited circumstances the Company
sells extended warranties
that extend the warranty coverage
beyond
the standard coverage offered on specific
products. Revenues
for these warranties are recorded
over the
length of the warranty period based
on their stand
‑
alone selling price.
Billing terms for service contracts vary
but are generally based
on the occurrence of a service
event.
Payment is generally due upon
receipt of the invoice, payable
within 90 days or less.
Revenues are reported net of customer
rebates, early settlement discounts,
and similar incentives. Rebates
are estimated based on sales
terms, historical experience and
trend analysis. The most common
incentives
relate to amounts paid or credited
to customers for achieving
defined volume levels.
Taxes
assessed by a governmental
authority that are directly
imposed on revenue-producing
transactions
between the Company and its customers,
such as sales, use, value added
and some excise taxes, are
excluded from revenues.
The Company does not adjust the contract
price for the effects of a financing
component if the Company
expects, at contract inception,
that the time between control transfer
and cash receipt is less than 12
months.
Sales commissions are expensed immediately
when the amortization period
for the costs to obtain the
contract is less than a year.
Contract loss provisions
Losses on contracts are recognized
in the period when they are identified
and are based upon the anticipated
excess of contract costs over
the related contract revenues.
Shipping and handling costs
Shipping and handling
costs are recorded as a component of cost
of sales.
F-17
Inventories
Inventories are stated at the lower
of cost or net realizable
value. Cost is determined using
the first
‑
in,
first
‑
out method, the weighted
‑
average cost method, or
the specific identification method.
Inventoried costs
are stated at acquisition cost or actual
production cost, including
direct material and labor and applicable
manufacturing overheads. Adjustments
to reduce the cost of inventory
to its net realizable value
are made, if
required, for decreases in sales prices,
obsolescence or similar reductions
in value.
Impairment of long
‑
lived assets
Long
‑
lived assets that are held and used are evaluated
for impairment for each of
the Company’s asset
groups when events or circumstances
indicate that the carrying
amount of the long-lived asset or asset
group
may not be recoverable. If the asset group’s
net carrying value exceeds
the asset group’s net undiscounted
cash flows expected to be generated
over its remaining useful life
including net proceeds expected
from
disposition of the asset group,
if any, the carrying amount of the asset group is reduced
to its estimated fair
value. The estimated fair value is determined
using a market, income and/or
cost approach.
Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation and is depreciated
using the
straight
‑
line method. The estimated useful
lives of the assets are generally
as follows:
•
•
•
•
•
over the lease term, if shorter.
Goodwill and intangible assets
Goodwill is reviewed for impairment
annually as of October 1, or more
frequently if events or circumstances
indicate that the carrying value
may not be recoverable.
Goodwill is evaluated for impairment
at the reporting unit level. A
reporting unit is an operating segment
or
one level below an operating
segment. For the annual impairment reviews
performed in 2023
the reporting
units were determined to be one level
below the operating
segments.
When evaluating goodwill
for impairment, the Company uses either
a qualitative or quantitative
assessment
method for each reporting unit.
The qualitative assessment involves
determining, based on an evaluation
of
qualitative factors, if it is more likely
than not that the fair value of a reporting
unit is less than its carrying
value. If, based on this qualitative
assessment, it is determined
to be more likely than not that the reporting
unit’s fair value is less than its carrying
value, a quantitative impairment
test is performed, otherwise
no
further analysis is required. If the Company
elects not to perform
the qualitative assessment for a
reporting
unit, then a quantitative impairment
test is performed.
When performing a quantitative impairment
test,
the Company generally
calculates the fair value of a
reporting unit using an income approach
based on the present value
of future cash flows, applying a discount
rate that represents the reporting unit’s
weighted-average cost of capital,
and compares it to the
reporting
unit’s carrying value. If the carrying value
of the net assets of a reporting unit
exceeds the fair value
of the
reporting unit then the Company records
an impairment charge equal
to the difference, provided that the loss
recognized does not exceed the total
amount of goodwill allocated
to that reporting unit.
F-18
The cost of acquired intangible
assets with a finite life is amortized
using a method of amortization
that
reflects the pattern of intangible
assets’ expected contributions
to future cash flows. If that pattern
cannot be
reliably determined, the straight
‑
line method is used. The
amortization periods range from
software and from
‑
, technology
‑
‑
related intangibles. Intangible
assets with a finite life are tested
for impairment upon the
occurrence of certain triggering
events.
Derivative financial instruments
and hedging activities
The Company uses derivative
financial instruments to
manage currency, commodity, interest rate and equity
exposures, arising from its global
operating, financing and investing
activities (see Note 6).
The Company recognizes all derivatives,
other than certain derivatives
indexed to the Company’s own stock,
at fair value in the Consolidated
Balance Sheets. Derivatives that
are not designated as hedging
instruments
are reported at fair value with derivative
gains and losses reported
through earnings and classified
consistent
with the nature of the underlying
transaction.
If the derivatives are designated as a
hedge, depending on the nature
of the hedge, changes
in the fair value
of the derivatives will either be offset against
the change in fair value of
the hedged item attributable
to the
risk being hedged through
earnings (in the case of a fair value
hedge) or recognized in Accumulated
other
comprehensive loss until the hedged
item is recognized in earnings
(in the case of a cash flow hedge).
Where derivative financial instruments
have been designated as cash
flow hedges of forecasted transactions
and such forecasted transactions are
no longer probable of occurring,
hedge accounting is discontinued
and
any derivative gain or loss previously
included in Accumulated other
comprehensive loss is reclassified
into
earnings consistent with the nature
of the original forecasted transaction.
Gains or losses from derivatives
designated as hedging
instruments in a fair value hedge are reported
through earnings and classified
consistent with the nature of the underlying
hedged transaction.
Certain commercial contracts may
grant rights to the Company
or the counterparties, or contain
other
provisions that are considered to be derivatives.
Such embedded
derivatives are assessed at inception
of the
contract and depending on their
characteristics, accounted for as
separate derivative instruments
and shown
at their fair value in the Consolidated
Balance Sheets
with changes in their fair value
reported in earnings
consistent with the nature of the commercial
contract to which they relate.
Derivatives are classified in the Consolidated
Statements of Cash Flows in
the same section as the
underlying item. Cash flows from
the settlement of undesignated
derivatives used to manage the risks
of
different underlying items on a net basis
are classified within “Net cash provided
by operating activities”, as
the underlying items are primarily
operational in nature. Other cash
flows on the settlement of derivatives
are
recorded within “Net cash provided
by (used in) investing activities”.
Leases
The Company leases primarily real
estate, vehicles,
machinery and equipment.
The Company evaluates if a contract
contains a lease at inception
of the contract. A contract is or contains
a
lease if it conveys the right to control
the use of identified property, plant, or equipment
(an identified asset)
for a period of time in exchange for
consideration. To determine this, the Company assesses whether,
throughout the period of use, it has
both the right to obtain
substantially all of the economic benefits
from the
use of the identified asset and the
right to direct the use of the identified
asset. Leases are classified
as either
finance or operating, with the classification
determining the pattern of expense
recognition in the
Consolidated Income Statements. Lease
expense for operating
leases is recorded on a straight-line
basis
over the lease term. Lease expense
for finance leases is separated
between amortization of right-of-use
assets and lease interest expense.
F-19
In many cases, the Company’s leases include
one or more options to renew, with renewal
terms that can
extend up to
. The exercise of lease renewal
options is at the Company’s discretion.
Renewal periods
are included in the expected lease
term if they are reasonably
certain of being exercised by the Company.
Certain leases also include
options to purchase the leased property. None of the Company’s lease
agreements contain material residual
value guarantees or material restrictions
or covenants.
Long-term leases (leases with terms
greater than
) are recorded in the Consolidated
Balance
Sheets
at the commencement date of
the lease based on the present
value of the minimum lease
payments.
The present value of the lease payments
is determined by using the interest
rate implicit in the lease if
available.
As most of the Company’s leases do not provide
an implicit rate, the Company’s incremental
borrowing rate is used for most
leases and is determined
for portfolios of leases based on
the remaining
lease term, currency of the lease, and
the internal credit rating of the subsidiary
which entered into the lease.
Short-term leases (leases with an initial
lease term of
that the identified asset will not be leased
for a term greater than
) are not recorded in the
Consolidated Balance Sheets
and are expensed on a straight-line
basis over the lease term. The majority
of
short-term leases relate to real
estate and machinery.
Assets under operating lease are included
in Operating lease right-of-use assets.
Operating lease liabilities
are reported both as current and
non-current operating lease
liabilities. Right-of-use assets represent
the
Company’s right to use an underlying
asset for the lease term and lease
liabilities represent its obligation
to
make lease payments arising from
the lease.
Assets under finance lease are
included in Property,
plant and equipment,
net while finance lease liabilities
are included in Long-term debt (including
Current maturities of long-term debt as applicable).
Lease and non-lease components
for leases other than real estate are
not accounted for separately.
Income taxes
The Company uses the asset and
liability method to account for deferred
taxes. Under this method, deferred
tax assets and liabilities are
determined based on temporary differences
between the financial
reporting and
the tax bases of assets and liabilities.
Deferred tax assets and liabilities
are measured using enacted tax
rates and laws that are expected
to be in effect when the differences are expected
to reverse. The Company
records a deferred tax asset when
it determines that it is more likely
than not that the deduction will
be
sustained based upon the deduction’s
technical merit. Deferred tax assets and
liabilities that can be offset
against each other are reported on a net
basis. A valuation allowance
is recorded to reduce deferred tax
assets to the amount that is more likely
than not to be realized.
Deferred taxes are provided on unredeemed
retained earnings of the Company’s subsidiaries.
However,
deferred taxes are not provided
on such unredeemed retained
earnings to the extent it is expected
that the
earnings are permanently reinvested.
Such earnings may become taxable
upon the sale or liquidation
of
these subsidiaries or upon the remittance
of dividends.
The Company operates in numerous
tax jurisdictions and, as a result,
is regularly subject to audit by
tax
authorities. The Company provides
for tax contingencies whenever
it is deemed more likely than not
that a
tax asset has been impaired or a tax
liability has been incurred. Contingency
provisions are recorded based
on the technical merits of the Company’s
filing position, considering
the applicable tax laws and Organisation
for Economic Co
‑
operation and Development
(OECD) guidelines and
are based on its evaluations of the
facts and circumstances as of the end
of each reporting period.
The Company applies a two
‑
step approach to recognize
and measure uncertainty in income
taxes. The first
step is to evaluate the tax position
for recognition by determining
if the weight of available evidence
indicates
that it is more likely than not that the
position will be sustained on
audit, including resolution
of related
appeals or litigation processes,
if any. The second step is to measure the tax benefit as
the largest amount
which is more than
could be settled against existing loss
carryforwards or income tax credits
are reported net.
F-20
Expenses
related to tax penalties are classified
in the Consolidated
Income Statements as “Income tax
expense”
while interest thereon is classified
as “Interest and other finance
expense”. Current income tax
relating to certain items is recognized
directly in Accumulated
other comprehensive loss and not in
earnings.
In general, the Company applies
the individual items approach
when releasing income
tax effects from
Accumulated other comprehensive
loss.
Research and development
Research and development
costs not related to specific customer
orders are generally expensed
as incurred.
Earnings per share
Basic earnings per share is calculated
by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings
per share is calculated by dividing
income by the
weighted
‑
average number of shares outstanding
during the year, assuming that all potentially
dilutive
securities were exercised, if dilutive.
Potentially dilutive securities
comprise outstanding written
call options,
outstanding options and shares
granted subject to certain
conditions under the Company’s share
‑
based
payment arrangements. See further
discussion related to earnings
per share in Note 20 and of potentially
dilutive securities in Note 18.
Share
‑
based payment arrangements
The Company has various share
‑
based payment arrangements
for its employees, which are
described more
fully in Note 18. Such arrangements
are accounted for under
the fair value method. For awards
that are
equity
‑
settled, total compensation is measured
at grant date, based on
the fair value of the award at that
date, and recorded in earnings
over the period the employees
are required to render service.
For awards that
are cash
‑
settled, compensation is initially
measured at grant date and subsequently
remeasured at each
reporting period, based on the fair value
and vesting percentage
of the award at each of those dates,
with
changes in the liability recorded
in earnings.
Fair value measures
The Company uses fair value measurement
principles to record certain financial
assets and liabilities
on a
recurring basis and, when necessary, to record certain
non
‑
financial assets at fair value on a non
‑
recurring
basis, as well as to determine fair
value disclosures for certain
financial instruments carried at
amortized cost
in the financial statements. Financial
assets and liabilities recorded at
fair value on a recurring basis include
foreign currency, commodity and interest rate derivatives,
as well as cash
‑
settled call options and
available
‑
for
‑
sale securities. Non
‑
financial assets recorded
at fair value on a non
‑
recurring basis include
long
‑
lived assets that are reduced to their estimated
fair value due to impairments.
Fair value is the price that would be
received when selling
an asset or paid to transfer a liability
in an orderly
transaction between market participants
at the measurement date.
In determining fair value, the Company
uses various valuation techniques
including the market approach
(using observable market data for
identical
or similar assets and liabilities), the income
approach (discounted cash flow method)
and the cost approach
(using costs a market participant
would incur to develop a comparable
asset). Inputs used to determine
the
fair value of assets and liabilities
are defined by a three
‑
level hierarchy, depending on the nature of those
inputs. The Company has categorized
its financial assets and liabilities
and non
‑
financial assets measured at
fair value within this hierarchy based
on whether the inputs to the valuation
technique are observable
or
unobservable. An observable
input is based on market data obtained
from independent sources, while
an
unobservable input reflects the Company’s
assumptions about market
data.
F-21
The levels of the fair value hierarchy
are as follows:
Level 1:
Valuation inputs consist of quoted prices in an active
market for identical assets or
liabilities (observable quoted
prices). Assets and liabilities valued
using Level 1 inputs
include exchange
‑
traded equity securities, listed derivatives
which are actively traded
such as commodity futures, interest
rate futures and certain
actively traded debt
securities.
Level 2:
Valuation inputs consist of observable inputs (other than
Level 1 inputs) such as actively
quoted prices for similar assets,
quoted prices in inactive
markets and inputs other than
quoted prices such as interest rate
yield curves, credit spreads, or inputs
derived from
other observable data by interpolation,
correlation, regression
or other means. The
adjustments applied to quoted prices
or the inputs used in valuation
models may be both
observable and unobservable.
In these cases, the fair value
measurement is classified as
Level 2 unless the unobservable
portion of the adjustment or the unobservable
input to
the valuation model is significant, in
which case the fair value
measurement would be
classified as Level 3. Assets and liabilities
valued or disclosed using Level
2 inputs include
investments in certain funds, certain
debt securities that are not
actively traded, interest
rate swaps, cross-currency interest
rate swaps, commodity swaps,
cash
‑
settled call
options, forward foreign exchange
contracts, foreign exchange
swaps and forward rate
agreements, time deposits, as well
as financing receivables and
debt.
Level 3:
Valuation inputs are based on the Company’s assumptions
of relevant market data
(unobservable input). Assets valued
or disclosed using Level 3 inputs
include insurance
contracts and certain private equity investments.
Investments in private equity, real estate and collective
funds held within the Company’s pension
plans are
generally valued using the net asset
value (NAV) per share as a practical expedient for
fair value provided
certain criteria are met. The NAVs are determined based
on the fair values of the underlying
investments in
the funds. These assets are not classified
in the fair value hierarchy
but are separately disclosed.
Whenever quoted prices involve
bid
‑
ask spreads, the Company
ordinarily determines fair values
based on
mid
‑
market quotes. However, for the purpose of determining
the fair value of cash
‑
settled call options serving
as hedges of the Company’s management
incentive plan (MIP), bid prices are
used.
When determining fair values based
on quoted prices in an active
market, the Company considers
if the level
of transaction activity for the financial
instrument has significantly decreased,
or would not be considered
orderly. In such cases, the resulting changes in valuation
techniques would be disclosed.
If the market is
considered disorderly or if quoted
prices are not available,
the Company is required to use
another valuation
technique, such as an income approach.
Disclosures about the Company’s fair
value measurements of assets and liabilities
are included in Note 7.
