—
Annual report
2020
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A B B AT A G L A N CE
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ABB (ABBN: SIX Swiss Ex) is a leading global
technology company that energizes the
transformation of society and industry to
achieve a more productive, sustainable future.
By connecting software to its electrification,
robotics, automation and motion portfolio,
ABB pushes the boundaries of technology to
drive performance to new levels. With a history
of excellence stretching back more than
130 years, ABB’s success is driven by about
105,000 talented employees in over
100 countries.
—
www.abb.com
Contents
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Annual report
2020
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01
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02
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03
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04
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05
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06
Introduction
6 – 37
Corporate governance report
38 – 61
Compensation report
62 – 93
Financial review of ABB Group
94 – 227
ABB Ltd statutory financial statements
228 – 245
Supplemental information
246 – 250
01
Introduction
—
6 – 37
8
12
14
16
20
22
24
26
28
29
34
Chairman and CEO letter
The ABB Way
Our Purpose and values
Sustainability strategy 2030
Electrification
Industrial Automation
Motion
Robotics & Discrete Automation
Highlights 2020
Financial overview
Cash generation and
capital allocation
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C H A I R M A N A N D C EO L E T T E R
Dear shareholders, customers,
partners and employees,
The year 2020 is not one that we are likely to
forget. Never in living memory has the world
faced a challenge matching the scope and impact
of the COVID-19 pandemic. The economic costs
were high, as lockdowns dampened business
activity across much of the world. But the human
costs were far higher. At ABB, some of us lost
family members, friends and colleagues, as did
millions of others around the world.
Leading ABB through the COVID-19 pandemic
But the COVID-19 pandemic also brought out the
best in ABB. Across the world, our people came
together to take care of each other, while continu-
ing to support our customers and to help in their
communities. Our first priority, as always, was
health and safety – we took every precaution to
safeguard our people, ensuring that we were fully
aligned with local government and World Health
Organization guidelines and making appropriate
arrangements for employees to work from home.
Many of our leaders donated part of their com-
pensation or salary to help affected employees,
and many employees took leave to do volunteer
work in their communities. Our main fundraising
effort, for the COVID-19 relief program of the
International Committee of the Red Cross, raised
CHF 2 million in employee and company donations.
In December, we made another donation
of $1 million to support the World Childhood
Foundation’s work with vulnerable children.
Thanks to our global footprint, well-established
crisis management processes, and strong techno-
logical expertise, we were able to keep our
operations running, which was crucial as we are
recognized as a critical supplier for power and
essential infrastructure to nations and industries.
Our technologies also helped us and our custom-
ers overcome many of the obstacles created
by the lockdowns. One way we supported our
customers was by making some of our software
services available free to ensure uninterrupted
power supplies to critical healthcare applications
and to support commercial and industrial facili-
ties in better managing their facilities.
Thanks to our strong focus on safety, the number
of serious work injuries among employees and
contractors was stable compared with 2019 and
fell compared with previous years. Tragically, we
had two fatalities in 2020, and two in 2019, com-
pared with four in each of the two previous years.
In our 2030 sustainability strategy (see below),
we are targeting a yearly reduction in lost time
from injuries.
Financial performance
Thanks to the commitment, ingenuity and
hard work of our people, in 2020 we delivered
a solid financial performance in what was an
extremely challenging year. As expected,
our markets were impacted by COVID-19 pan-
demic: For the full-year 2020, orders declined
by 7 percent to $26.5 billion and revenues were
down by 7 percent. However, our operational
EBITA margin – our main measure of profitability
– was stable at 11.1 percent, showing that we
took the right and necessary actions in response
to the pandemic.
In line with our policy of paying a sustainable
dividend over time, we will be proposing
a dividend of CHF 0.80 per share to our share-
holders to be voted on at the annual general
meeting on March 25, 2021.
Strongly positioned for growth
The challenges posed by the COVID-19 pandemic
accelerated several megatrends and none more so
than the shift to digital connectivity and automa-
tion, as industries sought ways to maintain
operations with fewer people on site. At the
same time, growing public awareness of the need
for action on climate change and the over-use
of natural resources has driven sustainability to
the top of the agenda for governments, investors,
corporations and multilateral organizations.
A related megatrend is urbanization, which
is placing cities under huge pressure to expand
sustainably, reduce energy consumption and
traffic congestion, and improve air and water
quality.
For ABB, these megatrends represent compelling
business opportunities. Our market and techno-
logy leadership in electrification position us
strongly in a market where demand is growing at
twice the pace of other energy sources. Our
leadership in automation, robotics and motion
means we are ideally placed to help industries
improve energy efficiency and productivity.
And our solutions for the transport sector gives
us commanding positions in marine, rail and
electric mobility on the road.
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C o V I D -1 9 i n f o r m at i o n :
F o r h e a l t h a n d s a f e t y r e a s o n s , e a c h p e r s o n w a s p h o to g r a p h e d i n d i v i d u a l l y to e n s u r e p h y s i c a l d i s t a n c i n g .
10
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the CoVID-19
pandemic accelerated
several megatrends
and none more so
than the shift to
digital connectivity
and automation,
as industries sought
ways to maintain
operations with fewer
people on site.
Finally, our domain knowledge in all of these
areas has allowed us build up a strong portfolio
of digital solutions and services under the
ABB Ability™ brand. As demand for digitally
enabled solutions increases, we see tremendous
opportunities for our remote monitoring,
preventive maintenance and other connected
solutions for industry, cities and transport.
Continuing our transformation
To position ABB to take full advantage of these
emerging megatrends, we embarked on an ambi-
tious transformation program in 2019. Our aim
was to simplify our organizational structure to
foster a high-performance culture and to focus on
complementary businesses in which ABB can
maintain and strengthen its market leadership.
In 2020, we completed our organizational trans-
formation with the divestment of Power Grids,
which was successfully handed over to Hitachi on
July 1, 2020, and by implementing our new operat-
ing model called the “ABB Way”.
Today, under Hitachi’s majority ownership,
the Hitachi ABB Power Grids joint venture is a
successful company that is continuing to win
impressive orders and to develop pioneering and
digital technologies. In line with our commitment
to ABB shareholders, we intend to return cash
proceeds of $7.6-7.8 billion from the divestment
of Power Grids through a share buyback program.
The first part of the program will end on the day
of our annual general meeting, when shareholders
will be asked to approve the cancellation of shares
bought back.
Our Purpose
During the summer of 2020, we formulated our
Purpose, representing the “why” we are in
business. Our Purpose was developed in consul-
tation with key stakeholder groups: employees,
customers, shareholders, partners and multi-
lateral organizations. First and foremost,
our Purpose is to create superior value for our
stakeholders. We do so by continuously pushing
the boundaries of technology, and by helping
to transform industries and society to
achieve a more productive, sustainable future.
Sustainability
A key part of our company Purpose and the value
that we create for stakeholders is sustainability.
We believe that sustainable development means
progress towards a healthier and more prosper-
ous world for future generations. This means
balancing the needs of society, the environment
and the economy.
Having delivered a good performance against all
of our environmental, social and governance
targets for 2020, and exceeded most of them, we
launched our 2030 sustainability strategy, focus-
ing on those areas where we can make the biggest
impact – reducing carbon emissions, preserving
resources and promoting social progress.
Our key targets for 2030 include: achieving carbon
neutrality in our own operations; helping our
customers reduce their annual CO2e (carbon
dioxide equivalent) emissions by at least
100 megatons, equivalent to the annual emissions
of 30 million combustion cars; and embedding
circularity across our value chain (see page 16).
We will achieve these targets by transitioning
to renewable sources of energy, converting our
vehicle fleet to electric or other non-emitting
alternatives, and by improving energy efficiency
in our own and our customers’ operations.
Last year, we also introduced our global diversity
and inclusion strategy 2030, with the clear goal
of increasing diversity across all dimensions,
including: gender, LGBTQ+, abilities, ethnicity and
generations. By 2030, we are targeting a doubling
of the number of women in senior management
roles to 25 percent.
To ensure progress on our targets, we have devel-
oped a new sustainability governance framework.
We will also link ABB’s remuneration policies
to the achievement of our sustainability targets.
The Board of Directors will be responsible
for overseeing the sustainability strategy and
monitors progress and target achievements, as
part of its overall responsibility for the company’s
strategy and targets.
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Decentralized business model
In parallel to our Purpose, we introduced the
ABB Way operating model, which covers “how”
we do business in order to create success.
We drive performance through a decentralized
business model that moves accountability for
strategy, operations and performance to our
individual Divisions. This enables decisions to be
made closer to the customer, meaning that our
Divisions can be more entrepreneurial – fast,
innovative and responsive to customer needs.
The ABB Way also serves as the common frame-
work that defines how our Divisions, Business
Areas and lean corporate center operate – it is the
“glue” that unites our decentralized Group
(see page 12).
The ABB Way is an evolution from our previous
operating system ABB-OS, which discontinued
our matrix structure. In further simplifying our
organization, the ABB Way enabled the ABB-OS
savings target of $500 million net savings to be
reached one year ahead of plan.
Active portfolio management
In 2020, we carried out a thorough review of our
business portfolio, assessing each Division on its
strategic attractiveness, value-creation potential,
and fit within ABB. We concluded that there are
three Divisions for which ABB is not the best
owner going forward.
