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.