Contingencies
The Company is subject to proceedings,
litigation or threatened
litigation and other claims and
inquiries,
related to environmental, labor, product, regulatory, tax (other than income
tax) and other matters, and is
required to assess the likelihood
of any adverse judgments or outcomes to
these matters, as well as potential
ranges of probable losses. A determination
of the provision required, if any, for these contingencies
is made
after analysis of each individual
issue, often with assistance from both
internal and external legal
counsel and
technical experts. The required
amount of a provision for a contingency
of any type may change in the
future
due to new developments in the particular
matter, including changes in the approach
to its resolution.
F-22
The Company records a provision
for its contingent obligations
when it is probable that a loss will
be incurred
and the amount can be reasonably
estimated. Any such provision
is generally recognized
on an
undiscounted basis using
the Company’s best estimate of the amount of
loss incurred or at the lower
end of
an estimated range when a single
best estimate is not determinable.
In some cases, the Company may
be
able to recover a portion of the
costs relating to these obligations
from insurers or other third parties;
however, the Company records such amounts only
when it is probable that they will
be collected.
The Company generally provides
for anticipated costs for warranties
when it delivers the related products.
Warranty costs include calculated costs arising
from imperfections in design,
material and workmanship in
the Company’s products. The Company
makes individual assessments on
contracts with risks resulting from
order
‑
specific conditions or guarantees
and assessments on an overall,
statistical basis for similar
products
sold in larger quantities.
The Company may have legal
obligations to perform environmental
clean
‑
up activities related to land and
buildings as a result of the normal operations
of its business. In some cases,
the timing or the method of
settlement, or both, are conditional
upon a future event that may
or may not be within the control
of the
Company, but the underlying obligation itself is unconditional
and certain. The Company recognizes
a
provision for these obligations
when it is probable that a liability
for the clean
‑
up activity has been incurred
and a reasonable estimate of its fair
value can be made. In some
cases, a portion of the costs
expected to be
incurred to settle these matters
may be recoverable. An
asset is recorded when it is probable
that such
amounts are recoverable. Provisions
for environmental obligations
are not discounted to their present value
when the timing of payments cannot be
reasonably estimated.
Pensions and other postretirement
benefits
The Company has a number of defined
benefit pension plans, defined
contribution pension plans
and
termination indemnity plans.
For plans accounted for as a defined
benefit pension plan, the Company
recognizes an asset for such a plan’s overfunded
status or a liability for such
a plan’s underfunded status in
its Consolidated Balance Sheets. Additionally, the Company
measures such a plan’s assets and obligations
that determine its funded status as
of the end of the year and
recognizes the changes in the
funded status in
the year in which the changes occur. Those changes
are reported in Accumulated
other comprehensive loss.
The Company uses actuarial
valuations to determine its pension
and postretirement benefit costs
and credits.
The amounts calculated depend
on a variety of key assumptions,
including discount rates and
expected
return on plan assets. Current
market conditions are considered
in selecting these assumptions.
The Company’s various pension plan
assets are assigned to their respective
levels in the fair value hierarchy
in accordance with the valuation
principles described in the “Fair
value measures” section above.
See Note 17 for further discussion
of the Company’s employee
benefit plans.
Business combinations
The Company accounts for assets acquired
and liabilities assumed in business
combinations using the
acquisition method and records
these at their respective fair values.
Contingent consideration
is recorded at
fair value as an element of purchase
price with
subsequent adjustments recognized
in income. Acquired
contract assets and liabilities
are valued and recorded in
accordance with the principles
for recognizing
revenues from contracts with customers
as outlined in the
section entitled Revenue recognition
above.
Identifiable intangibles
consist of intellectual property such
as trademarks and trade names,
customer
relationships, patented and unpatented
technology, in
‑
process research and development,
order backlog and
capitalized software; these are amortized
over their estimated useful lives.
Such intangibles are subsequently
subject to evaluation for potential
impairment if events or circumstances
indicate the carrying amount
may not
be recoverable. See “Goodwill
and intangible assets” above. Acquisition
‑
related costs are recognized
separately from the acquisition
and expensed as incurred. Upon
gaining control of an entity in which
an
equity method or cost basis investment
was held by the Company, the carrying value
of that investment is
adjusted to fair value with the related
gain or loss recorded in
income.
F-23
Deferred tax assets and liabilities
based on temporary differences between
the financial reporting and the
tax
base of assets and liabilities,
as well as uncertain tax positions
and valuation allowances on
acquired
deferred tax assets assumed in
connection with a business
combination,
are initially estimated as of
the
acquisition date based on facts and circumstances
that existed at the acquisition
date. Changes in deferred
taxes, uncertain tax positions and valuation
allowances on acquired
deferred tax assets that occur after
the
measurement period are recognized
in income.
Estimated fair values of acquired assets
and liabilities are subject to
change within the measurement period
(a period of up to 12 months after
the acquisition date during
which the acquirer may adjust
the provisional
acquisition amounts) with any adjustments
to the preliminary estimates
being recorded to goodwill.
New accounting pronouncements
Applicable for current period
Disclosure about supplier
finance program obligations
In January 2023, the Company adopted
an accounting standard
update which requires entities
to disclose
information related to supplier finance
programs. Under the update,
the Company is required to disclose
annually (i) the key terms of the program,
(ii) the amount of the supplier
finance obligations outstanding
and
where those obligations are
presented in the balance sheet at the
reporting date, and (iii) a rollforward
of the
supplier finance obligation
program within the reporting period.
The Company adopted this update
retrospectively for all in-scope transactions,
with the exception of the rollforward
disclosures, which will
be
adopted prospectively for annual
periods beginning January 1, 2024.
Apart from the additional
disclosure
requirements, this update does not
have a significant impact on the
Company’s Consolidated Financial
Statements.
The total outstanding supplier
finance obligation included in Accounts
payable, trade in the Consolidated
Balance Sheets at December 31, 2023
and 2022, amounted to $
The Company’s payment terms related
to suppliers’ finance programs
are not impacted by the suppliers’
decisions to sell amounts under the arrangements
and are typically consistent with
local market practices.
Facilitation of the effects of reference rate
reform on financial reporting
In January 2023, the Company adopted
an accounting standard
update which provides temporary optional
expedients and exceptions to the current
guidance on contract modifications
and hedge accounting to ease
the financial reporting burdens
related to the expected market
transition from the London Interbank
Offered
Rate (LIBOR) and other interbank
offered rates to alternative reference
rates. The Company is applying
this
standard update as relevant contract
and hedge accounting
relationship modifications
are made during the
course of the transition period ending
December 31, 2024. This update does not
have a significant impact on
the Company’s Consolidated Financial
Statements.
Applicable for future periods
Improvements to reportable segment
disclosures
In November 2023, an accounting standard
update was issued which requires
the Company to disclose
additional reportable segment information
primarily through enhanced
disclosures about significant segment
expenses and extending certain
annual disclosure requirements to quarterly. This update
is effective for the
Company for annual periods
beginning January 1, 2024, and interim
periods beginning
January 1, 2025, and
is to be applied retrospectively to
each prior reporting period
presented. The Company is currently
evaluating
the impact of adopting this update on
its Consolidated Financial
Statements.
Improvements to income tax disclosures
In December 2023, an accounting standard
update was issued which requires
the Company to disclose
additional information related
to income taxes. Under the update,
the Company is required
to annually
disclose by jurisdiction (i) additional
disaggregated information
within the tax rate reconciliation
and
(ii) income taxes paid. This update
is effective for the Company
prospectively, with retrospective adoption
permitted, for annual periods
beginning January 1, 2025. The Company
is currently evaluating the impact
of
adopting this update on its Consolidated
Financial Statements.
F-24
—
Note 3
Discontinued operations
In 2020, the Company completed
the divestment of its Power
Grids business to Hitachi Ltd (Hitachi).
As this
divestment represented a strategic shift
that would have a major effect on
the Company’s operations and
financial results, the results of operations
for this business were presented
as discontinued operations.
Certain of the business contracts
in the Power Grids business
continue to be executed by subsidiaries
of the
Company for the benefit/risk of Hitachi
Energy Ltd (Hitachi Energy).
The remaining business activities
of the
Power Grids business being executed
by the Company are not significant.
In connection with the divestment,
the Company recorded liabilities
in discontinued operations
for the initial
estimated future costs and other cash
payments of $
sale of the business. In 2021, the Company
and Hitachi concluded
an agreement to settle the various
amounts owed by the Company. During 2023, 2022 and
2021, total cash payments of $
$
Upon closing of the sale, the Company
entered into various transition
services agreements (TSAs), some
of
which continue to have services performed.
Pursuant to these TSAs, the Company
and Hitachi Energy
provide to each other, on a transitional basis,
various services. The services provided
by the Company
primarily include finance, information
technology, human resources and certain other administrative
services.
The TSAs were to be performed for up
to
exceptional basis for business-critical
services which are reasonably
necessary to avoid a material adverse
impact on the business. The TSA for
information technology
services was extended until mid-2025.
In 2023,
2022
and 2021, the Company recognized,
within its continuing operations,
general and administrative
expenses incurred to perform the
TSAs, offset by $
TSA-related income for such services
that is reported in Other income (expense),
net.
In addition, the Company also has
retained obligations (primarily
for environmental and taxes) related
to other
businesses disposed or otherwise
exited that qualified as discontinued
operations. Changes to these retained
obligations are also included
in Loss from discontinued operations,
net of tax.
—
Note 4
Acquisitions, divestments and equity-accounted companies
Acquisitions
of controlling interests
Acquisitions of controlling interests were
as follows:
($ in millions, except number
of acquired businesses)
2023
2022
2021
Purchase price for acquisitions
(net of cash acquired)
(1)
Aggregate excess of purchase
price over fair value
of net assets acquired
(2)
Number of acquired businesses
(1)
Excluding changes in cost- and equity-accounted companies.
(2)
Recorded as goodwill (see Note 11).
In the table above, the “Purchase
price for acquisitions” and
“Aggregate excess of purchase price
over fair
value of net assets acquired” amounts
for 2022, relate primarily to the acquisition
of InCharge Energy, Inc.
(In-Charge) and in 2021, relate primarily
to the acquisition of ASTI Mobile
Robotics Group SL (ASTI).
In 2023,
there were no significant acquisitions.
F-25
Acquisitions of controlling interests have
been accounted for under
the acquisition method and have
been
included in the Company’s Consolidated
Financial Statements since the date of
acquisition.
On January 26, 2022, the Company increased
its ownership in In-Charge
to a
through a stock purchase agreement.
In-Charge is headquartered in
Santa Monica, USA, and is a provider
of
turn-key commercial electric vehicle
charging hardware and
software solutions. The resulting
cash outflows
for the Company amounted to $
market presence of the E-mobility operating
segment, particularly in
the North American market. In
connection with the acquisition, the Company’s
pre-existing
revalued to fair value and a gain
of $
Company entered into an agreement
with the remaining noncontrolling
shareholders allowing either party to
put or call the remaining
their option is dependent on a formula
based on revenues and
thus, the amount is subject
to change. As a
result of this agreement, the noncontrolling
interest is classified as Redeemable
noncontrolling interest (i.e.
mezzanine equity) in the Consolidated
Balance Sheets and was initially
recognized at fair value.
On August 2, 2021, the Company acquired
the shares of ASTI. ASTI
is headquartered in Burgos,
Spain, and
is a global autonomous mobile
robot (AMR) manufacturer. The resulting cash outflows
for the Company
amounted to $
automation offering in its Robotics &
Discrete Automation operating
segment.
While the Company uses its best
estimates and assumptions
as part of the purchase price allocation
process
to value assets acquired and
liabilities assumed at the
acquisition date, the purchase price
allocation for
acquisitions is preliminary
for up to 12 months after the acquisition
date and is subject to refinement as
more
detailed analyses are completed
and additional information about
the fair values of the acquired
assets and
liabilities becomes available.
Business divestments and spin-offs
In 2023, the Company received
proceeds (net of transaction
costs and cash disposed) of $
relating to divestments of consolidated
businesses and recorded
gains of $
(expense), net on the sale of such
businesses. These are
primarily due to the divestment of
the Company’s
Power Conversion Division
to AcBel Polytech Inc., which prior
to its sale was part of the Company’s
Electrification operating segment. Certain
amounts included in
the net gain for the sale of the Power
Conversion Division are
estimated or otherwise subject to change
in value and, as a result, the Company
may record additional adjustments
to the gain in future
periods which are not expected to have
a material
impact on the Consolidated Financial
Statements.
On September 7, 2022, the shareholders
approved the spin-off of the Company’s
Turbocharging Division into
an independent, publicly traded
company, Accelleron Industries AG (Accelleron), which
was completed
through the distribution of common
stock of Accelleron to the stockholders
of ABB on October 3, 2022. As a
result of the spin-off of this Division, the Company
distributed net assets
of $
attributable to noncontrolling
interests of $
In addition, total accumulated comprehensive
income of $
adjustment,
was reclassified to Retained
earnings. Cash and cash equivalents
distributed with Accelleron
was $
operations of the Process Automation
operating segment for all periods presented
through to the spin-off
date. In 2022 and 2021, Income
from continuing operations
before taxes, included income
of $
$
subsidiary of Accelleron access
to funds in the form of a short-term
intercompany loan. At the spin-off
date,
this loan, having a principal
amount of
to the Company and subsequently collected
in October 2022.
F-26
In 2021, the Company received
proceeds (net of transaction
costs and cash disposed) of $
relating to divestments of consolidated
businesses and recorded
gains of $
(expense), net on the sales of such
businesses. These are primarily
due to the divestment of the Company’s
Mechanical Power Transmission Division
(Dodge) to RBC Bearings Inc. In
2021
Income from continuing
operations before taxes, included
net income of $
was part of the Company’s Motion operating
segment.
Investments in equity-accounted companies
In connection with the divestment of
its Power Grids business
to Hitachi in 2020 (see Note 3), the Company
initially retained a
was sold to Hitachi. During the Company’s
period of ownership
of the retained
on its continuing involvement with
the Power Grids business, including
the membership in its governing board
of directors, the Company concluded
that it had significant influence over
Hitachi Energy. As a result, the
investment was accounted for using
the equity method through to the date
of its sale.
In September 2022, the Company and
Hitachi agreed terms to sell the Company’s
remaining investment in
Hitachi Energy to Hitachi and simultaneously
settle certain outstanding
contractual obligations relating
to the
initial sale of the Power Grids business,
including certain indemnification
guarantees (see Note 15).
The sale
of the remaining investment was completed
in December 2022, resulting
in cash proceeds of $
and a gain of $
In 2023, 2022 and 2021,
the Company recorded its share
of the earnings of investees accounted
for under
the equity method of accounting in
Other income (expense), net,
as follows:
($ in millions)
2023
2022
2021
Income (loss) from equity-accounted
companies, net
of taxes
(
16
)
(
22
)
Basis difference amortization
(net of deferred income
tax benefit)
(
80
)
(
138
)
Loss from equity-accounted
companies
(
16
)
(
102
)
(
100
)
F-27
—
Note 5
Cash and equivalents, marketable securities and short-term investments
Cash and equivalents and
marketable securities and short
‑
term investments consisted of
the following:
Cash and
Marketable
equivalents
securities
Gross
Gross
and
and
unrealized
unrealized
restricted
short-term
December 31, 2023 ($ in millions)
Cost basis
gains
losses
Fair value
cash
investments
Changes in fair value
recorded in net income
Cash
Time deposits
Equity securities
Changes in fair value
recorded in
other comprehensive
income
Debt securities available-for-sale:
—U.S. government obligations
(
8
)
(
8
)
Total
(
8
)
Of which:
—Restricted cash, current
Cash and
Marketable
equivalents
securities
Gross
Gross
and
and
unrealized
unrealized
restricted
short-term
December 31, 2022 ($ in millions)
Cost basis
gains
losses
Fair value
cash
investments
Changes in fair value
recorded in net income
Cash
Time deposits
Equity securities
Changes in fair value
recorded in
other comprehensive
income
Debt securities available-for-sale:
—U.S. government obligations
(
15
)
—Other government obligations
—Corporate
(
7
)
(
22
)
Total
(
22
)
Of which:
—Restricted cash, current
F-28
Contractual maturities
Contractual maturities of debt securities
consisted of the following:
Available-for-sale
December 31, 2023 ($ in millions)
Cost basis
Fair value
One to five years
Six to ten years
Due after ten years
Total
At December 31, 2023 and 2022,
the Company pledged $
available
‑
for
‑
sale marketable securities as collateral
for issued letters of credit and
other security
arrangements.
—
Note 6
Derivative financial instruments
The Company is exposed to certain
currency, commodity, and interest rate risks arising from its global
operating, financing and investing
activities. The Company uses derivative
instruments to reduce and
manage the economic impact of these
exposures.