The Divisions in question – Turbocharging,
Mechanical Power Transmission and Power
Conversion – are all high-quality businesses that
are performing well. But we believe that they
would be better off under different ownership.
We therefore intend to exit these businesses,
either by selling them outright or spinning them
off on the stock exchange. Together, they repre-
sent roughly $1.6 billion of combined annual
revenues or approximately six percent of ABB’s
total revenues. Going forward, portfolio manage-
ment will be a continuous process.
People, governance and brand
As well as a decentralized business model, the
ABB Way covers people management, governance
and our brand. To create superior value, we need
to attract and retain the best people, while
cultivating a high-performance culture. Through
our values of Courage, Care, Curiosity and
Collaboration, we create safe, fair, equitable and
inclusive working environments in which our
people can succeed and develop.
Under the ABB Way, we safeguard our company
from financial and reputational harm through
a comprehensive governance framework, based
on integrity and transparency. The framework is
underpinned by our Code of Conduct, which
guides our employees to do the right thing
and contains a commitment against retaliation.
Our Code commits us and our suppliers to behave
ethically, follow safe and healthy work routines,
adopt sustainable and environmentally sound
business practices, and respect human rights.
The fourth element of the ABB Way is our brand –
an important part of the “glue” that unites us
as a company. With our ABB brand, we occupy
a far stronger position in the market and are able
to better attract talent and investors. To maintain
and strengthen our brand, we will speak consis-
tently with a single voice and ensure that what we
say matches what we do.
Confident in future performance
We are confident that running ABB under the
umbrellas of our Purpose and the ABB Way will
sustainably improve the performance of
our company and enable us to achieve both our
financial and sustainability targets.
On behalf of the Board of Directors and the
Executive Committee, we would like to thank our
employees for their remarkable achievements,
commitment and efforts in an exceptionally
challenging year. They truly went above and
beyond the call of duty to look after each other,
serve our customers, and support their communi-
ties and vulnerable people.
Thank you also to our shareholders for your
continued trust in ABB. You have been a pillar
of stability during a year of crisis, and we intend
to ensure that your steadfastness is rewarded.
We look forward to an exciting future for ABB,
for the communities in which we live and work,
and for the world.
Best regards,
Peter Voser
Chairman of the Board
of Directors
Björn Rosengren
Chief Executive Officer
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The ABB Way
The “glue” that unites our decentralized company
Decentralized business model
In June 2020, we introduced a new operating
model, the ABB Way. Designed to further improve
our performance in a rapidly changing, unpredict-
able world, the ABB Way represents an evolution
from our previous operating system, ABB-OS.
Under ABB-OS, we discontinued our matrix
structure and shifted greater responsibility and
accountability to our businesses. The ABB Way
builds on that progress by empowering our
businesses, now called “Divisions”, with full
ownership and accountability for their respective
strategies, performance and resources.
By shifting operational responsibility to the
Divisions – of which there are currently 20 – the
ABB Way enables decisions to be made quickly
and close to the customer. Speed and agility are
critical in our competitive, fast-changing
environment. With their greater empowerment,
our Divisions are free and encouraged to collabo-
rate with each other as required for success.
Our four Business Areas evolve their portfolios
and steer the performance of their respective
Divisions. They also manage selected shared
resources on behalf of the Divisions such as parts
of R&D and our ABB Ability™ digital platform.
Under the ABB Way, the corporate center has been
further streamlined to focus on portfolio
evolution, capital allocation, common policies
and our brand.
Creating value
As the common and mandatory framework in
which our Divisions, Business Areas and lean
corporate center operate, the ABB Way serves
as the “glue” in our decentralized Group.
The ABB Way consists of two parts. At its core
is our company Purpose – the “why” we are in
business. Our Purpose is to create success for all
our stakeholders. We do so through our leading
technologies, which address the world’s energy
challenges, transform industries and, along with
our responsible business practices, embed
sustainability in everything we do (see page 14).
The ABB Way also covers “how” we create value:
how we drive performance, how we ensure that
we have the right people in the right place at the
right time, how we create a strong culture of
governance and integrity, and how we build and
protect our brand and reputation.
With the ABB Way, we drive performance
through a decentralized business model in which
our Divisions create value with the clear aim of
being no. 1 or 2 in their respective market
segments. Their performance is managed
through a scorecard system, which provides full
transparency on key metrics, including orders,
operational EBITA, capital expenditures and
return on capital employed. Our Divisions operate
under different strategic mandates: they need to
reach stability and profitability before investing
into organic and acquisitive growth.
—
By shifting opera-
tional responsibility
to the Divisions,
the ABB Way enables
decisions to be made
quickly and close to
the customer.
A key aspect of the ABB Way is active portfolio
management, also based on a clear and transpar-
ent framework. In 2020, we assessed each
Division on its strategic attractiveness, future
value-creation potential, and fit within ABB.
We concluded that there were three Divisions we
needed to exit as ABB was not the best owner
for these businesses going forward. The Divisions
in question are Turbocharging, Mechanical Power
Transmission, and Power Conversion. All three are
high-quality businesses that are performing well,
and we will consider all options for these
businesses with the clear objective of maximizing
value for all concerned.
Excellence in people
The ABB Way emphasizes excellence in our people
as the key to value creation. To become an even
better company, we are fostering a performance
culture through our values, good leadership, and
strong performance and review processes.
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A culture of diversity, inclusion and equal oppor-
tunity is critical to our business success and
makes us stronger. To help our people succeed,
we provide opportunities for learning and
personal development, while our open job market
empowers our employees to manage their own
careers.
Governance based on integrity and transparency
To safeguard our company from financial and
reputational harm, we have a comprehensive
governance framework underpinned by our Code
of Conduct, which was revised and simplified
in 2020, making it more accessible and easier
to use. The Code now contains five integrity
principles and 16 integrity focus areas to guide
and support us in our everyday work. By always
following our Code, we will ensure that ABB
is an exemplary corporate citizen and a champion
of ethical behavior and human rights.
Strengthening the ABB brand
Our ABB brand is essential to building trust in
our company. When we are trusted, customers
rely on us, people feel empowered, and all our
stakeholders reap the benefits. With a strong ABB
brand, we can occupy a far stronger position in
the market and with that support our businesses
to succeed. Whatever we say, do, write and
publish is part of our reputation and we manage it
carefully for example by speaking consistently
with “one voice” and ensuring that what we say
matches what we do.
Proceeding towards a sustainable future
The ABB Way is an operating model designed for
a global company in a rapidly changing world.
By empowering our Divisions to be entrepreneurs
that prioritize stability, profitability and growth –
in that order – we create sustainable value, based
on a culture of continuous improvement, and
in doing so we contribute to a more sustainable
society.
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Our Purpose and values
ABB has gone through a series of profound
changes in recent years, among them the divest-
ment of our Power Grids business, our trans-
formation into a decentralized organization, and
our shift toward digital solutions. These and other
changes have raised questions about what we
stand for as a company, what we should aspire to
be in the future and what role we should play in
society.
2. Addressing the world’s energy challenges
As pioneers in electricity and automation, we
help to address the world’s energy challenges.
We are enabling the world’s data growth,
mobility expansion and urbanization while
preserving the environment. Our solutions
make homes, offices, factories and transport
more energy-efficient and safer, and energy
more affordable.
In late 2019, we initiated a project to articulate
a clear Purpose for ABB. In doing so, we were also
acting on significant empirical evidence from
other companies that a strong, lived purpose
has a positive impact on business performance
and value creation. Over a six-month period,
we conducted extensive interviews and listening
sessions with all stakeholder groups, including
employees, customers, investors, suppliers
and multilateral organizations. Our aim was to
build up a holistic picture of how ABB is perceived
by its stakeholders and to articulate an overall
strategic direction for the company.
In total, we interviewed more than 300 employees
from front-line personnel to executive manage-
ment as well as 30 customers and 30 other
external stakeholders, ranging from NGOs and
academic institutions to international
organizations.
By the end of that process, we had identified
and articulated five clear Purpose “themes” that
described our identity and the impact we make.
In capturing the themes, we made sure questions
for our key stakeholders were answered.
For customers, our Purpose needed to answer
the question: How does ABB help us win?
For employees: Why should we dedicate our
passion and skills to ABB? For investors:
Why should we invest in ABB? For society and
the planet: How does ABB make the world a better
place? For partners and suppliers: Why should we
join forces with ABB?
Our five Purpose themes are:
1. Creating success
At ABB, we are passionate about creating
success. This starts with our customers – we
enable them to reach new levels of perfor-
mance. Their success translates into success
for all our stakeholders: employees, partners
and shareholders. Our people make the
difference. Their domain knowledge and
experience are why customers come to us with
their biggest challenges.
3. Transforming industries
We envision a future where the physical
and digital worlds merge. Together with our
customers, we are turning this vision into
reality. We provide automation, electrification
and motion solutions that fulfil today’s needs
while bringing the physical and digital worlds
together. We make operations safer,
more intelligent and more productive,
and work towards a more prosperous and
sustainable future.
