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: • funding organic growth, research and development, and capital expenditures at attractive returns, • paying a rising, sustainable dividend per share over time, • investing in value-creating acquisitions, and • returning additional cash to shareholders. 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: • unanticipated technical problems with equipment supplied or developed by us which may require us to incur additional costs to remedy, • changes in the cost of components, materials or labor, • difficulties in obtaining required governmental permits or approvals, • project modifications creating unanticipated costs, • suppliers’ or subcontractors’ failure to perform, and • delays caused by unexpected conditions or events. 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 ‑ and project ‑ 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: • Euro, approximately 25 percent, and • Chinese renminbi, approximately 14 percent. 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: • Euro, approximately 22 percent, and • Chinese renminbi, approximately 12 percent. 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: • amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), • restructuring, related and implementation costs, • changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to divested businesses), • gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), • acquisition- and divestment-related expenses and integration costs, • certain other non-operational items, as well as • foreign exchange/commodity timing differences in income from operations consisting of: (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 E-mobility, Non-core and divested businesses 508 552 467 (8)% 18% Intersegment eliminations (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: • a $2 billion commercial paper program for the private placement of U.S. dollar denominated commercial paper in the United States, and • a $2 billion Euro-commercial paper program for the issuance of commercial paper in a variety of 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): • 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 • CHF 275 million 2.1125% Bonds due 2033 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.