Currency risk
Due to the global nature of the Company’s
operations, many of its subsidiaries
are exposed to currency risk
in their operating activities from entering
into transactions in currencies
other than their functional
currency.
To
manage such currency risks,
the Company’s policies require its subsidiaries
to hedge their foreign
currency exposures from binding
sales and purchase contracts denominated
in foreign currencies.
For
forecasted foreign currency denominated
sales of standard products and the related
foreign currency
denominated purchases, the Company’s
policy is to hedge up to a maximum
of
foreign currency denominated
exposures, depending on
the length of the forecasted exposures.
Forecasted
exposures greater than
instrument used to protect the Company
against the volatility
of future cash flows (caused by
changes in
exchange rates) of contracted and
forecasted sales and purchases
denominated in foreign currencies.
In
addition, within its treasury operations,
the Company primarily uses
foreign exchange swaps and
forward
foreign exchange contracts to manage
the currency and timing
mismatches arising in its liquidity
management activities.
Commodity risk
Various commodity products are used in the Company’s manufacturing
activities. Consequently it is
exposed
to volatility in future cash flows arising
from changes in commodity prices.
To manage the price risk of
commodities, the Company’s policies
require that its subsidiaries
hedge the commodity price risk exposures
from binding contracts, as well as
at least
commodity exposure over the next
contracts are used to manage
the associated price risks of commodities.
F-29
Interest rate risk
The Company has issued bonds at
fixed rates. Interest rate swaps and
cross-currency interest rate
swaps
are used to manage the interest rate
and foreign currency risk associated
with certain debt and generally
such swaps are designated as fair
value hedges. In addition,
from time to time, the Company
uses
instruments such as interest rate
swaps, interest rate futures, bond
futures or forward rate agreements
to
manage interest rate risk arising from
the Company’s balance sheet
structure but does not designate
such
instruments as hedges.
Volume of derivative activity
In general, while the Company’s primary
objective in its use of derivatives
is to minimize exposures arising
from its business, certain derivatives
are designated and qualify
for hedge accounting treatment while
others
either are not designated or do not
qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding
foreign exchange and interest rate derivatives
(whether
designated as hedges or not) were
as follows:
Type of derivative
Total notional
amounts at December
31,
($ in millions)
2023
2022
2021
Foreign exchange contracts
Embedded foreign exchange
derivatives
Cross-currency interest
rate swaps
Interest rate contracts
Derivative commodity contracts
The Company uses derivatives
to hedge its direct or indirect
exposure to the movement in
the prices of
commodities which are primarily copper, silver, steel and aluminum.
The following table shows
the notional
amounts of outstanding derivatives
(whether designated as hedges
or not), on a net basis, to reflect
the
Company’s requirements for these commodities:
Total notional
amounts at December
31,
Type of derivative
Unit
2023
2022
2021
Copper swaps
metric tonnes
Silver swaps
ounces
Steel swaps
metric tonnes
Aluminum swaps
metric tonnes
Cash flow hedges
As noted above, the Company mainly
uses forward foreign
exchange contracts to manage the foreign
exchange risk of its operations and
commodity swaps to manage
its commodity risks. The Company applies
cash flow hedge accounting in
only limited cases. In these cases,
the effective portion of the changes in
their
fair value is recorded in Accumulated
other comprehensive loss
and subsequently reclassified
into earnings
in the same line item and in the same
period as the underlying
hedged transaction affects earnings. In 2023,
2022 and 2021, there were
Fair value hedges
To
reduce its interest rate exposure
arising primarily from its debt
issuance activities, the Company
uses
interest rate swaps and cross-currency
interest rate swaps. Where
such instruments are designated
as fair
value hedges, the changes in the fair
value of these instruments, as well
as the changes in the fair value
of
the risk component of the underlying
debt being hedged, are recorded as
offsetting gains and losses in
Interest and other finance expense.
F-30
The effect of derivative instruments, designated
and qualifying as fair value hedges,
on the Consolidated
Income Statements was as follows:
($ in millions)
2023
2022
2021
Gains (losses) recognized
in Interest and other
finance expense:
Interest rate contracts
Designated as fair value
hedges
(
91
)
(
55
)
Hedged item
(
45
)
Cross-currency
Designated as fair value
hedges
(
134
)
(
37
)
interest rate swaps
Hedged item
(
40
)
Derivatives not designated in hedge
relationships
Derivative instruments that are not
designated as hedges or do not qualify
as either cash flow or
fair value
hedges are economic hedges
used for risk management purposes.
Gains and losses from changes in
the fair
values of such derivatives are recognized
in the same line in the income statement
as the economically
hedged transaction.
Furthermore, under certain circumstances,
the Company is required
to split and account separately
for
foreign currency derivatives that are
embedded within certain
binding sales or purchase
contracts
denominated in a currency other than
the functional currency of the subsidiary
and the counterparty.
The gains (losses) recognized in
the Consolidated Income
Statements on derivatives not designated
in
hedging relationships were
as follows:
($ in millions)
Gains (losses) recognized
in income
Type of derivative
not designated as a hedge
Location
2023
2022
2021
Foreign exchange contracts
Total revenues
(
56
)
Total
cost of sales
(
71
)
(
53
)
SG&A expenses
(1)
Non-order related research
and
development
(
7
)
(
2
)
Interest and other finance
expense
(
240
)
(
128
)
(
173
)
Embedded foreign exchange
contracts
Total revenues
(
3
)
(
7
)
Total
cost of sales
(
11
)
(
2
)
Commodity contracts
Total
cost of sales
(
3
)
(
47
)
Other
Interest and other finance
expense
Total
(
129
)
(
193
)
(
145
)
(1)
SG&A expenses represent “Selling, general and administrative
expenses”.
F-31
The fair values of derivatives included
in the Consolidated Balance
Sheets were as follows:
Derivative assets
Derivative liabilities
Current in
Non-current
Current in
Non-current
“Other
in “Other
“Other
in “Other
current
non-current
current
non-current
December 31, 2023 ($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as
hedging instruments:
Foreign exchange contracts
Interest rate contracts
Cross-currency interest
rate swaps
Other
Total
Derivatives not designated
as hedging instruments:
Foreign exchange contracts
Commodity contracts
Interest rate contracts
Other equity contracts
Embedded foreign exchange
derivatives
Total
Total fair value
Derivative assets
Derivative liabilities
Current in
Non-current
Current in
Non-current
“Other
in “Other
“Other
in “Other
current
non-current
current
non-current
December 31, 2022 ($ in millions)
assets”
assets”
liabilities”
liabilities”
Derivatives designated as
hedging instruments:
Foreign exchange contracts
Interest rate contracts
Cross-currency interest
rate swaps
Other
Total
Derivatives not designated
as hedging instruments:
Foreign exchange contracts
Commodity contracts
Interest rate contracts
Embedded foreign exchange
derivatives
Total
Total fair value
Close
‑
out netting agreements provide for
the termination, valuation and
net settlement of some or all
outstanding transactions between
two counterparties on
the occurrence of one or more
pre
‑
defined trigger
events.
Although the Company is party to
close
‑
out netting agreements with most
derivative counterparties,
the fair
values in the tables above and in
the Consolidated Balance
Sheets at December 31, 2023 and 2022,
have
been presented on a gross basis.
F-32
The Company’s netting agreements and other
similar arrangements allow
net settlements under certain
conditions. At December 31, 2023
and 2022, information related
to these offsetting arrangements was
as
follows:
December 31, 2023 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement
or
recognized
eligible for set-off in
collateral
collateral
Net asset
similar arrangement
assets
case of default
received
received
exposure
Derivatives
(
111
)
Total
(
111
)
December 31, 2023 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement
or
recognized
eligible for set-off in
collateral
collateral
Net liability
similar arrangement
liabilities
case of default
pledged
pledged
exposure
Derivatives
(
111
)
Total
(
111
)
December 31, 2022 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement
or
recognized
eligible for set-off in
collateral
Net asset
similar arrangement
assets
case of default
received
received
exposure
Derivatives
(
96
)
Total
(
96
)
December 31, 2022 ($ in millions)
Gross amount of
Derivative liabilities
Cash
Non-cash
Type of agreement
or
recognized
eligible for set-off in
collateral
Net liability
similar arrangement
liabilities
case of default
pledged
pledged
exposure
Derivatives
(
96
)
Total
(
96
)
F-33
—
Note 7
Fair values
Recurring fair value measures
The fair values of financial assets and
liabilities measured at fair value
on a recurring basis were as
follows:
Total
December 31, 2023 ($ in millions)
Level 1
Level 2
Level 3
fair value
Assets
Securities in “Marketable
securities and short-term
investments”:
Equity securities
Debt securities—U.S. government
obligations
Derivative assets—current in “Other current assets”
Derivative assets—non-current in “Other non-current assets”
Total
Liabilities
Derivative liabilities—current
in “Other current liabilities”
Derivative liabilities—non-current
in “Other non-current liabilities”
Total
Total
December 31, 2022 ($ in millions)
Level 1
Level 2
Level 3
fair value
Assets
Securities in “Marketable
securities and short-term
investments”:
Equity securities
Debt securities—U.S. government
obligations
Debt securities—Other government
obligations
Debt securities—Corporate
Derivative assets—current in “Other current assets”
Derivative assets—non-current in “Other non-current assets”
Total
Liabilities
Derivative liabilities—current
in “Other current liabilities”
Derivative liabilities—non-current
in “Other non-current liabilities”
Total
During 2023, 2022 and 2021,
there have been
between Level 1 and Level
2.
The Company uses the following
methods and assumptions in
estimating fair values of financial
assets and
liabilities measured at fair value
on a recurring basis:
•
Securities in “Marketable securities and
short
‑
term investments”:
markets for identical assets are available,
these are considered Level
1 inputs; however, when
markets are not active, these inputs
are considered Level 2. If such
quoted market prices are not
available, fair value is determined
using market prices for similar
assets or present value
techniques, applying an appropriate
risk
‑
free interest rate adjusted for non
‑
performance risk. The
inputs used in present value techniques
are observable and fall into the Level
2 category.
F-34
•
Derivatives:
The fair values of derivative
instruments are determined
using quoted prices of
identical instruments from an active
market, if available (Level
1 inputs). If quoted prices are not
available, price quotes for similar
instruments, appropriately adjusted,
or present value
techniques, based on available
market data, or option pricing
models are used. The fair values
obtained using price quotes
for similar instruments or valuation
techniques represent a Level 2
input unless significant unobservable
inputs are used.
Non
‑
recurring fair value measures
There were
‑
recurring fair value measurements
during the years ended 2023, 2022
and
2021.
Disclosure about financial instruments
carried on a cost basis
The fair values of financial instruments
carried on a cost basis were as
follows:
Carrying
Total
December 31, 2023 ($ in millions)
value
Level 1
Level 2
Level 3
fair value
Assets
Cash and equivalents (excluding
securities
with original maturities
up to 3 months):
Cash
Time deposits
Restricted cash
Marketable securities and
short-term investments
(excluding
securities):
Time deposits
Liabilities
Short-term debt and current
maturities of long-term
debt
(excluding finance lease
obligations)
Long-term debt (excluding
finance lease obligations)
Carrying
Total
December 31, 2022 ($ in millions)
value
Level 1
Level 2
Level 3
fair value
Assets
Cash and equivalents (excluding
securities
with original maturities
up to 3 months):
Cash
Time deposits
Restricted cash
Liabilities
Short-term debt and current
maturities of long-term
debt
(excluding finance lease
obligations)
Long-term debt (excluding
finance lease obligations)
The Company uses the following
methods and assumptions in
estimating fair values of financial
instruments
carried on a cost basis:
•
Cash and equivalents (excluding
securities with original maturities up
to 3 months), Restricted
cash and Marketable securities and
short
‑
term investments (excluding
securities):
amounts approximate the fair values
as the items are short
‑
term in nature or, for cash held in
banks, are equal to the deposit amount.
F-35
•
Short
‑
term debt and current maturities
of long
‑
term debt (excluding finance
lease obligations):
Short
‑
term debt includes commercial paper, bank borrowings
and overdrafts. The carrying
amounts of short
‑
term debt and current maturities
of long
‑
term debt, excluding finance lease
obligations, approximate their
fair values.
•
Long
‑
term debt (excluding finance lease
obligations):
Fair values of bonds are determined
using
quoted market prices (Level 1 inputs), if
available. For bonds without
available quoted market
prices and other long
‑
term debt, the fair values are determined
using a discounted cash flow
methodology based upon
borrowing rates of similar debt instruments
and reflecting appropriate
adjustments for non
‑
performance risk (Level 2 inputs).
—
Note 8
Receivables, net and Contract assets and liabilities
Receivables, net consisted of the following:
December 31, ($ in millions)
2023
2022
Trade receivables
Other receivables
Allowance
(
307
)
(
308
)
Total
“Trade receivables”
in the table above includes contractual
retention amounts billed to customers
of
$
substantial majority of related contracts
will be completed and
the substantial majority of the billed
amounts
retained by the customer will be
collected. Of the retention
amounts outstanding at December 31, 2023,
“Other receivables”
in the table above consists
of value added tax, claims, rental
deposits and other
non
‑
trade receivables.
The reconciliation of changes in
the allowance for doubtful accounts
is as follows:
($ in millions)
2023
2022
2021
Balance at January 1,
Current-period provision
for expected credit
losses
Write-offs charged against
the allowance
(
48
)
(
48
)
(
37
)
Exchange rate differences
(
20
)
(
14
)
Balance at December 31,
The following table provides
information about Contract assets and
Contract liabilities:
December 31, ($ in millions)
2023
2022
2021
Contract assets
Contract liabilities
Contract assets primarily relate
to the Company’s right to receive consideration
for work completed but for
which no invoice has been
issued at the reporting date. Contract assets
are transferred to receivables
when
rights to receive payment become unconditional.
Management expects that the majority
of the amounts will
be collected within
F-36
Contract liabilities primarily relate
to up-front advances received
on orders from customers as well
as
amounts invoiced to customers in excess
of revenues recognized
predominantly on long-term projects.
Contract liabilities are reduced
as work is performed
and as revenues are recognized.
The significant changes in the Contract
assets and Contract liabilities
balances were as follows:
2023
2022
Contract
Contract
Contract
Contract
($ in millions)
assets
liabilities
assets
liabilities
Revenue recognized, which
was included in
the Contract liabilities
balance at January 1, 2023/2022
(
1,311
)
(
1,043
)
Additions to Contract
liabilities - excluding
amounts recognized
as
revenue during the period
Receivables recognized
that were included in
the Contract assets
balance at January 1, 2023/2022
(
622
)
(
591
)
The Company considers its order
backlog to represent its unsatisfied
performance obligations.
At
December 31, 2023, the Company
had unsatisfied performance
obligations totaling $
this amount, the Company expects
to fulfill approximately
2024
,
approximately
2025
—
Note 9
Inventories, net
Inventories, net consisted of the
following:
December 31, ($ in millions)
2023
2022
Raw materials
Work in process
Finished goods
Advances to suppliers
Total
—
Note 10
Property, plant and equipment, net
Property, plant and equipment, net consisted of the following:
December 31, ($ in millions)
2023
2022
Land and buildings
Machinery and equipment
Construction in progress
Accumulated depreciation
(
6,236
)
(
5,792
)
Total
F-37
Assets under finance leases included
in
Property, plant and equipment, net
December 31, ($ in millions)
2023
2022
Land and buildings
Machinery and equipment
Accumulated depreciation
(
137
)
(
135
)
Total
In 2023, 2022 and 2021, depreciation,
including depreciation of assets
under finance leases, was
$
impairments of property, plant or equipment.
—
Note 11
Goodwill and intangible assets
The changes in “Goodwill” were as follows:
Robotics &
Process
Discrete
Corporate
($ in millions)
Electrification
Motion
Automation
Automation
and Other
(3)
Total
Balance at January 1, 2022
(1)
Goodwill acquired during
the year
(2)
Goodwill allocated to
disposals
(
2
)
(
6
)
(
8
)
Exchange rate differences
and
other
(
85
)
(
8
)
(
20
)
(
72
)
(
7
)
(
192
)
Balance at December 31,
2022
(1)
Goodwill acquired during
the year
(2)
Goodwill allocated to
disposals
(
181
)
(
12
)
(
193
)
Exchange rate differences
and
other
Balance at December 31,
2023
(1)
(1)
At December 31, 2023 and 2022, and at January 1, 2022,
the gross goodwill amounted to $
$
and related to the Robotics & Discrete Automation segment.