4. Embedding sustainability
For us, sustainability is both the right thing
to do and a business opportunity. We lead by
example by embedding sustainability in
everything we do. Our solutions reduce harmful
emissions and preserve natural resources.
We champion ethical behavior and human
rights to contribute to better lives for people
across the globe.
5. Leading with technology
If there is one thing that ABB is recognized for,
it’s leading with technology. Innovation has
been in our DNA since we were founded more
than 130 years ago to take advantage of a new
technology called electricity. This is one of the
main reasons why customers and others turn
to us for help with their biggest challenges.
Together, we continuously push the frontiers of
technology to make things possible that were
not possible before.
From these Purpose themes, we crafted a clear
statement of Purpose:
• We succeed by creating superior value.
• We push the boundaries of technology to drive
performance to new levels.
• And we energize the transformation of society
and industry to achieve a more productive,
sustainable future and to create superior value
for our stakeholders.
Today, we can say that our Purpose is at the core
of everything we do – our operating model,
our strategy, our governance and our values.
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Our values
Along with our Purpose, which is “why” we are
in business, we developed a set of four values that
reflect “how” we behave to be successful and
to realize our Purpose: Courage, Care, Curiosity
and Collaboration. Developed in much the same
way as our Purpose – through listening to our
leaders and people and using their ideas and
input to capture the essence of our culture – our
values are the cornerstone of our culture.
They guide and shape our behavior and interac-
tions with each other, our customers, partners
and society as a whole.
Our values empower and encourage our employ-
ees to have the courage to take action and
manage consequences, speak up and ask for help,
and take calculated risks to create success.
They keep them focused on taking care of our
customers, our people and the environment,
on respecting and valuing differences, and doing
what is right while acting with integrity. By curi-
osity, we impart that there is always a better way
to do things, and to learn from failures and
successes. Finally, we live collaboration because
we believe that smart people collaborate, we build
on each other’s strengths and success, and we
partner with our customers.
—
We succeed by creating
superior value.
—
We push the boundaries
of technology to drive
performance to new levels.
—
We energize the transformation
of society and industry to
achieve a more productive,
sustainable future.
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Sustainability strategy 2030
Embedding sustainability in everything we do
Sustainability is a key part of ABB’s company
Purpose and of the value that we create for all of
our stakeholders.
At ABB, we believe that sustainable development
means progress toward a healthier and more
prosperous world for future generations.
This means balancing the needs of society, the
environment and the economy. To achieve this,
we embed a sustainable approach to business
across our value chain, creating superior value for
all of our stakeholders.
the value chain because we can have a much
greater impact by partnering with our customers
and suppliers, and other stakeholders.
At ABB, we are committed to responsible business
practices, which are at the center of our compre-
hensive governance framework, based on respect
for human rights, integrity and transparency.
This governance framework is underpinned by our
five integrity principles in our Code of Conduct,
which guides our employees to do the right thing.
Our suppliers are bound by our Supplier Code
of Conduct.
With leading technologies and responsible busi-
ness practices, ABB also contributes to the United
Nations’ Sustainable Development Goals, of which
we have always been a strong advocate.
To ensure that we are focused on achieving our
goals, our sustainability targets are integrated
into our decision-making processes and we have
accountabilities and incentive plans in place to
drive action.
A new strategy for a new decade
Enabling a low-carbon society
The year 2020 marked the last year of ABB’s
sustainability strategy for the previous decade.
We delivered a good performance against all
of our environmental, social and governance
(ESG) targets, and exceeded the majority of them,
including the reduction of our own greenhouse
gas (GHG) emissions by 58 percent compared
with a 2013 baseline. We are proud to have reached
13.5 percent representation of women in senior
management. Over the past few years, we have
made solid progress in attracting and recruiting
women for both early talent and senior leadership
positions, providing a strong foundation for our
2030 diversity and inclusion ambitions.
To determine our sustainability targets for the
next decade, we conducted a thorough materiality
analysis of the expectations and requirements
of key stakeholder groups, including customers,
government and civil society representatives,
analysts, suppliers, local communities and others.
Some 300 stakeholders of our Business Areas
were consulted, providing more than 400 hours of
interviews. In addition, more than 30,000 com-
ments from our annual employee Engagement
Survey were analyzed.
Sustainability strategy 2030
As a technology leader, we elected to focus on
areas where we can make the biggest impact
– enabling a low-carbon society by reducing
emissions, preserving resources and promoting
social progress, while also complying with local
rules and regulations wherever we operate.
In all of these areas, we are taking action across
(1) GE Industrial Solutions
A key goal of our sustainability strategy is to
contribute actively to a low-carbon society, in line
with the 1.5°C scenario of the Paris Agreement
and following the guidelines of the Science Based
Targets initiative.
58%
Reduction in carbon dioxide
equivalent emissions, excluding
Power Grids and GEIS(1) in 2020,
compared with 2013 baseline
13.5%
Representation of women in
senior management positions
reached in 2020
Through the products and solutions we sell
between now and 2030, we will enable our
customers to reduce their annual CO2e (carbon
dioxide equivalent) emissions by at least
100 megatons, equivalent to the annual emissions
of 30 million combustion cars. As ABB, our target
is to reach carbon neutrality by 2030. We have
currently identified areas that can reduce our
CO2e emissions by at least 80 percent and we will
continuously seek opportunities to do more.
Key actions will be to continue to transition
to renewable sources of energy, improve energy
efficiency across our factories and sites,
and convert our vehicle fleet to electric or other
non-emitting alternatives.
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ABB entered the e-mobility market back in 2010,
and today has sold more than 400,000 electric
vehicle chargers across more than 85 markets;
including more than 20,000 DC fast chargers and
380,000 AC chargers, including those sold
through Chargedot. As of 2022, ABB will become
the official charging supplier for the ABB FIA
Formula E World Championship’s next generation
of electric racing cars. The all-electric motorsport
series, of which ABB has been title partner since
2018, provides a competitive test-bed for
e-mobility technologies, ultimately helping to
drive progress towards a more sustainable future.
Preserving resources
To preserve resources for future generations,
by 2030, at least 80 percent of ABB products and
solutions will be covered by our circularity
approach, reducing waste, increasing recycling
and reusability, and making our products more
durable. We will also make sure that zero waste
from our own operations is disposed of in
landfills, wherever this is compatible with local
conditions and regulations. Today, close to
40 percent of our sites have already stopped
sending waste to landfills. And we will systemati-
cally improve circularity in our supply chain
through our supplier sustainability framework,
which focuses on environmental, social and
governance performance.
Promoting social progress
We promote social progress, by creating safe, fair,
equitable and inclusive working environments in
which our people can succeed and develop, as well
as by providing impactful support for community
building initiatives and through our supplier
sustainability framework. To ensure continuous
progress on health and safety within ABB, we are
aiming for, and will track, a yearly reduction in lost
time from injuries. We also have a comprehensive
diversity and inclusion framework in place,
with the clear goal of increasing diversity across
all dimensions, including: gender, LGBTQ+ ,
abilities, ethnicity and generations. By 2030, we
are targeting a doubling of the number of women
in senior management roles to 25 percent.
In 2020, we signed the United Nations Standards
of Conduct for Business to tackle discrimination
against lesbian, gay, bisexual, trans and intersex
people. We are also working with Europe’s largest
LGBT rights organization, Stonewall, to help
develop a roadmap on LGBTQ+ for employees.
As part of our commitment to social progress,
we are targeting a top-tier employee engagement
score in our industry with an ambitious people
strategy, covering: leadership, learning & personal
development, career opportunities and an open
job market, diversity and inclusion, and healthy
and inspiring workplaces.
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We believe that
sustainable develop-
ment means progress
towards a healthier
and more prosperous
world for future
generations.
In our communities around the world, we will
provide impactful support for community-
building initiatives in three areas: education,
diversity and inclusion, and care in the community
and we will systematically drive improvement in
our supply chain through our expanded supplier
sustainability framework.
Sustainability governance
As part of its overall responsibility for the
company’s strategy and targets, ABB’s Board of
Directors has ultimate oversight of the sustain-
ability strategy, and monitors progress and target
achievements. Sustainability has been added
to the responsibilities of the Board’s Governance
and Nomination Committee, while the Compen-
sation Committee will ensure that ABB’s remuner-
ation policies are linked to the achievement of its
sustainability targets.
In our 2020 Engagement Survey, our engagement
score rose four points to 75, a significant im-
provement over the previous year. The response
rate was also higher – 73 percent compared to
65 percent in 2019 – and the large number of
comments, 280,000 in all, provided a rich source
of information for continuous improvement
across the company. Based on these encouraging
results, we are confident that employees support
the direction in which we are going and want
to be part of the journey we have embarked on.
Our people strategy will be the vehicle to ensure
progress across ABB in the years to come and
to make us a leading employer in terms of people
and culture.
A new sustainability governance framework
will be operational in 2021 to support the imple-
mentation of our 2030 sustainability ambition
across our four Business Areas and reflect our
change of operating model. The Sustainability
Board, comprising the Group Executive Commit-
tee, oversees sustainability policies and
programs, reviews developments, and monitors
progress towards our targets.
With our ambitious targets, strong action plans
and comprehensive governance framework, we
are confident that by 2030, we will have reached
all of our targets and be a leading contributor to
sustainable development.