(2)
Amount includes adjustments arising during the twelve
-month measurement period subsequent to the respective acquisition
date.
(3)
Corporate and Other has been recast to include the
E-mobility Division which, effective January 1, 2023, became a separate non-reportable
operating segment. See Note 23 for details.
F-38
In 2023, goodwill allocated
to disposals primarily relates to the divestment
of the Power Conversion Division
in July 2023,
which prior to its divestment was reported
in the Electrification operating segment.
Intangible assets, net consisted of
the following:
2023
2022
Gross
Accumu-
Net
Gross
Accumu-
Net
carrying
lated amort-
carrying
carrying
lated amort-
carrying
December 31, ($ in millions)
amount
ization
amount
amount
ization
amount
Capitalized software
for internal use
(
775
)
(
720
)
Capitalized software
for sale
(
26
)
(
26
)
Intangibles other than software:
Customer-related
(
894
)
(
808
)
Technology-related
(
832
)
(
812
)
Marketing-related
(
400
)
(
347
)
Other
(
33
)
(
30
)
Total
(
2,960
)
(
2,743
)
Additions to intangible assets other
than goodwill consisted of the following:
($ in millions)
2023
2022
Capitalized software
for internal use
Capitalized software
for sale
Intangibles other than software:
Customer-related
Technology-related
Marketing-related
Other
Total
There were no significant intangible
assets acquired in business
combinations in 2023 and
2022.
Amortization expense of intangible
assets consisted of the following:
($ in millions)
2023
2022
2021
Capitalized software
for internal use
Intangibles other than software
Total
In 2023, 2022 and 2021, impairment
charges on intangible
assets were not significant.
At December 31, 2023, future amortization
expense of intangible
assets is estimated to be:
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Total
F-39
—
Note 12
Debt
The Company’s total debt at December
31, 2023 and 2022, amounted
to $
respectively.
Short
‑
term debt and current maturities
of long-term debt
Short
‑
term debt and current maturities
of long
‑
term debt consisted of the following:
December 31, ($ in millions)
2023
2022
Short-term debt (weighted-average
interest rate of
% and
%, respectively)
Current maturities of long-term
debt
(weighted-average nominal
interest rate of
% and
%, respectively)
Total
Short
‑
term debt primarily represents
short
‑
term loans from various banks
and issued commercial
paper.
At December 31, 2023, the Company
had
Euro
‑
commercial paper program for
the issuance of commercial
paper in a variety of currencies,
and a
$
in the United States. At December
31, 2022, $
Euro-commercial paper program.
at both December 31, 2023 and
2022,
States.
In December 2019, the Company replaced
its previous multicurrency revolving
credit facility with a new
$
extend the maturity of this facility
to 2026.
The facility is for general corporate purposes.
In 2023, the
Company amended and restated
its facility for the purpose
of addressing the discontinuation
of LIBOR.
Under the amended and restated credit
facility, interest costs on drawings under the facility (i) in
USD are
referenced to CME Term SOFR; (ii) in CHF and GBP are referenced
to overnight SARON and SONIA,
respectively;
and (iii) in Euro are referenced
to EURIBOR, subject to applicable
credit adjustment spreads (for
only (i) and (ii) above), plus a margin
of
portion of the facility) amount to
drawings up to one
‑
third of the facility,
‑
third but less
than or equal to two
‑
thirds of the facility, and
‑
thirds of the
facility. The facility
contains cross
‑
default clauses whereby
an event of default would occur if
the Company
were to default on indebtedness as defined
in the facility, at or above a specified threshold.
drawn at December 31, 2023 and 2022,
under this facility.
In November 2023, the Company
signed a financing agreement
of up to EUR
Investment Bank (EIB), the lending
arm of the European Union, for financing
research and development
within the Electrification operating
segment. The availability
period under the agreement ends in
May 2025.
The applicable interest rate and other
relevant borrowing terms
are determined on a case-by-case
basis at
the time of drawdown. At December 31,
2023,
F-40
Long
‑
term debt
The Company raises long-term debt
in various currencies, maturities
and on various interest rate
terms. For
certain of its debt obligations, the Company
utilizes derivative instruments
to modify its interest rate exposure.
In particular, the Company uses interest rate swaps
to effectively convert certain
fixed
‑
rate long
‑
term debt
into floating rate obligations.
For certain non-U.S. dollar denominated
debt, the Company utilizes
cross-currency interest rate swaps to
effectively convert the debt into a U.S.
dollar obligation. The carrying
value of debt, designated as being
hedged by fair value hedges,
is adjusted for changes in the
fair value of
the risk component of the debt being
hedged.
The following table summarizes the Company’s
long
‑
term debt considering the effect
of interest rate and
cross-currency interest rate swaps. Consequently, a fixed
‑
rate debt subject to a fixed
‑
to
‑
floating interest rate
swap is included as a floating rate debt
in the table below:
2023
2022
December 31,
Nominal
Effective
Nominal
Effective
($ in millions, except % data)
Balance
rate
rate
Balance
rate
rate
Floating rate
%
%
%
%
Fixed rate
%
%
%
%
Current portion of long-term
debt
(
2,520
)
%
%
(
1,087
)
%
%
Total
At December 31, 2023, the principal
amounts of long
‑
term debt repayable (excluding
finance lease
obligations) at maturity were as follows:
($ in millions)
2024
2025
2026
2027
2028
Thereafter
Total
F-41
Details of outstanding bonds were
as follows:
2023
2022
December 31, (in millions)
Nominal
Carrying
Nominal
Carrying
outstanding
value
(1)
outstanding
value
(1)
Bonds:
% EUR Instruments, due
2023
EUR
$
% CHF Bonds, due 2023
CHF
$
% EUR Instruments, due
2024
EUR
$
EUR
$
Floating Rate EUR
Instruments, due 2024
EUR
$
EUR
$
% EUR Instruments, due
2024
EUR
$
EUR
$
% CHF Bonds, due 2024
CHF
$
CHF
$
% CHF Bonds, due 2025
CHF
$
CHF
$
% CHF Bonds, due 2026
CHF
$
% EUR Instruments, due
2027
EUR
$
% CHF Bonds, due 2027
CHF
$
CHF
$
% USD Notes, due 2028
(2)
USD
$
USD
$
% CHF Bonds, due 2028
CHF
$
% CHF Bonds, due 2029
CHF
$
CHF
$
% EUR Instruments, due
2030
EUR
$
EUR
$
% CHF Bonds, due 2030
CHF
$
CHF
$
% EUR Instruments, due
2031
EUR
$
% CHF Bonds, due 2033
CHF
$
% USD Notes, due 2042
(2)
USD
$
USD
$
Total
$
$
(1)
USD carrying values include unamortized debt issuance costs, bond discounts or
premiums, as well as adjustments for fair value hedge
accounting,
where appropriate.
(2)
Prior to completing a cash tender offer in 2020, the
original principal amount outstanding, on
each of the
% USD Notes, due 2028, and
the
% USD Notes, due 2042, was $
During 2023, the Company repaid
at maturity its
% EUR
annually in arrears at a fixed rate
of
The following EUR Instruments are both
due in 2024: (i) EUR
at a fixed rate of
quarterly in arrears at a variable
rate of
minimum rate of interest of
maturity at the greater of (i)
of the present values of remaining
scheduled payments of principal
and interest (excluding interest accrued
to the redemption date) discounted
to the redemption date at a
rate defined in the note terms, plus
interest
accrued at the redemption date.
Interest rate swaps have been
used to modify the characteristics of
the
EUR
EUR
The
% EUR Instruments, due 2024,
pay interest annually
in arrears at a fixed rate of
annum.
The Company may redeem
these notes up to three months prior to
maturity (Par call date), at
the
greater of (i)
values of remaining scheduled
payments of principal and interest (excluding
interest accrued to the
redemption date) discounted to the
redemption date at a rate defined
in the note terms, plus interest
accrued
at the redemption date. The Company
may redeem these instruments,
after the Par call date at
of the principal amount of the notes
to be redeemed. The Company
entered into interest rate swaps
to modify
the characteristics of these bonds. After
considering the impact of such swaps,
these notes effectively
become floating rate euro obligations
and consequently have been
shown as floating rate debt, in
the table of
long
‑
term debt above.
F-42
The
% CHF Bonds, due 2024, and
% CHF Bonds, due 2029, each
pay interest annually in
arrears.
The Company may redeem these bonds,
three
months prior to maturity in the case
of the 2029 Bonds, in whole
but not in part, at par plus accrued interest.
Further, the Company has the option to redeem these
instruments prior to maturity, in whole but not in part,
at par plus accrued interest, if
issue have been redeemed
or purchased and cancelled at the
time of the option exercise notice.
The CHF
% Bonds, due 2025, and the CHF
% Bonds, due 2030, both pay
interest annually in arrears. The
Company may redeem these bonds,
three months prior to maturity, in whole
but not in part, at par plus accrued interest.
Further, the Company has the option to redeem
these
instruments prior to maturity, in whole but not in part, at par
plus accrued interest, if
aggregate principal amount
of the relevant bond issue has been
redeemed or purchased and
cancelled at the
time of the option exercise notice.
The CHF
% Bonds, due 2027, pay interest annually
in arrears. The Company may
redeem
the Bonds,
Company has the option to redeem
these instruments prior to maturity, in whole but not in
part, at par plus
accrued interest, if
and cancelled at the time of the option
exercise notice.
The
% USD Notes, due 2028, were
issued in April 2018 and
pay interest semi
‑
annually in arrears. During
2020 by way of a cash tender offer, the Company redeemed
$
%
USD Notes,
due 2028, issued.
The Company may redeem the remaining
principal outstanding of the
2028 Notes up to
of the principal amount of the notes
to be redeemed and (ii) the sum
of the present values of remaining
scheduled payments of principal
and interest (excluding interest accrued
to the redemption date) discounted
to the redemption date at a rate defined
in the Notes terms, plus interest
accrued at the redemption
date. On
or after January 3, 2028 (
2028 Notes, in whole or in part, at any
time at a redemption price
equal to
amount of the notes to be redeemed
plus unpaid accrued interest to,
but excluding, the redemption
date.
These notes, registered with
the U.S. Securities and Exchange
Commission, were issued by ABB
Finance
(USA) Inc., a
ABB Ltd. There are no significant restrictions
on the ability of the parent company
to obtain funds from its
subsidiaries by dividend
or loan. In reliance on Rule 13-01 of Regulation
S
‑
X, the separate financial
statements of ABB Finance (USA)
Inc. are not provided.
The
% EUR Instruments, due 2030,
do not pay interest and have the
same early redemption terms as
the
% EUR Instruments above. Cross-currency
interest rate swaps have been
used to modify the
characteristics of these instruments.
After considering the impact
of these cross-currency interest
rate swaps,
the Company effectively has a floating
rate U.S. dollar obligation.
The
% USD Notes, due 2042, pay
interest semi
‑
annually in arrears at a fixed annual
rate of
original $
% USD Notes, due 2042, issued. The Company
may redeem these notes prior
to
maturity, in whole or in part, at the greater of (i)
redeemed and (ii) the sum of the present
values of remaining
scheduled payments of principal and
interest
(excluding interest accrued to
the redemption date) discounted
to the redemption date at a rate defined
in the
note terms, plus interest accrued at
the redemption date. These notes, registered
with the U.S. Securities and
Exchange Commission, were issued
by ABB Finance (USA) Inc.,
a
and are fully and unconditionally
guaranteed by ABB Ltd. There are no
significant restrictions on the ability
of
the parent company to obtain funds
from its subsidiaries by dividend
or loan. In reliance on Rule 13
‑
01 of
Regulation S
‑
X, the separate financial statements
of ABB Finance (USA) Inc. are
not provided.
F-43
In 2023, the Company issued the following
EUR Instruments: (i) EUR
% Instruments, due
2027, and (ii) EUR
% Instruments, due 2031, both paying
interest annually in arrears.
The
Company may redeem the EUR
EUR
the principal amount of the notes to
be redeemed and (ii) the sum of
the present values of remaining
scheduled payments of principal
and interest (excluding interest accrued
to the redemption date) discounted
to the redemption date at a rate defined
in the note terms, plus interest
accrued at the redemption
date. The
Company may redeem these instruments,
after the Par call date, at
the notes to be redeemed. The aggregate
net proceeds of these EUR
Instruments, after discount and
fees,
amounted to EUR
Also in 2023, the Company issued
the following CHF bonds: (i) CHF
% Bonds, due 2026,
(ii) CHF
% Bonds, due 2028, and (iii) CHF
% Bonds, due 2033, all
paying interest annually in
arrears and have the same early
redemption terms as the CHF
%
Bonds above. The aggregate net
proceeds of these CHF Bonds,
after fees, amounted to CHF
(equivalent to approximately $
The Company’s various debt instruments
contain cross
‑
default clauses which would
allow the bondholders
to
demand repayment if the Company
were to default on any borrowing
at or above a specified threshold.
Furthermore, all such bonds constitute
unsecured obligations of the Company
and rank pari passu with other
debt obligations.
In addition to the bonds described above,
included in long
‑
term debt at December 31, 2023 and
2022, are
finance lease obligations,
bank borrowings of subsidiaries and
other long
‑
term debt, none of which is
individually significant.
—
Note 13
Other provisions, other current liabilities and other non-current liabilities
Other provisions consisted of the
following:
December 31, ($ in millions)
2023
2022
Contract-related provisions
Restructuring and restructuring-related
provisions
Provision for insurance-related
reserves
Provisions for contractual
penalties and compliance
and litigation matters
Other
Total
F-44
Other current liabilities consisted
of the following:
December 31, ($ in millions)
2023
2022
Employee-related liabilities
Accrued expenses
Income taxes payable
and other income
tax related liabilities
Non-trade payables
Accrued customer rebates
Other tax liabilities
Derivative liabilities (see Note
6)
Accrued interest
Other
Total
Other non
‑
current liabilities consisted
of the following:
December 31, ($ in millions)
2023
2022
Income tax related liabilities
Derivative liabilities (see Note
6)
Provisions for contractual
penalties and compliance
and litigation matters
Other
Total
—
Note 14
Leases
The Company’s lease obligations
primarily relate to real estate, machinery
and equipment. The components
of lease expense were as follows:
Machinery
Land and buildings
and equipment
Total
($ in millions)
2023
2022
2021
2023
2022
2021
2023
2022
2021
Operating lease cost
Finance lease cost
Short-term lease cost
Sub-lease income
(
20
)
(
18
)
(
24
)
(
1
)
(
1
)
(
20
)
(
19
)
(
25
)
Total lease expense
The following table presents supplemental
cash flow information related
to leases:
Machinery
Land and buildings
and equipment
Total
($ in millions)
2023
2022
2021
2023
2022
2021
2023
2022
2021
Operating leases:
Cash paid under operating
cash flows
Right-of-use assets
obtained
in exchange for new liabilities
F-45
In 2023,
2022 and 2021 the cash
flow amounts under finance
leases were not significant.
At December 31, 2023,
the future net minimum lease
payments for operating and
finance leases and the
related present value of the net minimum
lease payments consisted of the
following:
Operating Leases
Finance Leases
Land and
Machinery
Land and
Machinery
($ in millions)
buildings
and equipment
buildings
and equipment
2024
2025
2026
2027
2028
Thereafter
Total minimum lease payments
Difference between undiscounted
cash flows
and discounted cash flows
(
89
)
(
8
)
(
34
)
(
2
)
Present value of minimum
lease payments
The following table presents certain
information related to lease
terms and discount rates:
Land and buildings
Machinery and equipment
2023
2022
2021
2023
2022
2021
Operating leases:
Weighted-average remaining
term (months)
Weighted-average discount
rate
Finance leases:
Weighted-average remaining
term (months)
Weighted-average discount
rate
The present value of minimum
finance lease payments included
in
Short‑term debt
long
‑
term debt and
Long‑term debt
$
$
F-46
—
Note 15
Commitments and contingencies
Contingencies—Regulatory, Compliance and Legal
Regulatory
Based on findings during an
internal investigation, the Company
self-reported to the Securities and
Exchange
Commission (SEC) and the Department
of Justice (DoJ),
in the United States, to the
Special Investigating
Unit (SIU) and the National Prosecuting
Authority (NPA) in South Africa, as well as to various authorities
in
other countries,
potential suspect payments
and other compliance
concerns in connection with some of
the
Company’s dealings with Eskom and
related persons. Many of those
parties have expressed an
interest in, or
commenced an investigation into,
these matters and the Company is cooperating
fully with them. The
Company paid $
the SIU relating to improper payments
and other compliance
issues associated with the Controls
and
Instrumentation Contract, and its
Variation Orders for Units 1 and 2 at Kusile. The Company
made a
provision of approximately $
quarter of 2022. In December 2022,
the Company settled with
the SEC and DoJ as well as the authorities
in
South Africa and Switzerland. The
matter is still pending with the authorities
in Germany, but the Company
does not believe that it will need
to record any additional provisions
for this matter.
General
The Company is aware of proceedings,
or the threat of proceedings,
against it and others in respect of
private claims by customers and other
third parties with regard
to certain actual or alleged
anticompetitive
practices. Also, the Company is subject
to other claims and legal
proceedings, as well as investigations
carried out by various law enforcement
authorities. With respect to the above-mentioned
claims, regulatory
matters, and any related proceedings,
the Company will bear
the related costs, including costs
necessary to
resolve them.
Liabilities recognized
At December 31, 2023 and 2022,
the Company had aggregate
liabilities of $
respectively, included in Other provisions and Other non
‑
current liabilities, for the above
regulatory,
compliance and legal
contingencies, and none of the individual
liabilities recognized was significant. As it is
not possible to make an informed
judgment on, or reasonably
predict, the outcome of certain matters
and as
it is not possible, based on information
currently available
to management, to estimate the
maximum potential
liability on other matters, there could
be adverse outcomes beyond
the amounts accrued.
Guarantees
General
The following table provides quantitative
data regarding the Company’s third
‑
party guarantees. The maximum
potential payments represent a “worst
‑
case scenario”, and do
not reflect management’s expected outcomes.
Maximum potential payments
(1)
December 31, ($ in millions)
2023
2022
Performance guarantees
Financial guarantees
Total
(1)
Maximum potential payments include amounts in both continuing
and discontinued operations.
The carrying amount of liabilities
recorded in the Consolidated
Balance Sheets reflects the Company’s best
estimate of future payments, which
it may incur as part of fulfilling
its guarantee obligations. In respect
of the
above guarantees, the carrying amounts
of liabilities at December 31, 2023
and 2022, were not significant.
F-47
The Company is party to various
guarantees providing financial
or performance assurances to certain
third
parties. These guarantees, which
have various maturities up to 2032,
mainly consist of performance
guarantees whereby (i) the Company
guarantees the performance
of a third party’s product or service
according to the terms of a contract and
(ii) as member of a consortium/joint
venture that includes third
parties, the Company guarantees not
only its own performance
but also the work of third parties.
Such
guarantees may include guarantees
that a project will be completed
within a specified time. If the
third party
does not fulfill the obligation, the Company
will compensate the guaranteed
party in cash or in kind. The
original maturity dates for the
majority of these performance
guarantees range from
one
ten years
.
In conjunction with the divestment of
the high
‑
voltage cable and cables
accessories businesses, the
Company has entered into various
performance guarantees
with other parties with respect
to certain liabilities
of the divested business. At December
31, 2023 and 2022, the maximum
potential payable under
these
guarantees amounts to $
maturities ranging from
five
.
The Company retained obligations
for financial and performance guarantees
related to the sale of the Power
Grids business (see Note 3 for details).
At both December 31, 2023
and 2022,
the performance and financial
guarantees have been fully indemnified
by Hitachi. These guarantees, which
have various maturities up to
2032, primarily consist of bank guarantees,
standby letters of credit, business
performance guarantees
and
other trade-related guarantees, the
majority of which have
original maturity dates ranging
from
one
ten
years. The maximum amount payable
under these guarantees at December 31,
2023 and 2022,
is
approximately $
indemnification guarantees
that were due to be settled concurrent
with such transaction. As a
result, in 2022,
the Company recorded $
discontinued operations).
Commercial commitments
In addition, in the normal course
of bidding for and executing
certain projects, the Company has
entered into
standby letters of credit, bid/performance
bonds and surety bonds (collectively
“performance bonds”) with
various financial institutions. Customers
can draw on such performance
bonds in the event that the Company
does not fulfill its contractual obligations.
The Company would then have
an obligation to reimburse the
financial institution for amounts paid
under the performance
bonds. At December 31, 2023 and 2022,
the total
outstanding performance bonds
aggregated to $
significant amounts reimbursed to
financial institutions under
these types of arrangements in 2023 and
2022.
Product and order
‑
related contingencies
The Company calculates its provision
for product warranties based
on historical claims experience
and
specific review of certain contracts.
The reconciliation of the Provisions
for warranties, including
guarantees of product performance,
was as
follows:
($ in millions)
2023
2022
2021
Balance at January 1,
Net change in warranties
due to acquisitions,
divestments and spin-offs
(
24
)
Claims paid in cash or
in kind
(
171
)
(
157
)
(
222
)
Net increase in provision
for changes in
estimates, warranties issued
and warranties expired
Exchange rate differences
(
48
)
(
35
)
Balance at December 31,
F-48
Related party transactions
The Company conducts business with
certain companies where
members of the Company’s Board
of
Directors or Executive Committee
act, or in recent years have
acted, as directors or senior executives.
The
Company’s Board of Directors has determined
that the Company’s business relationships
with those
companies do not constitute material
business relationships. This determination
was made in accordance
with the Company’s related party transaction
policy which was prepared
based on the Swiss Code of Best
Practice and the independence
criteria set forth in the corporate
governance rules of the New
York Stock
Exchange.
—
Note 16
Income taxes
Income tax expense consisted of
the following:
($ in millions)
2023
2022
2021
Current taxes
Deferred taxes
(
25
)
(
344
)
(
289
)
Income tax expense allocated
to continuing operations
Income tax benefit
allocated to discontinued
operations
(
6
)
(
5
)
(
1
)
Income tax expense from continuing
operations is reconciled below
from the Company’s weighted
‑
average
global tax rate (rather than from the
Swiss domestic statutory tax rate)
as the parent company of
the ABB
Group, ABB Ltd, is domiciled in Switzerland
and income generated
in jurisdictions outside of Switzerland
(hereafter “foreign jurisdictions”) which
has already been subject to
corporate income tax in those
foreign
jurisdictions is, to a large extent,
tax exempt in Switzerland. There
is no requirement in Switzerland
for any
parent company of a group to
file a tax return of the consolidated
group determining domestic and
foreign
pre
‑
tax income. As the Company’s consolidated
income from continuing operations
is predominantly earned
outside of Switzerland, the weighted
‑
average global tax rate of the Company
results from enacted corporate
income tax rates in foreign jurisdictions.
The reconciliation of Income tax expense
from continuing operations
at the weighted
‑
average tax rate to the
effective tax rate is as follows:
($ in millions, except % data)
2023
2022
2021
Income from continuing
operations before
income taxes
Weighted-average global
tax rate
Income taxes at weighted-average
tax rate
Items taxed at rates other
than the weighted-average
tax rate
Unrecognized tax benefits
(
207
)
(
83
)
Changes in valuation
allowance, net
(
195
)
(
95
)
Effects of changes in tax laws
and enacted tax rates
(
3
)
(
19
)
Non-deductible / non-taxable
items
(
542
)
Other, net
(
10
)
(
5
)
Income tax expense
from continuing operations
Effective tax rate for
the year
The allocation of consolidated
income from continuing operations,
which is predominantly earned
outside of
Switzerland, impacts the “Weighted-average
global tax rate”.
F-49
In 2023 and 2022, “Items taxed at
rates other than the weighted-average
tax rate” included $
$
participation exemption, while
in 2021, this included $
divestment of the Dodge business.
In 2023, “Changes in valuation
allowance, net” included $
performance in Europe,
partially offset with positive impacts
from changes in certain
outlooks related to
business performance in the Americas
of $
positive impacts from changes in certain
outlooks in Asia of $
Americas of $
$
$
In 2023 and 2021, “Effects of changes
in tax laws and enacted tax rates”
were not significant while
in 2022,
this amount primarily reflects the
impact of changes in certain
tax rates in Europe for $
In 2023, “Non-deductible / non-taxable
items” reflects an additional
tax impact of $
sale of the Power Conversion
Division. In 2022, this amount
includes a net tax impact of $
non-deductible regulatory penalties
in connection with the Kusile
project offset partially by the impact of
the
non-taxable gain from the sale of the remaining
investment in Hitachi Energy. In 2021,
this includes
$
reorganizations where the reported
net gain from sale of businesses
exceeded the related taxable gain
as
well as the impact of a recognition
of previously unrecognized
outside basis differences.
In all periods, the
amounts reported also include
other items that were deducted
for financial accounting
purposes but are
typically not tax deductible, such as
certain interest expense costs, local
taxes on productive activities,
disallowed amounts for meals and
entertainment expenses and
other similar items.
In 2023, “Unrecognized tax benefits”
included a benefit of $
uncertain tax matter in Asia relating
to the divestment in 2020 of the Power
Grids business. In 2022 and
2021, “Unrecognized tax benefits” in
the table above included a net benefit
of $
$
competent tax authorities.
F-50
Deferred tax assets and liabilities
consisted of the following:
December 31, ($ in millions)
2023
2022
Deferred tax assets:
Unused tax losses and
credits
Provisions and other accrued
liabilities
Other current assets including
receivables
Pension
Inventories
Intangible assets
Other
Total gross deferred tax asset
Valuation allowance
(
1,070
)
(
1,000
)
Total gross deferred tax asset, net
of valuation allowance
Deferred tax liabilities:
Property, plant and equipment
(
243
)
(
232
)
Intangible assets
(
241
)
(
237
)
Other assets
(
142
)
(
91
)
Pension
(
317
)
(
318
)
Other liabilities
(
154
)
(
200
)
Inventories
(
66
)
(
44
)
Unremitted earnings of
subsidiaries
(
335
)
(
336
)
Total gross deferred tax liability
(
1,498
)
(
1,458
)
Net deferred tax asset
(liability
)
Included in:
“Deferred taxes”—non-current
assets
“Deferred taxes”—non-current
liabilities
(
669
)
(
729
)
Net deferred tax asset
(liability)
Certain entities have deferred tax
assets related to net operating
loss carry
‑
forwards and other items. As
recognition of these assets in certain
entities did not meet the more
likely than not criterion, valuation
allowances have been
recorded.
“Unused tax losses and credits” at
December 31, 2023 and 2022, in
the
table above, included $
valuation allowance as, due to limitations
imposed by the relevant
tax law, the Company determined that,
more likely than not, such deferred
tax assets would not be realized.
The valuation allowance
at December 31, 2023, 2022 and
2021, was $
$
foreign exchange rates.
Certain amounts included in
deferred tax assets for intangible
assets result from intercompany transactions
occurring at fair market value
for which no corresponding accounting
basis exists.
At December 31, 2023 and 2022,
deferred tax liabilities totaling $
have been provided for withholding
taxes, dividend distribution taxes or additional
corporate income taxes
(hereafter “withholding taxes”) on unremitted
earnings which will be
payable in foreign jurisdictions in the
event of repatriation of the foreign
earnings to Switzerland. Income
which has been generated
outside of
Switzerland and has already
been subject to corporate income
tax in such foreign jurisdictions is,
to a large
extent, tax exempt in Switzerland and
therefore, generally
no or only limited Swiss income
tax has to be
provided for on the repatriated earnings
of foreign subsidiaries.
F-51
Certain countries levy withholding
taxes on dividend distributions and
these taxes cannot always be
fully
reclaimed by the Company’s relevant subsidiary
receiving the dividend,
although the taxes have to be
withheld and paid by the relevant
subsidiary distributing such dividend.
In 2023 and 2022, certain taxes arose
in certain foreign jurisdictions
for which the technical merits
do not allow utilization of benefits.
At
December 31, 2023 and 2022,
foreign subsidiary retained
earnings which would be
subject to withholding
taxes upon distribution were approximately
$
considered as indefinitely
reinvested, as these funds are
used for financing current operations
as well as
business growth through working
capital and capital expenditure
in those countries and, consequently, no
deferred tax liability was recorded.
At December 31, 2023, net operating
loss carry
‑
forwards of $
available to reduce future income
taxes of certain subsidiaries.
Of these amounts, $
loss carry-forwards and $
remainder are available
for carryforward indefinitely. The largest amount of these carry
‑
forwards related to
the Company’s Europe operations.
Unrecognized tax benefits consisted
of the following:
Penalties and
interest
related to
Unrecognized
unrecognized
($ in millions)
tax benefits
tax benefits
Total
Classification as unrecognized
tax items on January
1, 2021
Net change due to acquisitions
and divestments
(
6
)
Increase relating to prior
year tax positions
Decrease relating to prior
year tax positions
(
42
)
(
3
)
(
45
)
Increase relating to current
year tax positions
Decrease due to settlements
with tax authorities
(
175
)
(
20
)
(
195
)
Decrease as a result of
the applicable statute of
limitations
(
72
)
(
22
)
(
94
)
Exchange rate differences
(
41
)
(
7
)
(
48
)
Balance at December 31,
2021, which would,
if recognized, affect
the effective tax rate
Increase relating to prior
year tax positions
Decrease relating to prior
year tax positions
(
98
)
(
12
)
(
110
)
Increase relating to current
year tax positions
Decrease due to settlements
with tax authorities
(
31
)
(
14
)
(
45
)
Decrease as a result of
the applicable statute of
limitations
(
71
)
(
23
)
(
94
)
Exchange rate differences
(
58
)
(
10
)
(
68
)
Balance at December 31,
2022, which would,
if recognized, affect
the effective tax rate
Net change due to acquisitions
and divestments
(
9
)
(
1
)
(
10
)
Increase relating to prior
year tax positions
Decrease relating to prior
year tax positions
(
233
)
(
6
)
(
239
)
Increase relating to current
year tax positions
Decrease due to settlements
with tax authorities
(
82
)
(
13
)
(
95
)
Decrease as a result of
the applicable statute of
limitations
(
80
)
(
19
)
(
99
)
Exchange rate differences
Balance at December 31,
2023, which would,
if recognized, affect
the effective tax rate
In 2023, 2022 and 2021, “Increase
relating to current year tax positions”
included a total of $
$
agreements by competent tax authorities.
F-52
In 2023, “Increase relating to prior year
tax positions” included $
In 2022, “Increase relating to prior year
tax positions” included $
Europe.
In 2021, “Increase relating to prior year
tax positions” included
a total of $
interpretation of tax law and double
tax treaty agreements by competent
tax authorities in Europe.
In 2023, “Decrease relating to prior
year tax positions” included
$
related to the divestment in 2020 of
the Power Grids business.
In 2022, “Decrease relating to prior
year tax positions” included
$
assessments in Europe.
In 2021, “Decrease relating to prior
year tax positions” of $
assessments in Europe.
In 2023, “Decrease due to settlements
with tax authorities” of $
Europe.
In 2021, “Decrease due to settlements
with tax authorities” is predominantly
related to tax assessments
received in Europe,
while in 2022, this amount is predominantly
related to tax assessments received
in Asia
and Europe.
At December 31, 2023, the Company
expected the resolution,
within the next twelve months, of unrecognized
tax benefits related to pending
court cases amounting to $
Otherwise, the Company had not identified
any other significant
changes which were considered
reasonably
possible to occur within the next twelve
months.
At December 31, 2023, the earliest
significant open tax years that
remained subject to examination
were the
following:
Region
Year
Europe
United States
Rest of Americas
China
Rest of Asia, Middle East
and Africa
—
Note 17
Employee benefits
The Company operates defined benefit
pension plans, defined
contribution pension plans,
and termination
indemnity plans, in accordance
with local regulations and
practices. At December 31, 2023,
the Company’s
most significant defined benefit pension
plans are in Switzerland
as well as in Germany, the United Kingdom,
and the United States. These plans
cover a large portion of the Company’s
employees and provide
benefits
to employees in the event of death,
disability, retirement, or termination of employment.
Certain of these
plans are multi
‑
employer plans. The Company also
operates other postretirement
benefit plans including
postretirement health care benefits
and other employee
‑
related benefits for active employees
including
long
‑
service award plans. The postretirement
benefit plans are not significant.
The measurement date used
for the Company’s employee benefit plans
is December 31. The funding
policies of the Company’s plans are
consistent with local government and
tax requirements.