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E L EC T R I FI C AT I O N
A leader in a rapidly expanding
market
Electricity is growing twice as fast as other
energy sources worldwide, driven by increased
urbanization, digitalization and new points of
consumption, as well as the expanding role of
distributed generation. As the #2-ranked business
in a $160 billion market, we see an exciting future
for our Business Area in addressing the world’s
energy challenges. Current global macroeconomic
trends are expected to continue, and the overall
market for electrification is projected to grow
4 percent annually from 2020-2023.
At ABB, we are pushing the boundaries of
technology with safe, smart and sustainable
electrification solutions, powered by our people,
to meet the changing needs of society. We offer
our customers a full range of low- and medium-
voltage products and solutions, along with
pre-engineered packaged services and tailored
solutions for intelligent protection and connec-
tion. We are committed to protecting our planet
by innovating how we work, live and move; reduc-
ing the carbon footprint of our facilities and
supporting our customers to reduce their envi-
ronmental impact.
Serving the needs of our customers
With 50,500 employees and $11.9 billion in revenue
in 2020, we operate in more than 100 countries,
creating success by delivering superior value for
customers. We have aligned our five market-
leading Divisions – Smart Power, Smart Buildings,
Installation Products, Distribution Solutions and
Power Conversion – to our customer needs.
Our common sales and marketing organization is
responsible for the go-to-market strategy,
demand generation and profitable growth of the
Electrification business. Through a range of
activities including sales management, commer-
cial operations and digital engagement our
10,000 colleagues in our commercial team repre-
sent the entire Electrification portfolio. We serve
a wide range of customer segments including
buildings, electrical utilities, oil and gas, chemicals,
data centers, e-mobility, renewables and food and
beverage. With unmatched domain expertise
across key industry verticals and channels, we
support our customers and partners with solutions
which address current needs while considering
emerging trends such as urbanization, digitaliza-
tion and the shift to electricity and sustainable
energy. Our sales are predominately made
through a global network of channel partners and
end customers.
Driving growth through differentiation
We are driving growth and performance by differ-
entiating our business through technological and
digital innovation, as well as operational excel-
lence that produces an outstanding customer
experience.
This strategy led to a string of successful launches
in 2020. This includes PrimeGear ZX0, the world’s
first switchgear that allows users to switch to an
eco-efficient insulation gas, which reduces the
impact on global warming by 99.99 percent, at
any point in its lifecycle. In addition, ABB Tenton®,
is a range of high-quality, easy-to-use sensors
which simplifies the implementation of intelligent
automation in modern buildings, while MegaFlex
DPA IEC is the most compact uninterruptible
power supply on the market.
We received several awards for our solutions,
including a Red Dot Award for both our
ABB RoomTouch® wall-mounted touchscreen
control and the IP touch 7” visualization panel,
which help make buildings more livable and
sustainable. We were also awarded a Frost &
Sullivan Innovation Award for our TruONE auto-
matic transfer switch.
—
As the #2-ranked busi-
ness in a $160 billion
market, we see an
exciting future for our
Business Area in
addressing the world’s
energy challenges.
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bringing our solutions to the next level. We are
now ready to accelerate commercial
development.”
With the potential to generate up to €20 per
EV a month by exporting surplus power back to
the grid, our V2G solution reduces the total cost of
ownership, further boosting the adoption of EVs.
The charger meets the most stringent grid
compliance requirements and is designed to
set a global benchmark for V2G charging. Under
the agreement, ABB is supplying bidirectional
kiosks in France, the United Kingdom, Italy, Bel-
gium and Germany.
Power infrastructure solution
The data-center colocation market is expected
to double in size over the next five years, as
companies increasingly use hosting services for
their computer server, storage and networking
needs. In meeting this skyrocketing demand,
NEXTDC, a leading Australia-based data center
operator, is promising its customers a 100 percent
uptime guarantee.
ABB Electrification’s integrated power distribution
and critical services monitoring system (CSMS)
solutions have been helping NEXTDC meet that
promise. Our solutions are delivering the highest
level of flexibility and reliability, while at the same
time achieving energy efficiency, cost and time
savings in the data centers that the company
designs and builds. The 33kV Gas Insulated
Switchgear for example was pre-commissioned
offsite by ABB, reducing commissioning time by
more than 20 percent.
“We see ABB as an innovator in electrical engi-
neering – in the data center space, and power
distribution and generation, as well as
automation,” said NEXTDC Chief Operating
Officer, Simon Cooper. “These are materially
important aspects as NEXTDC continues to
look for new ways to innovative and evolve.”
ABB Electrification’s comprehensive solution
allows faster and better operational decisions,
resulting in more effective and efficient data
center operations. The highly versatile system
integrates data from IT, power, cooling and
building systems from multiple vendors and
eliminates the need for manual data entry when
calculating utilization metrics and other KPIs.
Meanwhile, our critical services monitoring
solution alerts NEXTDC and ABB to any early
indications of equipment deterioration, allowing
us to work together to proactively isolate and
resolve potential issues before they arise.
—
C A S E S T U D I E S
Returning power to the grid
The number of electric vehicles (EVs) is estimated
to rise to around 600 million worldwide by 2040,
accounting for 33 percent of all vehicles on the
road. While many EV drivers already rely on
ABB chargers, through our new bidirectional
charging technology, they will soon be able to
export surplus power back into the grid.
In 2020, we provided our new bidirectional
charging technology to Dreev’s vehicle-to-grid
(V2G) project, a joint venture between Électricité
de France and Nuvve Corporation. Our light and
compact 11 kW bidirectional charging solution,
specially designed for the project, strengthens
our technology leadership in e-mobility.
Dreev CEO Eric Mevellec said: “V2G is a technology
that requires both innovation and industrial
capabilities. This cooperation with ABB is key to
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I N D U S T R I A L AU TO M AT I O N
Effecting change through
leadership in automation,
electrification and digitalization
Industries are reshaping the way they do busi-
ness, and looking to new solutions that boost
productivity, optimize performance and quality,
lower costs and reduce emissions. Automation,
electrification and digitalization are central
to this ongoing transformation in the process and
maritime industries. They play an essential role
in all aspects of life: from producing energy
to supplying water, from manufacturing goods
to enabling their transportation.
With 21,500 employees and $5.8 billion in revenue
in 2020, ABB’s Industrial Automation Business
Area enables efficient operations that are safer,
smarter and more sustainable over the lifecycle of
its customers’ investments. Through its five
Divisions – Energy Industries, Process Industries,
Marine & Ports, Turbocharging, and Measure-
ment & Analytics – Industrial Automation delivers
an extensive portfolio of solutions. They are
based on ABB’s leading technologies such
as distributed control systems, deep domain
expertise, global footprint and industry-specific
products, like mine hoists, gearless mill drives,
Azipod® marine propulsion, turbochargers
and quality control systems. Each solution
is supported by a range of increasingly remote
services throughout the long life of assets.
Harnessing technology, digital and deep domain
expertise to drive industry transformation
Industry 4.0 technologies, big data, machine
learning and artificial intelligence are essential
to solving the dual challenge of driving higher
productivity while lowering environmental
impact. Data plays a pivotal role in achieving this
goal. Today, less than 20 percent of the data that
industrial companies produce is used, and
only a fraction of that is analyzed. A key milestone
to unlock the power of data was reached in 2020
with the launch of ABB Ability™ Genix, a new
industrial analytics and artificial intelligence suite
developed by ABB Industrial Automation software
specialists. Genix will help industries to create
value by combining and contextualizing data from
multiple sources – real-time operations data,
engineering design parameters, commercial data,
and locational information from geospatial
systems – providing actionable insights to boost
productivity and asset performance, while
improving sustainability, safety and reliability.
As industrial customers worldwide adapt to the
new normal, Industrial Automation’s digital
services, expertise in remote operations, and
ability to collaborate across multiple locations
contributes to keeping critical infrastructure and
production running, while protecting lives and
livelihoods. ABB Ability™ Collaborative Operations
remotely supports more than 1,000 industrial
plants, 70+ mines, and around 1,200 vessels at
sea. With 24/7 access, ABB’s experts are helping
customers to identify potential issues in their
operations through advanced data analytics, and
prioritize actions that enable predictive mainte-
nance and better business decisions.
—
ABB Industrial Auto-
mation enables
efficient operations
that are safer, smarter
and more sustainable
over the complete life-
cycle of its customers’
investments.
Making the case for large capital investments
to fuel the energy transition
To meet some of the pressing challenges of
industry and society – such as access to power,
water and other important resources, while
lowering environmental impact – major capital
investments will be needed. In the current
environment, the stakes are even higher for such
investments. In October 2020, ABB unveiled
a fresh approach to meet this challenge:
As of January 1, 2021, the Business Area Industrial Automation was renamed Process Automation.
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ABB Adaptive Execution™ combines four decades
of project experience with ABB expertise,
advanced technologies and new agile method-
ologies to make major capital investments more
feasible. Harnessing digitalization, virtual setups
and collaboration, Adaptive Execution can
lower capex requirements for automation by up
to 40 percent, shorten project schedules by up to
30 percent, and reduce start-up hours by up
to 40 percent.
With the accelerated transformation triggered by
the unprecedented challenges of 2020, ABB Indus-
trial Automation is driving toward more
autonomous operations that promise even
greater potential to reduce emissions, increase
the safety of people, and nurture prosperity
globally.
—
C A S E S T U D I E S
Digital solutions making a difference during
lockdown
The COVID-19 pandemic drastically altered
business dynamics in 2020. The start-up of a new
control system for a European energy company’s
offshore platform was scheduled in March, coin-
ciding with lockdown restrictions. By leveraging
its digital technologies and remote engineering
services, ABB was able to conduct a virtual
Factory Acceptance Test, the critical last step
before the customer could commence production.
This new approach was so successful that the
customer presented ABB with a Quality Recogni-
tion Award. Virtual commissioning has since
become integral to ABB’s portfolio.
Supply of personal safety and hygiene equipment
was a serious concern, especially at the start
of the pandemic. In the midst of peak demand,
a leading global hygiene and health company
experienced production outages. Travel restric-
tions made it impossible for ABB experts to go
onsite to fix the problem. The team swiftly shifted
to supporting the customer with a remote solu-
tion: remote monitoring and analytics technology
was installed, with the customer handling onsite
setup and ABB remotely configuring the software.
The problem was identified and ABB could
remotely tune the assets. Moreover, the ABB team
supported the local personnel through eLearning.
To be ready for the next time, the customer
signed a contract for remote service.
Improving access to clean water
Personal sustenance took on new focus in
2020. A local water authority in Karnataka, India,
can now track, measure and optimize water usage
in a drought-prone region thanks to ABB’s digital
water management. The district faced regular
water shortages, and needed to improve water
availability to its customers. ABB designed auto-
mation from the pumping station to water
treatment, covering 620 tanks and 16 reservoirs,
all monitored from a central control room.
Clean water is assured to nearly a million
people now.
A faster way to reduce emissions
A leading Asian oil company set out to improve
the monitoring of its extensive pipeline network.
ABB’s MobileGuard gas leak detection was the
solution of choice. Featuring wheel- and new
drone-mounted options, this solution signifi-
cantly expanded the speed and range of leakage
detection at lower monitoring costs, while
reducing emissions. This helped achieve other
important business objectives for the customer
in a difficult year. Similarly, more than 30 cities
in China are using MobileGuard to monitor
their pipelines to increase health and safety for
their populations.
Cleaner air for Korean ferry
The world also looks to improve air quality.
ABB is contributing by providing electric power
and propulsion for Busan Port Authority’s first
all-electric passenger ferry, part of South Korea’s
plan to achieve net-zero emissions by 2050.
The 40-meter catamaran will ferry 100 passengers
and five crew between Busan’s North and South
ports, taking about an hour per round trip.
Two battery packs power the ferry for four round
trips before charging. ABB’s Onboard DC Grid™
optimizes power output, and ABB’s Power and
Energy Management System controls power
distribution. Safety and reliability is supported
through remote monitoring by experts in
ABB Ability™ Collaborative Operations Centers.
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M OT I O N
A market leader with a reputation
for innovation
ABB Motion creates value for customers with its
innovative drives, motors and digital services that
increase energy efficiency, improve safety and
reliability, and enable precise control of industrial
processes. Deep domain expertise, the most
comprehensive offering in the industry and
unmatched global presence makes ABB Motion
the partner of choice for customers seeking the
best experience, service and support.
In 2020, ABB Motion employed 20,900 people
around the world and generated $6 . 4 billion
in revenue. With the highest research and devel-
opment (R&D) investment in the industry, it
continuously pushes the boundaries and sets new
standards in motor and drive technology.
For example, in 2011 we introduced synchronous
reluctance (SynRM) motors that offer the perfor-
mance advantages of permanent magnet
technology without using rare earth materials.
Today, these motors meet new IE5 ultra-premium
energy efficiency standards, offering up to
50 percent lower energy losses and significantly
lower energy consumption when compared with
commonly used IE2 induction motors.
ABB ultra-low harmonic drives feature
state-of-the-art technology that mitigates harm-
ful disturbances in electrical networks. This drive
reduces the harmonic pollution that can cause
serious operational issues. And because the
solution is compact, it easily fits into many
environments where space is limited. By keeping
the power network clean and stable, ultra-low
harmonic drives help ensure more reliable
operations with less maintenance and improved
energy efficiency.
Addressing the world’s energy challenges
The imperative for industry and infrastructure
to reduce energy consumption and lower carbon
emissions has never been greater. Researchers
estimate that 45 percent of the world’s electricity
is used to power electric motors in buildings and
industrial applications. ABB’s highly energy
efficient motors, as well as the variable speed
drives that can be used to run them, will have a
significant impact on the ongoing effort to meet
climate change goals.
Our advanced motor technology significantly
reduces power consumption compared with older
systems, which means there is an enormous
opportunity to save energy by modernizing aging
infrastructure. Adding variable speed drives,
particularly in pump, fan or compressor
applications that are widespread across all indus-
tries and buildings, can typically reduce power
consumption by an additional 25 percent.
ABB is also leading the way in the transition
to zero-emission mobility. Our state-of-the-art
traction technology, energy storage systems,
and e-drivetrain solutions enable energy efficient
and emission-free mobility for rail, e-buses,
heavy vehicles and marine vessels.
With ABB Ability™ digital solutions and services,
ABB Motion is transforming industries by
connecting products to deliver customer value.
Our Condition Monitoring service for powertrains
helps to optimize the performance and efficiency
of rotating equipment. Combining smart techno-
logy, data analytics and service expertise helps to
ensure reliable and profitable customer
operations.
As ABB Motion, we keep the world turning while
saving energy every day. Our most important
contribution to sustainability is made possible by
the energy efficiency improvement customers
achieve by using our products. Increasing the use
of this technology can have enormous environ-
mental benefits.
—
As ABB Motion, we
keep the world
turning while saving
energy every day.
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—
C A S E S T U D I E S
ABB helps to enable Switzerland’s first digital
hydropower plant
As Switzerland’s largest producer of renewable
energy, Axpo is taking a modern approach to the
way energy is created and delivered. Its Hydro 4.0
initiative is a pilot project designed to create the
country’s first digital hydropower plant at its
Mapragg facility to increase efficiency and mini-
mize downtime.
In partnership with Hewlett Packard Enterprise
(HPE), ABB worked with Axpo to install ABB Abil-
ity™ Smart Sensors to capture valuable condition
indicators and performance data from the plant’s
rotating equipment. These sensors, through
the ABB Ability™ Condition Monitoring service,
deliver accurate, real-time information about
motor events to ensure equipment is available,
reliable and maintainable. By gaining this insight,
engineers can discover anomalies and anticipate
maintenance needs.
ABB Ability™ Smart Sensors operating over
Aruba infrastructure helped Axpo gain the secure,
scalable connectivity required to execute its
vision of Hydro 4.0. “When we first heard about
this joint ABB-Aruba solution we knew that it
would be a perfect fit for the 360° approach of
our digital power plant,” said Emil Bieri, Axpo’s
Head of Digital Transformation Hydro.
By harnessing the flow of innovation, Axpo is
better able to provide sustainable power for its
customers.
ABB’s energy-saving motor and drive technology
helps Campbell’s Australia reach sustainability
target
Campbell’s Shepparton plant in Victoria, Australia,
has produced the company’s famous range of
soups, stocks and meals for almost 60 years. As
part of its effort to reduce energy consumption
by 20 percent by 2025, Campbell’s installed ABB’s
synchronous reluctance motor (SynRM) and
variable speed drive package as a test case in
Shepparton’s refrigeration plant. After a year of
close monitoring, the results surprised Mark
Hyland, Environmental and Safety Manager at
Campbell’s Australia.
“The numbers clearly showed a 14 percent reduc-
tion in energy consumption whereas I had
expected savings around the 6 to 7 percent mark.”
Energy costs were cut by nearly $15,000 AUD,
leading to an annual reduction of approximately
131 tons of CO2 emissions.
With results like that, Hyland said it
was a straightforward decision to upgrade three
other refrigeration compressors with SynRM
motors and drives. “After the initial project suc-
cess, it was a ‘no-brainer’ to add further SynRM
installations, given the rising energy prices, our
increased ability to meet our sustainability target
and the fact that we could now rely on a critical
piece of infrastructure.”
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R O B OT I C S & D I S C R E T E AU TO M AT I O N
Strongly positioned in high-growth
segments
ABB’s Robotics & Discrete Automation Business
Area has excellent growth prospects as a leader
in a $60 billion market that is expected to grow
annually by 10 percent from 2020 to 2023.
Four key megatrends are transforming the manu-
facturing sector and driving demand for robotics
and automation. As consumers request more
personalization, product variants are expanding
and lifecycles are becoming shorter. At the same
time, an aging population is shrinking the work-
force and people are less willing to perform “dull,
dirty and dangerous” jobs. Manufacturing is
increasingly powered by machine learning, and
Artificial Intelligence (AI) is enabling new digital
solutions to help improve operations. Finally,
uncertainty – caused by trade disputes, geopoliti-
cal shifts and the COVID-19 pandemic – is
impacting manufacturers globally.