F-53
The Company recognizes in its Consolidated
Balance Sheets the funded
status of its defined benefit pension
plans, postretirement plans and other
employee
‑
related benefits measured as
the difference between the fair
value of the plan assets and the benefit
obligation.
Unless otherwise indicated, the following
tables include amounts relating to
both continuing and discontinued
operations.
Obligations and funded status
of the plans
The change in benefit obligation,
change in fair value of plan
assets, and funded status recognized
in the
Consolidated Balance
Sheets were as follows:
Defined pension benefits
Switzerland
International
($ in millions)
2023
2022
2023
2022
Benefit obligation at January
1,
Service cost
Interest cost
Contributions by plan participants
Benefit payments
(
134
)
(
96
)
(
236
)
(
234
)
Settlements
(
97
)
(
92
)
(
69
)
(
36
)
Benefit obligations of
businesses acquired
(divested)
(
328
)
(
2
)
Actuarial (gain) loss
(
478
)
(
1,075
)
Plan amendments and
other
(
3
)
Exchange rate differences
(
80
)
(
328
)
Benefit obligation at December
31,
Fair value of plan assets
at January 1,
Actual return on plan
assets
(
310
)
(
789
)
Contributions by employer
Contributions by plan participants
Benefit payments
(
134
)
(
96
)
(
236
)
(
234
)
Settlements
(
97
)
(
92
)
(
69
)
(
36
)
Plan assets of businesses
acquired (divested)
(
414
)
(
1
)
Exchange rate differences
(
89
)
(
299
)
Fair value of plan assets
at December 31,
Funded status — overfunded
(underfunded)
(
430
)
(
400
)
The amounts recognized in Accumulated
other comprehensive loss
and Noncontrolling interests
were:
Defined pension benefits
December 31, ($ in millions)
2023
2022
2021
Net actuarial (loss) gain
(
1,439
)
(
1,183
)
(
1,540
)
Prior service credit
Amount recognized
in OCI
(1)
(2)
(
1,400
)
(
1,127
)
(
1,468
)
Taxes associated with amount recognized
in OCI and NCI
Amount recognized
in OCI
(1)
(3)
(
1,089
)
(
861
)
(
1,116
)
(1)
OCI represents Accumulated other comprehensive loss and, in addition, includes $
2023, 2022 and 2021, recognized for Other postretirement benefits.
(2)
NCI represents
Noncontrolling
interests.
(3)
NCI, net of tax, amounted to $
(
1
)
F-54
In addition, the following
amounts were recognized in the Company's
Consolidated Balance
Sheets:
Defined pension benefits
Switzerland
International
December 31, ($ in millions)
2023
2022
2023
2022
Overfunded plans
Underfunded plans — current
(
16
)
(
22
)
Underfunded plans — non-current
(
551
)
(
567
)
Funded status — overfunded
(underfunded)
(
430
)
(
400
)
December 31, ($ in millions)
2023
2022
Non-current assets
Overfunded pension plans
Other employee-related benefits
Pension and other employee
benefits
December 31, ($ in millions)
2023
2022
Current liabilities
Underfunded pension plans
(
16
)
(
22
)
Underfunded other postretirement
benefit plans
(
3
)
(
6
)
Other employee-related benefits
(
14
)
(
10
)
Pension and other employee
benefits
(
33
)
(
38
)
December 31, ($ in millions)
2023
2022
Non-current liabilities
Underfunded pension plans
(
551
)
(
567
)
Underfunded other postretirement
benefit plans
(
18
)
(
44
)
Other employee-related benefits
(
117
)
(
108
)
Pension and other employee
benefits
(
686
)
(
719
)
The accumulated benefit obligation
(ABO) for all defined benefit pension
plans was $
$
and fair value of plan assets,
for pension plans with a PBO in excess
of fair value of plan assets or
ABO in
excess of fair value of plan assets,
was:
PBO exceeds fair value of plan
assets
ABO exceeds fair value of
plan assets
December 31,
Switzerland
International
Switzerland
International
($ in millions)
2023
2022
2023
2022
2023
2022
2023
2022
PBO
ABO
Fair value of plan assets
F-55
Components of net periodic
benefit cost
Net periodic benefit cost mainly consisted
of the following:
Defined pension benefits
Switzerland
International
($ in millions)
2023
2022
2021
2023
2022
2021
Operational pension cost:
Service cost
Operational pension cost
Non-operational pension
cost (credit):
Interest cost (credit)
(
5
)
Expected return on plan
assets
(
129
)
(
117
)
(
116
)
(
157
)
(
153
)
(
178
)
Amortization of prior service
cost (credit)
(
8
)
(
9
)
(
9
)
(
2
)
(
2
)
(
2
)
Amortization of net actuarial
loss
Curtailments, settlements
and special
termination benefits
Non-operational pension
cost (credit)
(1)
(
76
)
(
109
)
(
129
)
(
3
)
(
34
)
Net periodic benefit
cost (credit)
(
36
)
(
59
)
(
68
)
(1)
Total Non-operational pension cost (credit) includes additional credits of $(
) million, $(
) million and $(
) million at December 31, 2023,
2022 and 2021,
related to Other postretirement benefits.
The components of net periodic benefit
cost other than the service
cost component are included
in
Non-operational pension cost (credit) in
the Consolidated Income Statements.
Assumptions
The following weighted-average
assumptions were used to determine projected
benefit obligations:
Defined pension benefits
Switzerland
International
December 31, (in %)
2023
2022
2023
2022
Discount rate
Rate of compensation
increase
Rate of pension increase
Cash balance interest credit
rate
For the Company’s significant benefit plans,
the discount rate used at each measurement
date is set based
on a high-quality corporate bond
yield curve (derived based on
bond universe information sourced
from
reputable third-party index and
data providers and rating agencies)
reflecting the timing, amount and currency
of the future expected benefit payments
for the respective plan. Consistent
discount rates are used across
all
plans in each currency zone, based
on the duration of the
applicable plan(s) in that zone. For plans
in the
other countries, the discount rate
is based on high quality corporate
or government bond yields
applicable in
the respective currency, as appropriate at each measurement
date with a duration broadly
consistent with the
respective plan’s obligations.
F-56
The following weighted-average
assumptions were used to determine
the “Net periodic benefit cost”:
Defined pension benefits
Switzerland
International
(in %)
2023
2022
2021
2023
2022
2021
Discount rate
Expected long-term rate of
return on plan assets
Rate of compensation
increase
Cash balance interest credit
rate
The “Expected long-term rate of return
on plan assets” is derived
for each benefit plan by considering
the
expected future long-term return assumption
for each individual
asset class. A single long-term return
assumption is then derived for each
plan based upon the
plan’s target asset allocation.
Plan assets
The Company has pension plans
in various countries with the majority
of the Company’s pension liabilities
deriving from a limited number of
these countries.
The pension plans are typically
funded by regular contributions
from employees and the Company. These
plans are typically administered
by boards of trustees (which
include Company representatives)
whose
primary responsibilities include
ensuring that the plans meet their liabilities
through contributions and
investment returns. The boards of
trustees have the responsibility
for making key investment strategy
decisions within a risk-controlled
framework.
The pension plan assets are invested
in diversified portfolios
that are managed by third-party asset
managers, in accordance with local
statutory regulations, pension
plan rules and the respective plans’
investment guidelines, as approved
by the boards of trustees.
Plan assets are generally segregated
from those of the Company
and invested with the aim of
meeting the
respective plans’ projected future pension
liabilities. Plan assets are
measured at fair value at the balance
sheet date.
The boards of trustees manage
the assets of the pension
plans in a risk-controlled manner and
assess the
risks embedded in the pension
plans through asset/liability management
studies. Asset/liability management
studies typically take place every
. However, the risks of the plans are monitored
on an ongoing
basis.
The boards of trustees’ investment goal
is to maximize the long-term
returns of plan assets within
specified
risk parameters, while considering
the future liabilities and liquidity
needs of the individual plans.
Risk
measures taken into account include
the funding ratio of the plan, the likelihood
of extraordinary cash
contributions being required,
the risk embedded in each individual
asset class, and the plan asset portfolio as
a whole.
F-57
The Company’s global pension
asset allocation is the result of
the asset allocations of the individual
plans,
which are set by the respective boards
of trustees. The target asset allocation
of the Company’s plans on a
weighted-average basis is as
follows:
Target
(in %)
Switzerland
International
Asset class
Equity
Fixed income
Real estate
Other
Total
The actual asset allocations of the
plans are in line with the target
asset allocations.
Equity securities primarily include
investments in large-cap and
mid-cap publicly traded companies.
Fixed
income assets primarily include
corporate bonds of companies
from diverse industries and government
bonds. Both fixed income and equity
assets are invested either via
funds or directly in segregated
investment
mandates, and include an allocation
to emerging markets. Real estate
consists primarily of investments
in
real estate in Switzerland held in
the Swiss plans. The “Other” asset
class includes investments in
private
equity, insurance contracts, cash, and reflects a variety
of investment strategies.
Based on the above global asset allocation
and the fair values of the plan
assets, the expected long-term
return on assets at December 31, 2023,
is
regularly review the investment performance
of the asset classes and individual
asset managers. Due to the
diversified nature of the investments,
the Company is of the opinion
that no significant concentration of
risks
exists in its pension fund assets.
At December 31, 2023 and 2022,
plan assets include ABB Ltd’s shares
(as well as an insignificant amount
of
the Company’s debt instruments) with a
total value of $
The fair values of the Company’s pension
plan assets by asset class
are presented below. For further
information on the fair value hierarchy
and an overview of the Company’s
valuation techniques applied,
see
the “Fair value measures” section of
Note 2.
Not
subject to
Total
December 31, 2023 ($ in millions)
Level 1
Level 2
Level 3
leveling
(1)
fair value
Asset class
Equity
Equity securities
Mutual funds/commingled
funds
Emerging market mutual
funds/commingled funds
Fixed income
Government and corporate
securities
Government and corporate—mutual
funds/commingled funds
Emerging market bonds—mutual
funds/commingled funds
Real estate
Insurance contracts
Cash and short-term
investments
Private equity
Total
F-58
Not
subject to
Total
December 31, 2022 ($ in millions)
Level 1
Level 2
Level 3
leveling
(1)
fair value
Asset class
Equity
Equity securities
Mutual funds/commingled
funds
Emerging market mutual
funds/commingled funds
Fixed income
Government and corporate
securities
Government and corporate—mutual
funds/commingled funds
Emerging market bonds—mutual
funds/commingled funds
Real estate
Insurance contracts
Cash and short-term
investments
Private equity
Total
(1)
Amounts relate to assets measured using
the NAV practical expedient which are not subject to leveling
.
The Company applies accounting
guidance related to the presentation
of certain investments using
the net
asset value (NAV) practical expedient. This accounting
guidance exempts investments using
this practical
expedient from categorization within
the fair value hierarchy. Investments measured at NAV are primarily
non exchange-traded commingled
or collective funds in private equity and
real estate where the fair value
of
the underlying assets is determined
by the investment manager. Investments in private
equity can never be
redeemed, but instead the funds will
make distributions through liquidation
of the underlying assets. Total
unfunded commitments for the private
equity funds were approximately
$
December 31, 2023 and 2022, respectively.
The real estate funds are typically
subject to a lock-in period of
up to
of three to twelve months.
Contributions
Employer contributions were as
follows:
Defined pension benefits
Switzerland
International
($ in millions)
2023
2022
2023
2022
Total
contributions to
defined benefit
pension plans
Of which, discretionary
contributions to
defined benefit pension
plans
The Company expects to contribute
approximately $
these contributions, $
The Company also contributes
to a number of defined contribution
plans. The aggregate expense for
these
plans in continuing operations
was $
respectively. Contributions to multi-employer plans were
not significant in 2023, 2022 and
2021.
F-59
Estimated future benefit payments
The expected future cash flows to be
paid by the Company’s plans
in respect of pension at December 31,
2023, are as follows:
Defined pension benefits
($ in millions)
Switzerland
International
2024
2025
2026
2027
2028
Years 2029 - 2033
—
Note 18
Share-based payment arrangements
The Company has granted share-based
instruments to its employees
under
‑
based
payment plans, as more fully described
in the respective sections
below. Compensation cost for
equity
‑
settled awards is recorded in
Total
cost of sales and in
Selling, general and administrative
expenses
and totaled $
compensation cost for cash
‑
settled awards, recorded in
Selling, general and administrative
expenses, was
not significant, as mentioned in
the WARs, LTIP and Other share
‑
based payments sections of
this note. The
total tax benefit recognized in 2023,
2022 and 2021 was not significant.
At December 31, 2023, the Company
had the ability to issue
up to
capital in connection with share
‑
based payment arrangements.
In addition,
held by the Company as treasury stock
at December 31, 2023, could
be used to settle share
‑
based payment
arrangements.
As the primary trading market for
the shares of ABB Ltd is the SIX
Swiss Exchange (on which
the shares are
traded in Swiss francs) and substantially
all the share
‑
based payment arrangements with employees
are
based on the Swiss franc share or
have strike prices set in Swiss
francs, certain data disclosed
below related
to the instruments granted under share
‑
based payment arrangements
are presented in Swiss francs.
Management Incentive Plan
Up to 2019, the Company offered, under
the MIP,
options and cash
‑
settled warrant appreciation
rights
(WARs) to key employees for
grant. Participants may exercise
or sell options and exercise
WARs after the vesting period, which is
the MIP were granted shares under
the LTIP (see LTIP section below) and consequently no grants were
made in 2023, 2022 and 2021
under the MIP.
The options granted under the
MIP allow participants to purchase
shares of ABB Ltd at predetermined
prices.
Participants may sell the options rather
than exercise the right to purchase
shares. Equivalent warrants
are
listed by a third
‑
party bank on the SIX Swiss
Exchange, which facilitates pricing
and transferability of options
granted under this plan. The options entitle
the holder to request that the
third
‑
party bank purchase such
options at the market price of equivalent
listed warrants related to
that MIP launch. If the participant
elects to
sell the options, the options will
thereafter be held by a third party
and, consequently, the Company’s
obligation to deliver shares
will be toward this third party.
F-60
Each WAR gives the participant the right to receive,
in cash, the market price
of an equivalent listed warrant
on the date of exercise of the
WAR.
Options
The fair value of each option was estimated
on the date of grant using a lattice
model. As mentioned
previously,
representing
amounted to approximately $
of exercise) of options exercised was
approximately $
At December 31, 2023,
all options granted under the
MIP were vested and exercisable.
The aggregate
intrinsic value at December 31, 2023,
of options outstanding
was approximately $
Presented below is a summary, by launch, related to options
outstanding at December 31, 2023:
Weighted-
average
Number of
Number of
remaining
options
shares
contractual
Exercise price (in Swiss francs)
(1)
(in millions)
(in millions)
(2)
term (in years)
Total number of options and shares
(1)
Information presented reflects the exercise price per share of ABB Ltd.
(2)
Information
presented reflects
the number
of shares
of ABB Ltd
that can
be received
upon exercise.
WARs
As each WAR gives the holder the right to receive
cash equal to the market price
of the equivalent listed
warrant on date of exercise, the Company
records a liability based
upon the fair value of outstanding
WARs
at each period end. In Selling,
general and administrative
expenses, the Company records
the changes in fair
value of the outstanding WARs. To hedge its exposure to fluctuations in
the fair value of outstanding
WARs,
the Company had purchased cash-settled
call options, which
entitle the Company to receive amounts
equivalent to its obligations under
the outstanding WARs. The cash-settled call options
are recorded as
derivatives measured at fair value,
with subsequent changes
in fair value recorded in Selling,
general and
administrative expenses. The total impact
in Selling, general and
administrative expenses in 2023, 2022
and
2021 was not significant.
At December 31, 2023, the number
of WARs
outstanding and their aggregate
fair value was not significant.
The aggregate fair value of outstanding
WARs was $
WARs was determined based upon the trading
price of equivalent
warrants listed on the SIX Swiss
Exchange.
As mentioned previously,
liabilities of $
2022 was not significant.
Employee Share Acquisition Plan
The employee share acquisition
plan (ESAP) is an employee
stock
‑
option plan with a savings
feature.
Employees save over a
twelve‑month
period, employees choose whether
to exercise their stock options using
their savings plus interest, if any, to
buy ABB Ltd shares at the exercise
price set at the grant date, or
have their savings returned
with any
interest. The savings are accumulated
in bank accounts held by a third
‑
party trustee on behalf of
the
participants and earn interest, where
applicable. Employees can withdraw
from the ESAP at any time during
the savings period and will
be entitled to a refund of their accumulated
savings.