These megatrends are challenging manufacturers
to think differently: while productivity and quality
improvements remain a priority, two new require-
ments are becoming increasingly important:
flexibility of operations, and simplicity from
design to installation to operation and
maintenance.
The COVID-19 pandemic that swept the world in
2020 has accelerated the shift to automation, as
manufacturers seek to shorten their supply chains
and move their operations closer to customer
markets.
For manufacturers, the solution lies in greater
automation and robotization, as well as
software-driven processes that enable them to
produce different types of products in the same
factory and in any batch size.
As a market and technology leader, our Robotics &
Discrete Automation Business Area is strongly
positioned in heavily automated industries such
as automotive, and we are rapidly increasing our
offering in key, high-growth segments, including
healthcare, logistics, retail and food & beverage.
Creating value for customers
With 10,300 employees and $2.9 billion in revenue
in 2020, ABB Robotics & Discrete Automation
creates value for customers with our technologi-
cally advanced robotics portfolio serving
automotive OEMs, automotive tier 1 suppliers,
electronics, general industry, consumer segments
and service robotics, and our machine automation
solutions for machine builders.
Our robotics portfolio covers the entire spectrum
of products, solutions and services from robots
and product software, to functional modules,
application cells and smart systems that capture
our deep industry expertise, ensuring flexibility
and simplicity in operations, while increasing
quality and accelerating productivity. The value of
this offering is enhanced through a digital portfo-
lio that supports customers in design,
commissioning, control and optimization as well
as the most advanced service portfolio and the
largest global service network.
Our Machine Automation Division creates value
with integrated automation solutions that help
machine builders develop high-performing ma-
chines. Its product portfolio includes PLCs,
industrial PCs, servo motion, industrial transport,
vision-guided systems and software.
—
the CoVID-19 pan-
demic has accelerated
the shift to automa-
tion as manufacturers
seek to shorten their
supply chains and
move their operations
closer to customer
markets.
Through a partnership ecosystem with leading
software providers, universities and research
institutions like the Texas Medical Center, we are
continuously developing our offering technologi-
cally and for new market segments. Today,
90 percent of our robotics portfolio has embed-
ded software. We also have an active M&A
strategy to expand our portfolio and expertise. In
2020, we acquired Codian Robotics, a leading
provider of delta robots, which are used primarily
for high-precision, pick-and-place applications for
industries like food and beverage and
pharmaceuticals.
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With our broad portfolio and domain expertise,
we are helping our customers improve productiv-
ity, extend the lifecycle of their equipment and
reduce waste, and in doing so helping to trans-
form industries to achieve a more prosperous,
sustainable future.
—
C A S E S T U D I E S
ABB robots engaged in COVID-19 testing
Fifty of our high-precision robots were deployed
in Singapore’s new automated laboratory to
accelerate virus testing to 50,000 tests per day
during the COVID-19 pandemic. The system,
known as a Rapid Automated Volume Enhancer
(RAVE), automates steps in sample processing,
increasing Singapore’s testing capacity by auto-
mating key laboratory processes. Our
IRB 910 SCARA units, along with simulation and
programming support, undertake a range of
repetitive and dangerous tasks to improve labora-
tory conditions for employees, reducing the risk
of contamination and fatigue. ABB’s RobotStu-
dio® simulation software was also used to help
create, simulate and test the robot installation
in a virtual 3D environment, enabling a successful
project that could be ramped up quickly.
Groundbreaking customized painting solution
To meet increasing demand for customized
vehicle paint schemes, we introduced our new
PixelPaint solution, which incorporates a high
dot-per-inch painting inkjet head, dosing control
package and easy-to-use RobotStudio® program-
ming software for two-tone and decorative
painting applications. PixelPaint is available
as a cell using two ABB IRB 5500 robots. Its
non-overspray technology prints paint directly on
to a target area using a printing nozzle head
instead of spraying with a conventional atomizer,
resulting in 100 percent transfer efficiency. Not
only does this reduce operating costs and im-
prove environmental performance by ensuring
that no paint is wasted, PixelPaint also eliminates
the process of masking and de-masking each car,
helping to reduce cycle times in automotive paint
shops by around 50 percent.
Revolutionizing adaptive manufacturing
ABB’s ACOPOStrak, a revolution in adaptive
connective manufacturing, enabled a leading
bottling machine manufacturer to
bring a next-generation smart offering to market.
Thanks to this highly flexible transport system,
our customer’s bottling machine achieves econo-
mies of scale all the way down to batches of just
one. The first module of the new machine consists
of a bottle storage system that can be loaded
with different bottle sizes. Once a specific size
has been selected, the bottle is moved to the
printing module, which can then print and apply
anywhere from one to 12 different labels. The
filling module can switch on the fly and top off
each bottle with the appropriate product. The
final cap closure module then applies one of four
different caps. The equipment relies on ABB’s
ACOPOStrak system, which enables parts and
products to be transported quickly and flexibly
from one processing station to another on inde-
pendently controlled shuttles. Customers who
deploy this solution reap the decisive technologi-
cal advantages associated with adaptive,
connected manufacturing.
28
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0 1 I n t r o D u C tI o n
—
Highlights 2020
Strategy highlights
Performance highlights
—
Focus on industrial customers and simplification
of business model
• Power Grids divestment completed July 1, 2020
recording a book gain of $5.1 billion
• Started the share buyback program to return
cash proceeds of $7.6 to 7.8 billion to
shareholders from the divestment of the Power
Grids business
• Reached $500 million per annum net savings
target one year ahead of plan under the ABB-OS
program
—
The ABB Purpose launched during summer 2020:
What we stand for today and what we aspire to
be in the future
• We succeed by creating superior value
• We push the boundaries of technology to drive
performance to new levels
• We energize the transformation of society and
industry to achieve a more productive,
sustainable future
—
Decentralized setup under the ABB Way: Increase
accountability, transparency and speed
• Introduced the ABB Way operating model
with a clear focus on value creation for
customers, employees and shareholders
• Implemented a fully decentralized business
model with Divisions as the highest operational
level in ABB
• Embedded new scorecard-based performance
management process
• Conducted active portfolio review resulting in
the decision to explore all options for the exit of
the Power Conversion, Turbocharging and
Mechanical Power Transmission Divisions
—
Financial and sustainability targets
• Updated financial framework aligned with the
ABB Way and a focus on stability and
profitability before growth
• Introduced 2030 sustainability targets with the
goal to enable a low-carbon society, preserve
resources and promote social progress
—
• Solid financial performance in a challenging year
impacted by the COVID-19 pandemic
• Empowered Divisions took mitigating actions
through execution of efficiency measures,
reduction of discretionary spend and
postponement of non-critical investments
• Actions taken towards improving the quality of
revenues through focus on high-growth
segments, expansion in digital and continued
ramp down of engineering, procurement and
construction (EPC) business including
settlement of legacy issues
• Capital structure optimization program to
strengthen financial profile and support
de-risking of balance sheet for the long term
largely concluded
—
Key performance indicators:
• Orders -7% (-6% comparable(1)), with all
Business Areas feeling impacts from reduced
output related to COVID-19; order backlog
+5%(1) at year end
• Revenues -7% (-5% comparable(1)), subdued in all
Business Areas; book-to-bill ratio(2) at 1.01x
• Income from operations $1,593 million, -18%,
also impacted by restructuring, Power Grids
related transaction and separation costs and
divestment charges, goodwill impairment and
charges due to changes in obligations related to
divested businesses
• Operational EBITA margin 11.1%(2), stable with
the prior year, impacted by a combined
105 basis points due to stranded costs,
non-core activities and the full and final Kusile
settlement with Eskom in South Africa
• Basic EPS $2.44, +261%(3) including gain from
Power Grids sale; operational EPS(1) $0.98, -21%(3)
• Cash flow from operating activities $1.7 billion;
cash flow from operating activities in
continuing operations $1.9 billion after
approximately $1 billion in combined outflows
for pension plan transfers, Power Grids
carve-out and ABB-OS and other restructuring
and project related items. Adjusted to exclude
the above outflows in both 2020 and 2019
periods, cash flow from operating activities in
continuing operations improved by close to
$550 million year-on-year
The Board of Directors is proposing a CHF 0.80
dividend per share at the 2021 Annual General
Meeting.
(1) On a comparable basis, see the “Supplemental information” section of this annual report.
(2) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(3) EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2019
exchange rates not adjusted for changes in the business portfolio).
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
29
—
Financial overview
Key figures
$ in millions, unless otherwise indicated
Orders
Order backlog (end December)
Revenues
Income from operations
Operational EBITA(1)
as % of operational revenues
Income from continuing operations, net of tax
Net income attributable to ABB
Basic Earnings per share ($)
Operational Earnings per share ($)(1)
Dividend per share
Cash flow from operating activities(3)
Cash flow from operating activities in continuing
operations
Net debt (end December)
FY 2020
26,512
14,303
26,134
1,593
2,899
11.1%
345
5,146
2.44
0.98
0.80
1,693
1,875
112
FY 2019
28,588
13,324
27,978
1,938
3,107
11.1%
1,090
1,439
0.67
1.24
0.80
2,325
1,899
4,949
US$
Comparable(4)
-6%
+5%
-5%
-8%(5)
-22%(2)
-7%
+7%
-7%
-18%
-7%
0.0 pts
-68%
+258%
+261%(2)
-21%(2)
-27%
-1%
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
e x c l . C o r p o r a t e a n d O t h e r
% o f F Y 2 0 2 0 O p e r a t i o n a l E B I TA
e x c l . C o r p o r a t e a n d O t h e r
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
(1) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(2) EPS growth rates are computed using unrounded amounts. Comparable operational earnings per share is in constant currency (2019
exchange rates not adjusted for changes in the business portfolio).
(3) Amount represents total for both continuing and discontinued operations.
(4) Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
(5) Constant currency (not adjusted for portfolio changes).
(6) Management estimates.
Operational EBITA(1)RevenuesEnd-markets(6)Geography44% Electrification22% Industrial Automation23% Motion11% Robotics & Discrete Automation3% Renewables6% Conv. Generation 6% Distribution12% O&G, Chemicals8% Mining & Metals 5% Automotive6% F&B 20% Other Industry 18% Buildings17% Other T&I 49% Electrification13% Industrial Automation31% Motion7% Robotics & Discrete Automation37% Europe23% USA7% Rest of Americas16% China16% Rest of AMEA 30
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
—
Electrification
R E V E N U E S : $ 1 1 . 9 B I L L I O N
E M P LOY E E S : ~ 5 0 K
The Business Area offers a broad portfolio of
electrification and building management solu-
tions, products and services for utilities, industry,
transport and infrastructure. Typical customers
include electrical distributors, panel builders and
end users.
Market growth is driven by megatrends such as
urbanization, population growth and accelerating
digitalization all increasing demand for
electricity.
The Business Area consists of the following
five Divisions:
Distribution Solutions, GLOBAL NO. 1 IN
MEDIUM-VOLTAGE
Medium- and low-voltage control & protection
products, systems & switchgear, automation &
services
Smart Power, GLOBAL NO. 2 IN LOW-VOLTAGE
Low-voltage breakers & switches, enclosures,
motor starter application, power protection,
electric vehicle charging infrastructure & service
Smart Buildings, GLOBAL NO. 3, NO. 1-2 IN DIS-
TRIBUTION ENCLOSURES AND DIN-RAIL
PRODUCTS
Miniature breakers, distribution enclosures,
wiring accessories, building automation
Installation Products, GLOBAL NO. 2, NORTH
AMERICA NO. 1
Wire & cable management, termination, fittings &
other accessories
Power Conversion, NO. 4 IN DC POWER SOLU-
TIONS
Power conversion products including embedded
power products, DC power solutions and services
To be exited
Key figures
$ in millions, unless otherwise indicated
FY 2020
FY 2019
US$
Comparable(2)
Orders
Order backlog (end December)
Revenues
Income from operations
Operational EBITA(1)
as % of operational revenues
11,884
4,358
11,924
1,335
1,681
14.1%
13,050
4,488
12,728
1,049
1,688
13.3%
-9%
-3%
-6%
+27%
0%
+0.8 pts
-6%
-1%
-3%
-1%(3)
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
End-markets(4)
5% Renewables
16% Distribution,
Conv. Generation
7% O&G, Chemicals
4% F&B
15% Other Industry
34% Buildings
7% Data Centres
12% Other T&I
35% Europe
27% USA
8% Rest of Americas
16% China
15% Rest of AMEA
Geography
(1) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(2) Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
(3) Constant currency (not adjusted for portfolio changes).
(4) Management estimates.
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
31
—
Industrial Automation
R E V E N U E S : $ 5 . 8 B I L L I O N
E M P LOY E E S : ~ 2 2 K
The Business Area specializes in process control,
measurement and analytics and other industry
specific solutions. Customers are concentrated in
process industries.
Market growth is driven by increasing demand for
end-to-end integrated, connected solutions and
advanced services as well as increasing demand
for applications towards autonomous operations.
As of January 1, 2021, the Business Area was
renamed Process Automation.
The Business Area consists of the following
five Divisions:
Energy Industries, NO. 1 CONVENTIONAL POWER,
NO. 3-5 IN OIL AND GAS, CHEMICALS
Integrated solutions, control platforms, safety,
service & digital solutions
Process Industries, NO. 1–2 MINING, NO. 1 PULP &
PAPER
Control platforms, mine hoists, gearless mill
drives, quality control systems, digital
Marine & Ports, NO. 1 ELECTRICAL PROPULSION,
NO. 1 TERMINAL AUTOMATION
Azipod propulsion, ship and port electrification &
automation, digital
Turbocharging, NO. 1 LOW AND MEDIUM SPEED
SEGMENTS
Low, medium and high speed turbochargers,
service, digital solutions
To be exited
Measurement & Analytics, NO. 1 ANALYTICAL,
FORCE, NO. 3-5 INSTRUMENTATION
Field instrumentation, flow, analytical and force
Key figures
$ in millions, unless otherwise indicated
FY 2020
FY 2019
Orders
Order backlog (end December)
Revenues
Income from operations
Operational EBITA(1)
as % of operational revenues
6,144
5,805
5,792
344
451
7.8%
6,432
5,077
6,273
700
732
11.7%
US$
-4%
+14%
-8%
-51%
-38%
-3.9 pts
Comparable(2)
-4%
+9%
-7%
-39%(3)
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
End-markets(4)
13% Conv. Generation
14% O&G
11% Chemicals &
refinery
23% Mining, Metals,
Pulp & Paper
14% Other Industry
22% Marine & Ports
3% Other
41% Europe
14% USA
9% Rest of Americas
11% China
25% Rest of AMEA
Geography
(1) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(2) Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
(3) Constant currency (not adjusted for portfolio changes).
(4) Management estimates.
32
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
—
Motion
R E V E N U E S : $ 6 . 4 B I L L I O N
E M P LOY E E S : ~ 2 1 K
The Business Area designs and manufactures
electrical motors, generators, drives, and ser-
vices, as well as offering integrated digital
powertrain solutions.
Market growth is driven by megatrends such as
growing population, electrification, urbanization
and digitalization. This requires further automa-
tion of industrial processes, energy efficiency and
electric mobility.
.
Service, GLOBAL NO. 1
Base services and spare parts, upgrades & re-
placements, smart solutions
Traction, GLOBAL NO. 2
Traction systems incl. converters and motors,
battery energy storage systems, auxiliary
converters
Mechanical Power Transmission, GLOBAL NO. 5,
NORTH AMERICA NO. 2
Mounted bearings, enclosed gearing, conveyor
components, power transmission components
To be exited
As of January 1, 2021, Motors & Generators Divi-
sion was split into the three separate Divisions:
IEC LV Motors, Large Motors and Generators,
NEMA Motors
The Business Area consisted of the following
six Divisions in 2020:
Motors & Generators, GLOBAL NO. 1
Comprehensive product portfolio of low, medium
and high-voltage electric motors and synchro-
nous generators
Drive Products, GLOBAL NO. 1
Comprehensive product portfolio of low-voltage
AC drives and soft starters
System Drives, GLOBAL NO. 1
Low- and medium-voltage AC drives and modules,
wind converters
Key figures
$ in millions, unless otherwise indicated
FY 2020
FY 2019
Orders
Order backlog (end December)
Revenues
Income from operations
Operational EBITA(1)
as % of operational revenues
6,574
3,320
6,409
989
1,075
16.8%
6,782
2,967
6,533
1,009
1,082
16.6%
US$
-3%
+12%
-2%
-2%
-1%
+0.2 pts
Comparable(2)
-2%
+6%
-2%
-1%(3)
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
End-markets(4)
3% Renewables
5% Conv. Generation
13% O&G, Chemicals
14% Mining, Metals
11% F&B, Pharma
27% Other Industry
13% Buildings
9% Rail
5% Others
33% Europe
31% USA
6% Rest of Americas
16% China
15% Rest of AMEA
Geography
(1) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(2) Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
(3) Constant currency (not adjusted for portfolio changes).
(4) Management estimates.
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
33
—
Robotics & Discrete Automation
R E V E N U E S : $ 2 . 9 B I L L I O N
E M P LOY E E S : ~1 0 K
The Business Area offering provides flexibility
and productivity for operations through the
combination of robotics and machine automation.
Customers are concentrated in discrete
industries.
Market growth driven by megatrends of individu-
alized consumers, labor shortage, digitalization
and uncertainty. Resulting in need for automation
solutions for increased productivity, highest
flexibility, improved quality and maximum
simplicity.
The Business Area consists of the following
two Divisions:
Robotics, GLOBAL NO. 2
Robots, robotics application cells and smart
systems, field services, spare parts, digital ser-
vices and software
Machine Automation, GLOBAL NO. 5, NO. 2 IN
HIGH-END SEGMENT
Solutions based on Programmable Logic Control-
lers (PLCs), Industrial PCs (IPCs), servo motion,
industrial transport systems and vision, software
Key figures
$ in millions, unless otherwise indicated
FY 2020
FY 2019
Orders
Order backlog (end December)
Revenues
Income from operations
Operational EBITA(1)
as % of operational revenues
2,868
1,403
2,907
-163
237
8.2%
3,260
1,356
3,314
298
393
11.9%
US$
-12%
+3%
-12%
n.a.