F-61
The fair value of each option is estimated
on the date of grant using
the same option valuation model
as
described under the MIP, using the assumptions noted in the table below. The expected
term of the option
granted has been determined
to be the contractual
one‑year
options vest and the participants are
required to decide whether
to exercise their options or have
their
savings returned with interest.
The risk
‑
free rate is based on
one‑year
the
one‑year
previous ESAP launches.
2023
2022
2021
Expected volatility
Dividend yield
Expected term
Risk-free interest rate
-
0.6
%
Presented below is a summary of
activity under the ESAP:
Weighted-
Weighted-
Aggregate
average
average
intrinsic
exercise
remaining
value
Number of
price
contractual
(in millions
shares
(in Swiss
term
of Swiss
(in millions)
(1)
francs)
(2)
(in years)
francs)
(2)(3)
Outstanding at January
1, 2023
Granted
Forfeited
(
0.1
)
Exercised
(4)
(
1.3
)
Not exercised (savings
returned plus interest)
(
0.4
)
Outstanding at December
31, 2023
Vested and expected to vest at
December 31, 2023
Exercisable at December
31, 2023
—
(1)
Includes shares represented by ADS.
(2)
Information
presented for
ADS is based
on equivalent
Swiss franc
denominated
awards.
(3)
Computed using the closing price, in Swiss francs, of
ABB Ltd shares on the SIX Swiss Exchange
and the exercise price of each option in
Swiss francs.
(4)
The cash received in 2023 from exercises was approximately $
The exercise price per ABB Ltd share
of
closing price of the ABB Ltd share on
the SIX Swiss Exchange
on the grant date. The exercise prices
per
ABB Ltd share and per ADS of
, respectively, for the 2022 grant, and
, respectively, for the 2021 grant were determined using
the closing price of
the ABB Ltd share on the SIX Swiss
Exchange and ADS on the New
York Stock Exchange on the respective
grant dates. In connection with
the spin-off of the Turbocharging Division
in October 2022, the strike prices of
the ESAP options outstanding
at the time of spin-off were reduced, as per
the terms and conditions of the
original grant, to neutralize the effect
of the spin-off on the Company’s share
price, resulting in an equivalent
fair value before and after the spin-off. Consequently, the
exercise prices per ABB Ltd share
and per ADS for
the 2021 grant, were adjusted
to
, respectively.
At December 31, 2023, the total unrecognized
compensation cost related to non
‑
vested options granted
under the ESAP was not significant.
The weighted
‑
average grant
‑
date fair value (per option) of options
granted during 2023, 2022
and 2021 was
respectively. The total intrinsic value (on the date of exercise)
of options exercised in 2023,
2022 and 2021
was not significant.
F-62
Long-Term Incentive Plan
The long
‑
term incentive plan (LTIP) involves annual grants of
the Company’s stock subject to certain
conditions (Performance Shares)
to members of the Company’s Executive
Committee and selected other
senior executives, as defined in
the terms of the LTIP.
The ultimate amount delivered
under the LTIP’s
Performance Shares grant is based on
achieving certain results against
targets,
as set out below, over a
three-year
addition, for certain awards to vest,
the participant has to fulfill a
three-year
terms and conditions of the LTIP.
The Performance Shares under the 2023
and 2022 LTIP launches include a component
based on the
Company’s earnings per share performance
(weighted
relative total shareholder return (weighted
Company’s CO
2
2021 LTIP launch comprise of a component based on
the Company’s earnings per
share performance and a
component based on the Company’s relative
total shareholder
return, both with equal weighting.
For the relative total shareholder
return component of the
Performance Shares, the actual
number of shares
that will be delivered at a future date
is based on the Company’s
total shareholder return performance
relative
to a peer group of companies over
a
three-year
shares that will ultimately be delivered
will vary depending on
the relative total shareholder
return outcome
achieved between a lower
threshold (no shares delivered)
and an upper threshold (the number
of shares
delivered is capped at
For the earnings per share performance
component of the Performance
Shares, the actual number of shares
that will be delivered at a future date
is based on the Company’s
average earnings per share over
three
financial years, beginning
with the year of launch.
The actual number of shares
that will ultimately be
delivered will vary depending
on the earnings per share outcome as
computed under each LTIP launch,
interpolated between a lower
threshold (no shares delivered)
and an upper threshold (the number
of shares
delivered is capped at
For the sustainability component
of the Performance Shares,
the actual number of shares
that will be
delivered at a future date is based
on the Company’s scope 1 and
2 CO
2
three
number of shares that will ultimately
be delivered will vary depending
on the sustainability outcome as
computed under the LTIP launch, interpolated between
a lower threshold (no shares delivered)
and an upper
threshold (the number of shares delivered
is capped at
Starting in 2020, key employees
which were previously eligible
to participate in the MIP and which were
not
included in the employee
group granted the Performance
Shares described above, were granted
Restricted
Shares of the Company under the LTIP. The Restricted Shares do not have performance conditions
and vest
over a
three-year
Under the 2023, 2022 and 2021
LTIP launches, participants generally do not have the ability
to receive any of
the award in cash, subject to legal
restrictions in certain jurisdictions.
F-63
Presented below is a summary of
activity under the Performance Shares
of the LTIP:
Weighted-average
Number of
grant-date
Performance Shares
fair value per share
(in millions)
(Swiss francs)
Nonvested at January
1, 2023
Granted
Vested
(
0.9
)
Forfeited
(
0.1
)
Nonvested at December
31, 2023
The aggregate fair value, at the dates
of grant, of Performance
Shares granted in 2023, 2022 and
2021 was
$
during 2023 was $
fair value (per share) of shares granted
during 2023, 2022 and
2021 was
francs and
(including shares vested in prior
years and delivered in the year) was
approximately $
and 2021 it was not significant.
Presented below is a summary of
activity under the Restricted Shares
of the LTIP:
Weighted-average
Number of
grant-date
Restricted Shares
fair value per share
(in millions)
(Swiss francs)
Nonvested at January
1, 2023
Granted
Vested
(
1.1
)
Forfeited
(
0.1
)
Nonvested at December
31, 2023
The aggregate fair value, at the dates
of grant, of Restricted
Shares granted in 2023, 2022 and
2021 was
$
during 2023 was $
fair value (per share) of shares granted
during 2023, 2022 and
2021 was
francs and
approximately $
Equity-settled awards are recorded in
the Additional paid-in capital
component of Stockholders’ equity, with
compensation cost recorded in Selling,
general and administrative
expenses over the vesting period
(which is
from grant date to the end of the vesting
period) based on the grant-date
fair value of the shares.
Cash-settled awards are recorded as a
liability, remeasured at fair value at each reporting date
for the
percentage vested, with changes
in the liability recorded in Selling,
general and administrative
expenses.
At December 31, 2023, total unrecognized
compensation cost related to equity-settled
awards under the LTIP
was $
compensation cost recorded in 2023,
2022 and 2021 for cash-settled
awards was not significant.
F-64
For the relative total shareholder
return component of the
LTIP launches, the fair value of granted shares at
grant date, for equity-settled awards,
and at each reporting
date, for cash-settled awards, is
determined using
a Monte Carlo simulation model.
The main inputs to this model are
the Company’s share price and
dividend
yield, the volatility of the Company’s and
the peer group’s share price as well as the
correlation between the
peer companies. For the earnings
per share component of the LTIP launches, the fair value
of granted
shares is based on the market price of
the ABB Ltd share at grant date for
equity-settled awards and at each
reporting date for cash-settled awards,
as well as the probable
outcome of the earnings per share
achievement, as computed using
a Monte Carlo simulation
model. The main inputs to this model
are the
Company’s and external financial
analysts’ revenue growth rates and
Operational EBITA margin
expectations. For the sustainability
component of the LTIP launches, the fair value of granted
shares is based
on the market price of the ABB Ltd
share at grant date for equity-settled
awards and at each reporting
date
for cash-settled awards, as well
as the probable outcome of
the sustainability component achievement,
as
determined by internal modelling
based on the Company’s CO
2
Other share-based payments
The Company has other minor share-based
payment arrangements with certain
employees. The
compensation cost related to these arrangements
in 2023, 2022 and 2021 was
not significant.
—
Note 19
Stockholders' equity
Capital
ABB Ltd is a corporation organized
under the laws of Switzerland
and the rights of its shareholders are
governed by Swiss law and its
Articles of Incorporation.
At December 31, 2023 and 2022,
the Company had
respectively, that were registered and issued.
In line with the revised provisions of
Swiss corporate law effective January 1,
2023, shareholders approved,
at ABB’s Annual General Meeting of Shareholders
(AGM) in March 2023, the introduction
of a capital band
ranging from
time. The capital band replaced
longer exist under the revised law. Within this capital
band, the Board of Directors is authorized
to increase or
reduce the share capital once or several
times until March 23, 2028, or until
an earlier expiry of the capital
band. The contingent share capital of
the Company,
which forms a component
of the total authorized shares,
as specified in the ABB Ltd Articles of
Incorporation, remains
unchanged. At December 31, 2023
and 2022,
the Company had a total of
Dividends
At the AGM in March 2023, the shareholders
approved the proposal of the
Board of Directors to distribute a
total of
Company disbursing a portion
in March 2023
and the remaining amounts
in April 2023. At the AGM in March
2022, the shareholders approved
the proposal of the Board
of Directors to distribute a total of
francs per share. The approved dividend
distribution amounted to $
disbursing a portion in March 2022
and the remaining amounts in April
2022. At the AGM in March 2021,
the
shareholders approved
the proposal of the Board of Directors to
distribute a total of
share. The approved dividend
distribution amounted to $
in March 2021 and the remaining
amounts in April 2021.
F-65
Amounts available to be distributed
as dividends to the stockholders
of ABB Ltd are based on the
requirements of Swiss law and
ABB Ltd’s Articles of Incorporation,
and are determined based on
amounts
presented in the unconsolidated
financial statements of ABB Ltd, prepared
in accordance with Swiss law. At
December 31, 2023, the total unconsolidated
stockholders’ equity of ABB Ltd was
($
Swiss francs ($
representing a reduction of equity for
treasury shares. Of the reserves,
($
of share capital, at December 31, 2023,
are restricted by law and not
available for distribution.
Treasury stock transactions
In July 2020, the Company announced
it intended to initially buy
time represented a maximum of
share buyback program that started
in July 2020. The initial
share buyback program was executed
on a
second trading line on the SIX Swiss
Exchange and was completed
in March 2021. Through this
buyback
program, the Company purchased a
total of
2021 AGM, shareholders approved
the cancellation of
buyback program and the cancellation
was completed in the second
quarter of 2021, resulting in a decrease
in Treasury stock of $
capital and Retained earnings.
In March 2021, the Company announced
a follow-up share buyback
program of up to $
buyback program, which was launched
in April 2021, was executed on
a second trading line
on the SIX
Swiss Exchange and was completed in
March 2022. Through
this follow-up buyback program, the Company
purchased a total of
approved the cancellation of
programs. The cancellation
was completed in the second
quarter of 2022, resulting in a decrease
in Treasury
stock of $
Retained earnings.
In March 2022, the Company announced
a share buyback program of
up to $
was launched in April 2022,
was executed on a second trading
line on the SIX Swiss Exchange
and was
completed in March 2023. Through
this buyback program, the Company
purchased a total of
shares for approximately $
which had been purchased
under its share buyback programs.
This resulted in a decrease in
Treasury stock
of $
earnings.
In March 2023, the Company announced
a share buyback program of
up to $
was launched in April 2023,
is being executed on a second
trading line on the SIX Swiss Exchange
and is
planned to run until the Company’s 2024
AGM.
Under these buyback programs,
in 2023, 2022 and 2021, the Company
purchased
$
In addition to the share buyback programs,
in 2023,
2022 and 2021,
the Company purchased a combined
total of
in connection with its employee share
plans, resulting in an increase
in Treasury stock of $
$
F-66
Obligations to issue shares relating
to employee incentive
programs
At December 31, 2023,
the Company had outstanding
obligations to deliver:
•
strike price of
•
strike price of
•
•
LTIP,
vesting and expiring in April 2026,
April 2025
and April 2024, respectively, and
•
with employees.
In addition to the above obligations,
the Company had
sold,
upon and in connection with
each launch of the
MIP,
call options to a bank at fair value,
giving the bank the right
to acquire shares equivalent to
the number
of shares represented by the MIP
WAR awards to participants. Under the terms
of the agreement with the
bank, the call options can only be exercised
by the bank to the extent that
MIP participants have exercised
their WARs. At December 31, 2023, such call
options representing
ranging from
the bank. The call options expire
in periods ranging from August 2024
to August 2025.
See Note 18 for a description of
the above share
‑
based payment arrangements.
In 2023, 2022 and 2021, the Company
delivered
of treasury stock, for options exercised
in relation to the MIP. In addition, in 2023 and 2021, the Company
delivered
to the ESAP.
The number of shares delivered
in 2022 under the ESAP was not
significant.
Issuance of subsidiary shares
In November 2022, the Company received
gross proceeds of
a private placement of shares in its
ABB E-Mobility subsidiary, ABB E-mobility Holding
Ltd (ABB E-Mobility),
reducing the Company's beneficial
ownership in the subsidiary
from
in an increase in Additional
paid-in capital of $
additional amount of funding
raised through the private placement
of new shares of ABB E-Mobility,
increasing the total gross proceeds by
an additional
and further reducing the Company’s ownership
in ABB E-Mobility to
in Additional paid-in capital
of $
ownership percentage of the investors
participating in these
private placements to
additional consideration.
F-67
—
Note 20
Earnings per share
Basic earnings per share is calculated
by dividing income by the weighted
‑
average number of shares
outstanding during the year. Diluted earnings
per share is calculated by dividing
income by the
weighted
‑
average number of shares outstanding
during the year, assuming that all potentially
dilutive
securities were exercised, if dilutive.
Potentially dilutive securities
comprise outstanding written
call options
and outstanding options and
shares granted subject to certain
conditions under the Company’s share
‑
based
payment arrangements. In 2022, outstanding
securities representing a maximum of
excluded from the calculation of
diluted earnings per share
as their inclusion would have
been antidilutive.
ne were excluded in 2023 and
2021.
Basic earnings per share:
($ in millions, except per
share data in $)
2023
2022
2021
Amounts attributable to
ABB shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
24
)
(
42
)
(
79
)
Net income
Weighted-average number
of shares outstanding
(in millions)
Basic earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
0.01
)
(
0.02
)
(
0.04
)
Net income
Diluted earnings per share:
($ in millions, except per
share data in $)
2023
2022
2021
Amounts attributable to
ABB shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
24
)
(
42
)
(
79
)
Net income
Weighted-average number
of shares outstanding
(in millions)
Effect of dilutive securities:
Call options and shares
Adjusted weighted-average
number of shares
outstanding (in millions)
Diluted earnings per share
attributable to ABB
shareholders:
Income from continuing
operations, net of
tax
Loss from discontinued
operations, net of
tax
(
0.01
)
(
0.02
)
(
0.04
)
Net income
F-68
—
Note 21
Other comprehensive income
The following table includes
amounts recorded within “Total other comprehensive income (loss)”
including the
related income tax effects:
2023
2022
2021
Before
Tax
Net of
Before
Tax
Net of
Before
Tax
Net of
($ in millions)
tax
effect
tax
tax
effect
tax
tax
effect
tax
Foreign currency translation
adjustments:
Foreign currency translation
adjustments
(
292
)
(
290
)
(
685
)
(
685
)
(
521
)
(
521
)
Net loss on complete
or substantially
complete liquidations
of foreign
subsidiaries
Changes attributable
to divestments
(
9
)
(
9
)
Net change during the
year
(
283
)
(
281
)
(
639
)
(
639
)
(
530
)
(
530
)
Available-for-sale securities:
Net unrealized gains (losses)
arising
during the year
(
1
)
(
28
)
(
23
)
(
13
)
(
10
)
Reclassification adjustments
for net
(gains) losses included in
net income
(
2
)
(
6
)
(
5
)
Net change during the
year
(
3
)
(
26
)
(
21
)
(
19
)
(
15
)
Pension and other postretirement
plans:
Prior service (costs)
credits arising
during the year
(
2
)
(
1
)
(
2
)
(
2
)
Net actuarial gains
(losses) arising
during the year
(
339
)
(
282
)
(
72
)
(
26
)
Amortization of prior service
cost (credit)
included in net income
(
11
)
(
9
)
(
13
)
(
3
)
(
16
)
(
14
)
(
14
)
Amortization of net actuarial
loss included
in net income
(
10
)
(
11
)
Net losses from settlements
and curtailments
included in net income
(
2
)
(
2
)
Changes attributable
to divestments
(
8
)
(
8
)
(
8
)
(
6
)
Net change during the
year
(
282
)
(
237
)
(
86
)
(
22
)
Derivative instruments
and hedges:
Net gains (losses) arising
during the year
(
11
)
(
10
)
(
10
)
(
2
)
(
12
)
Reclassification adjustments
for net (gains)
losses included in net income
(
13
)
(
13
)
Net change during the
year
(
3
)
(
2
)
(
2
)
(
6
)
(
5
)
Total other comprehensive income
(loss)
(
554
)
(
509
)
(
322
)
(
83
)
(
405
)
(
66
)
(
17
)
(
83
)
F-69
The following table shows changes
in Accumulated other comprehensive
loss (OCI) attributable to ABB,
by
component, net of tax:
Unrealized
Pension and
Foreign
gains (losses)
other post-
Accumulated
currency
on available-
retirement
other
translation
for-sale
plan
comprehensive
($ in millions)
adjustments
securities
adjustments
loss
Balance at January 1, 2021
(
2,460
)
(
1,556
)
(
3
)
(
4,002
)
Other comprehensive
(loss) income
before reclassifications
(
521
)
(
10
)
(
112
)
Amounts reclassified from
OCI
(
9
)
(
5
)
(
13
)
Total other comprehensive (loss)
income
(
530
)
(
15
)
(
5
)
(
83
)
Less:
Amounts attributable to
noncontrolling
interests
Balance at December 31,
2021
(1)
(
2,993
)
(
1,089
)
(
8
)
(
4,088
)
Other comprehensive
(loss) income
before reclassifications
(
685
)
(
23
)
(
12
)
(
494
)
Amounts reclassified from
OCI
Total other comprehensive (loss)
income
(
639
)
(
21
)
(
405
)
Spin-off of the Turbocharging Division
(
93
)
(
5
)
(
98
)
Less:
Amounts attributable to
noncontrolling
interests
(
34
)
(
1
)
(
35
)
Balance at December 31,
2022
(
3,691
)
(
19
)
(
838
)
(
8
)
(
4,556
)
Other comprehensive
(loss) income
before reclassifications
(
290
)
(
283
)
(
10
)
(
578
)
Amounts reclassified from
OCI
Total other comprehensive (loss)
income
(
281
)
(
237
)
(
2
)
(
509
)
Less:
Amounts attributable to
noncontrolling
interests and redeemable
noncontrolling interests
Balance at December 31,
2023
(
3,977
)
(
8
)
(
1,075
)
(
10
)
(
5,070
)
(1)
Due to rounding, numbers presented may not add to the totals provided.
F-70
The following table reflects amounts
reclassified out of OCI in respect
of Foreign currency translation
adjustments and Pension and other
postretirement plan
adjustments:
($ in millions)
Location of (gains) losses
Details about OCI components
reclassified from OCI
2023
2022
2021
Foreign currency translation
adjustments:
Net loss on complete
or substantially complete
liquidations of foreign subsidiaries
Other income (expense),
net
Changes attributable
to divestments
Other income (expense),
net
(
9
)
Amounts reclassified
from OCI
(
9
)
Pension and other postretirement
plan adjustments:
Amortization of prior service
cost (credit)
Non-operational pension
(cost) credit
(
11
)
(
13
)
(
14
)
Amortization of net actuarial
loss
Non-operational pension
(cost) credit
Net losses from settlements
and curtailments
Non-operational pension
(cost) credit
Changes attributable
to divestments
Other income (expense),
net
(
8
)
(
8
)
Total before tax
Tax
Income tax expense
(
10
)
(
16
)
Changes in tax attributable
to divestments
Other income (expense),
net
Amounts reclassified
from OCI
The amounts reclassified out of “OCI
in respect of Unrealized
gains (losses) on available
‑
for
‑
sale securities”
and “Derivative instruments and hedges”
were not significant in 2023,
2022 and 2021.
—
Note 22
Restructuring and related expenses
Restructuring-related activities
In 2023, 2022 and 2021, the Company
executed various restructuring
‑
related activities and incurred the
following charges, net of changes in
estimates:
($ in millions)
2023
2022
2021
Employee severance
costs
Estimated contract settlement,
loss order and other
costs
Inventory and long-lived asset
impairments
Total
Expenses associated with these
activities are recorded in the following
line items in the Consolidated
Income
Statements:
($ in millions)
2023
2022
2021
Total
cost of sales
Selling, general and administrative
expenses
Non-order related research
and development expenses
Other income (expense),
net
Total
F-71
In 2022, the Company completed a plan
(initiated in 2021) to fully exit its
full train retrofit business by
transferring the remaining contracts
to a third party. The Company recorded $
expenses in connection with this business
exit primarily for contract settlement
costs. Prior to exiting this
business, the business was reported
as part of the Company’s non-core
business activities within Corporate
and Other.
At December 31, 2023 and 2022,
$
restructuring-related liabilities
and is primarily included
in Other provisions.
—
Note 23
Operating segment and geographic data
The Chief Operating Decision Maker
(CODM) is the Chief Executive
Officer. The CODM allocates resources
to and assesses the performance of
each operating segment
using the information outlined
below. The
Company is organized into the following
segments,
based on products and services:
Electrification, Motion,
Process Automation and Robotics
& Discrete Automation.
The remaining operations of
the Company are
included in Corporate and
Other.
Effective January 1, 2023, the E-mobility
Division is no longer
managed within the Electrification
segment and
has become a separate operating
segment. This new segment
does not currently meet any of
the size
thresholds to be considered a reportable
segment and as such is presented within
Corporate and Other. The
segment information for 2022 and
2021, and at December 31, 2022
and 2021, has been recast to reflect
this
change.
A description of the types of products
and services provided
by each reportable segment is as
follows:
•
Electrification:
manufactures and sells electrical
products and solutions which
are designed to
provide safe, smart and sustainable
electrical flow from the substation
to the socket. The portfolio
of increasingly digital and
connected solutions includes renewable
power solutions, modular
substation packages, distribution automation
products, switchboards
and panelboards,
switchgear, UPS solutions, circuit breakers, measuring
and sensing devices, control products,
wiring accessories, enclosures
and cabling systems and intelligent
home and building solutions,
designed to integrate and automate
lighting, heating, ventilation,
security and data
communication networks. The products
and services are delivered
through six operating
Divisions: Distribution Solutions,
Smart Power, Smart Buildings, Installation
Products,
and
Service,
as well as, prior to its sale
in July 2023, the Power Conversion
Division.
•
Motion:
designs, manufactures and sells
drives, motors, generators and
traction converters that
are driving the low-carbon future for
industries, cities, infrastructure
and transportation. These
products, digital technology and
related services enable industrial
customers to increase energy
efficiency, improve safety and reliability, and achieve precise control of their processes.
Building
on over 140 years of cumulative experience
in electric powertrains, Motion combines
domain
expertise and technology to deliver
the optimum solution for a wide range
of applications in all
industrial segments. In addition, Motion,
along with its partners, has
a leading global
service
presence. These products and services
are delivered through
seven operating Divisions: Large
Motors and Generators, IEC LV Motors, NEMA Motors,
Drive Products, System Drives,
Service,
and Traction, as well as, prior to its sale in November
2021, the Mechanical Power
Transmission
Division.
F-72
•
Process Automation:
offers a broad range of industry-specific,
integrated automation,
electrification and digital solutions,
as well as lifecycle services for
the process, hybrid and
marine industries. The product portfolio
includes control technologies,
industrial software,
advanced analytics, sensing and
measurement technology, and marine propulsion
systems. In
addition, Process Automation offers a comprehensive
range of services, from repair
to advanced
digital capabilities such as remote
monitoring, preventive maintenance,
asset performance
management, emission monitoring
and cybersecurity. The products, systems and services
are
currently delivered through four operating
Divisions: Energy Industries,
Process Industries,
Marine & Ports and Measurement
& Analytics,
as well as, prior to its spin-off in
October 2022, the
Turbocharging Division.
•
Robotics & Discrete Automation:
operating Divisions: Robotics
provides industrial and collaborative
robots, autonomous mobile
robotics, mapping and navigation
solutions, robotic solutions, field
services, spare parts and
digital services. Machine Automation
specializes in automation
solutions based on its
programmable logic controllers
(PLC), industrial PCs (IPC), servo
motion, transport systems and
machine vision. Both divisions offer software
across the entire life cycle,
including engineering
and simulation software as well as a
comprehensive range of digital
solutions.
Corporate and Other:
and Corporate Treasury while Other includes
the E-mobility operating segment, other
non-core operating
activities as well as the operating
activities of certain divested businesses.
The primary measure of profitability
on which the operating segments are evaluated
is Operational EBITA,
which represents income from operations
excluding:
•
•
•
divestment date (changes in obligations
related to divested businesses),
•
held for sale,
if any),
•
•
•
(a) unrealized gains and
losses on derivatives (foreign exchange,
commodities, embedded
derivatives), (b) realized gains and
losses on derivatives where
the underlying hedged
transaction has not yet been realized,
and (c) unrealized foreign
exchange movements on
receivables/payables (and
related assets/liabilities).
Certain other non-operational
items generally includes certain regulatory, compliance and
legal costs, certain
asset write downs/impairments and
certain other fair value changes,
changes in estimates relating to
opening
balance sheets of acquired businesses
(changes in pre-acquisition
estimates),
as well as other items which
are determined by management on
a case
‑
by
‑
case basis.
The CODM primarily reviews the
results of each segment on a basis
that is before the elimination of profits
made on inventory sales between
segments. Segment
results below are presented before
these eliminations,
with a total deduction for intersegment
profits to arrive at the Company’s
consolidated Operational
EBITA.
Intersegment sales and transfers
are accounted for as if the
sales and transfers were to third
parties, at
current market prices.
F-73
The following tables present disaggregated
segment revenues from contracts
with customers for 2023, 2022
and 2021:
2023
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
(1)
Total
Geographical markets
of which: United States
of which: China
Product type
(
775
)
Total revenues
(
73
)
2022
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
(1)
Total
Geographical markets
of which: United States
of which: China
Product type
(
731
)
Total revenues
(
143
)
F-74
2021
($ in millions)
Electrification
Motion
Process
Automation
Robotics &
Discrete
Automation
Corporate
and Other
(1)
Total
Geographical markets
Europe
The Americas
of which: United States
Asia, Middle East and Africa
of which: China
Product type
(
745
)
Total revenues
(
430
)
(1)
The amounts shown for “Intersegment revenues” within Corporate and Other primarily represents
the consolidated intersegment revenue
elimination. These amounts include intersegment revenues of $
Revenues by geography reflect the location
of the customer. In 2023, 2022 and 2021
the United States and
China are the only countries where
revenue exceeded
and 2021 more than
Switzerland.
F-75
The following tables present Operational
EBITA, the reconciliations of consolidated
Operational EBITA to
Income from continuing operations
before taxes, as well as Depreciation
and amortization, and Capital
expenditures for 2023, 2022 and
2021, and Total assets at December 31, 2023, 2022 and 2021:
($ in millions)
2023
2022
2021
Operational EBITA:
Electrification
Motion
Process Automation
Robotics & Discrete Automation
Corporate and Other:
— E-mobility
(
167
)
(
15
)
— Corporate costs, intersegment
elimination and other
(
263
)
(
169
)
(
338
)
Total
Acquisition-related amortization
(
220
)
(
229
)
(
250
)
Restructuring, related and
implementation
costs
(1)
(
219
)
(
347
)
(
160
)
Changes in obligations
related to divested businesses
(
9
)
Gains and losses from
sale of businesses
(
7
)
Acquisition-
and divestment-related
expenses and integration
costs
(
74
)
(
195
)
(
132
)
Foreign exchange/commodity
timing differences in income
from operations:
Unrealized gains and losses
on derivatives (foreign
exchange,
commodities, embedded
derivatives)
(
54
)
Realized gains and losses
on derivatives where
the underlying hedged
transaction has not yet been
realized
(
48
)
(
2
)
Unrealized foreign exchange
movements on receivables/payables
(and
(
13
)
(
15
)
Certain other non-operational
items:
Other income/expenses
relating to the Power
Grids joint venture
(
57
)
(
34
)
Regulatory, compliance and legal costs
(
317
)
Business transformation
costs
(2)
(
205
)
(
152
)
(
92
)
Changes in pre-acquisition
estimates
(
4
)
(
10
)
Gains and losses from
sale of investments in
equity-accounted companies
Certain other fair value
changes, including asset
impairments
(
10
)
Other non-operational items
(
4
)
(
9
)
Income from operations
Interest and dividend income
Interest and other finance
expense
(
275
)
(
130
)
(
148
)
Non-operational pension
(cost) credit
Income from continuing
operations before
taxes
(1)
Amounts in 2023 and 2022 include impairment of certain assets.
(2)
Amounts in 2023, 2022 and 2021 include ABB Way process transformation costs of
$
F-76
Depreciation and
Total assets
(1),(2)
amortization
Capital expenditures
(1)
at December 31,
($ in millions)
2023
2022
2021
2023
2022
2021
2023
2022
2021
Electrification
Motion
Process Automation
Robotics & Discrete
Automation
Corporate and Other
Consolidated
(1)
Capital expenditures and Total assets are after intersegment eliminations
and therefore reflect third-party activities only.
(2)
At December 31, 2021, Corporate and Other included $
subsequently
sold in
December
2022 (see
Note 4).
Other geographic information
Geographic information for long-lived
assets was as follows:
Long-lived assets at
December 31,
($ in millions)
2023
2022
Europe
The Americas
Asia, Middle East and Africa
Total
Long
‑
lived assets represent Property, plant and equipment, net and
Operating lease right-of-use
assets and
are shown by location of the assets.
At December 31, 2023,
approximately
‑
lived assets were located in
the United States,
China and Switzerland,
respectively. At December 31, 2022, approximately
long
‑
lived assets were located in the United States,
China and Switzerland, respectively.
—
Note 24
Subsequent events
Debt
On January 15, 2024, the Company issued
the following EUR Instruments:
(i) EUR
Notes, due 2029, and (ii) EUR
arrears. The aggregate net proceeds
of these EUR Instruments, after discount
and fees, amounted to
EUR
Stockholders’ equity
In February 2024, the Company announced
that a proposal will be put to the 2024
AGM for approval by the
shareholders to distribute
TABLE OF CONTENTS
Part IprintItem 1. Identity Of Directors, Senior Management and AdvisersprintItem 2. Offer Statistics and Expected TimetableprintItem 3. Key InformationprintItem 3A. [reserved]printItem 4. Information on The CompanyprintItem 4A. Unresolved Staff CommentsprintItem 5. Operating and Financial Review and ProspectsprintItem 6. Directors, Senior Management and EmployeesprintItem 7. Major Shareholders and Related Party TransactionsprintItem 8. Financial InformationprintItem 9. The Offer and ListingprintItem 10. Additional InformationprintItem 11. Quantitative and Qualitative Disclosures About Market RiskprintItem 12. Description Of Securities Other Than Equity SecuritiesprintPart IIprintItem 13. Defaults, Dividend Arrearages and DelinquenciesprintItem 14. Material Modifications To The Rights Of Security Holders and Use Of ProceedsprintItem 15. Controls and ProceduresprintItem 16. [reserved]printItem 16A. Audit Committee Financial ExpertprintItem 16B. Code Of EthicsprintItem 16C. Principal Accountant Fees and ServicesprintItem 16D. Exemptions From The Listing Standards For Audit CommitteesprintItem 16E. Purchase Of Equity Securities By Issuer and Affiliated PurchasersprintItem 16F. Change in Registrant S Certifying AccountantprintItem 16G. Corporate GovernanceprintItem 16H. Mine Safety DisclosureprintItem 16I. Disclosure Regarding Foreign Jurisdictions That Prevent InspectionsprintItem 16J. Insider Trading PoliciesprintItem 16K. CybersecurityprintPart IIIprintItem 17. Financial StatementsprintItem 18. Financial StatementsprintItem 19. ExhibitsprintItem Sold in Separate Transactions At The Inception Of The ArrangementprintNote 17 Employee Benefitsprint