-40%
-3.7 pts
Comparable(2)
-12%
-2%
-13%
-40%(3)
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
% o f F Y 2 0 2 0 t h i r d p a r t y r e v e n u e s
26% Auto OEM
11% Auto Tier 1
7% Electronics
21% General Industry
8% CSSR(5)
27% Machine
Automation
Geography
50% Europe
10% USA
4% Rest of Americas
25% China
11% Rest of AMEA
End-markets(4)
(1) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(2) Growth rates for orders, order backlog and revenues are on a comparable basis (local currency adjusted for acquisitions and divestitures).
(3) Constant currency (not adjusted for portfolio changes).
(4) Management estimates
(5) Consumer Segments and Service Robotics
34
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
—
Cash generation and capital
allocation
—
During 2020, ABB delivered resilient cash flow for
the full year. Cash flow from operating activities(1)
was $1.7 billion, 27 percent lower year-on-year,
driven by lower cash flow from discontinued
operations, with the Power Grids business di-
vested on July 1, 2020. Cash flow from continuing
operating activities was $1.9 billion, 1 percent
lower year-on-year. The 2020 result in-
cludes a total of approximately $1 billion outflows
incurred from ABB’s transformation efforts,
namely the carve-out of the Power Grids business
and the implementation of the ABB-OS simplifica-
tion program and other restructuring programs,
plus costs to transfer certain pension plans as
well as outflows to settle with Eskom in South
Africa. If these impacts are excluded in both
periods, the year-on-year cash flow development
would have been stronger by close to $550 mil-
lion. Cash flow developments also reflect lower
business activities over the year, while net work-
ing capital movements developed favorably.
—
Free cash flow (FCF)(2) was $1.0 billion, 32 percent
lower on a year-on-year basis, and FCF conversion
to net income(2) 210 percent. FCF from continuing
operations(2) was $1.3 billion, 6 percent higher
on a year-on-year basis.
Free cash flow and conversion rate
—
The Group’s benchmark for the measurement of
returns is return on capital employed (ROCE)(2).
The Group’s ROCE was 10.3 percent, from 11.1 per-
cent in 2019, reflecting the acquisition of
19.9 percent interest in the Hitachi ABB Power
Grids business (0.4 percent impact) as well as
lower business activity.
Return on Capital Employed
%
13
12
11
10
9
8
(3)
2019
2020
U S D B N
4
3
2
1
0
%
275
225
175
125
75
2016
2017
2018
2019
2020
Free cash flow(1)
% of net income(1)
(1) Amount represents total for both continuing and discontinued operations.
(2) For non-GAAP measures, see the “Supplemental information” section of this annual report.
(3) Negative impact of 19.9 percent ownership interest in Hitachi ABB Power Grids Ltd.
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
35
—
ABB’s capital allocation priorities are:
• Fund organic growth, research and development
(R&D), capex at attractive returns
• Rising, sustainable dividend per share over time
• Value-creating acquisitions
• Returning additional cash to shareholders
—
ABB invested $694 million in capex(1). Non-order
related R&D investment was $1.1 billion in 2020 or
4.3 percent of revenues for the year.
—
ABB paid $1.7 billion in dividends during 2020. The
Board of Directors is proposing a CHF 0.80 divi-
dend per share at the 2021 Annual General
Meeting. The proposal is in line with ABB’s divi-
dend policy of paying a rising, sustainable
dividend per share over time.
—
A number of acquisitions were completed in 2020,
strengthening ABB’s portfolio. In March 2020, the
Electrification Business Area acquired a majority
stake in Shanghai Chargedot New Energy Technol-
ogy Co., Ltd, a leading Chinese e-mobility solution
provider, and bought Cylon Controls Ltd, enhanc-
ing its Smart Buildings portfolio in the
commercial buildings segment. In October 2020,
the Robotics & Discrete Automation Business
Area acquired Codian Robotics B.V., a leading
provider of delta robots.
—
Following the completion of the sale of 80.1 per-
cent of the Power Grids business to Hitachi, ABB
intends to return to shareholders cash proceeds
of $7.6 to 7.8 billion from the divestment. During
2020, ABB spent $2.7 billion under a share buy-
back program, in which the company intends to
buy 10 percent of its share capital until its Annual
General Meeting on March 25, 2021.
Allocation of Capital
Dividends
2 0 1 6 – 2 0 2 0 U S D B N
10
8
6
4
2
0
C H F
0.82
0.80
0.78
0.76
0.74
0.72
Organic investment(2) (capex, R&D)
Dividends
Non-organic investment
Share buybacks
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
)
3
(
0
2
0
2
Dividend per share
Dividend yield(4)
(1) Continuing operations only: A further $108 million capex investment was made in discontinued operations.
(2) Continuing operations only.
(3) Proposed.
(4) Calculated based on the share price at December 31.
%
5
4
3
2
1
0
36
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
—
Executive Committee
As of January 1, 2021
P E T E R T E R W I E S C H
P r e s i d e n t
P r o c e s s A u t o m at i o n
T H E O D O R S W E D J E M A R K
C h i e f C o m m u n i c at i o n s
o f f i c e r
S A M I AT I YA
P r e s i d e n t
r o b o t i c s & D i s c r e t e
A u t o m at i o n
M A R I A VA R S E L L O N A
G e n e r a l C o u n s e l &
C o m p a n y S e c r e t a r y
C o V I D -1 9 i n f o r m at i o n :
F o r h e a l t h a n d s a f e t y r e a s o n s , e a c h p e r s o n w a s p h o to g r a p h e d i n d i v i d u a l l y t o e n s u r e p h y s i c a l d i s t a n c i n g .
A B B A N N U A L R E P O R T 2 0 2 0
0 1 I n t r o D u C tI o n
37
B J Ö R N R O S E N G R E N
C h i e f E x e c u t i v e o f f i c e r
C A R O L I N A G R A N AT
C h i e f H u m a n r e s o u r c e s
o f f i c e r
T I M O I H A M U O T I L A
C h i e f F i n a n c i a l o f f i c e r
TA R A K M E H TA
P r e s i d e n t
E l e c t r i f i c at i o n
M O R T E N W I E R O D
P r e s i d e n t
M o t i o n
02
Corporate
governance
report
—
38 – 61
40
42
42
48
50
54
57
58
Chairman’s letter
Summary of corporate governance
approach
Board of Directors
Executive Committee
Shares
Shareholders
Independent external auditors
Other governance information
40
A B B A N N U A L R E P O R T 2 0 2 0
0 2 C o r P o r At E Go V E r n A nC E r E P o r t
—
Chairman’s letter
Dear Shareholders,
The year 2020 was one of rapid and sweeping
change for the world and for ABB. In the midst
of a wide-ranging company transformation
and a CEO transition, we were confronted
with a global pandemic and a succession of
lockdowns that would fundamentally alter our
economy, the way we do business and our way
of life.
For ABB, the COVID-19 pandemic was never an
existential crisis. Thanks to our financial resil-
ience, global footprint, well-established
processes and, most importantly, our dedicated
people and advanced technologies, we have been
managing through the crisis and also helping our
customers and many others through it. As a
gesture of solidarity, our Board of Directors, the
CEO and many other senior managers donated
part of their compensation to help employees
affected by the pandemic.
Once we had secured the health and safety of our
people and business continuity, we were able to
press ahead with our transformation, started in
2019. Today, we are stronger and better posi-
tioned than we were before the pandemic.
Power Grids
One project that kept us busy for nearly 18
months was the carve-out of our Power Grids
business, which was successfully handed over to
Hitachi on July 1, 2020. This was a tremendous
achievement because Power Grids had been part
of ABB since its earliest beginnings in 19th cen-
tury. Today, Hitachi ABB Power Grids, of which we
still own a 19.9 percent stake, is a highly success-
ful business within the Hitachi Group, with better
prospects than it would have had as part of ABB.
The separation with Power Grids meant that we
could focus on those businesses where ABB truly
has the edge: electrification, robotics, automa-
tion and motion. With our superior domain
knowledge, we are ideally positioned to
strengthen our market position in these areas
with software-driven technologies that help our
customers drive productivity and transform their
operations.
Our Purpose
As part of our transformation, we set out to
define ABB’s Purpose, in consultation with repre-
sentatives of all our stakeholder groups. Our aim
was to better understand how ABB is perceived by
its employees, leaders, customers, suppliers,
shareholders and civil society. From their feed-
back, we articulated a clear statement of Purpose
(see page 14), including what we stand for
as a company and what we should aspire to be in
the future.
By providing a common and shared understand-
ing of why we exist, our Purpose is a key driver of
performance and culture. It is at the core of our
new “ABB Way” operating model (see page 12) and
informs our approach to business, innovation,
people management, governance, sustainability
and our brand.
Corporate governance
Following the decision of Matti Alahuhta not to
stand for re-election to the Board of Directors,
a detailed review of the Board’s composition was
carried out. We concluded that the Board
has a very good mix of CEO, CFO, industry, geo-
graphic/regional, sustainability and technology
experience (see also skills matrix table on page
44), but recognize that we need to strengthen the
gender diversity of the Board within the next two
years, preferably at the Annual General Meeting in
March 2022. For the forthcoming AGM on March
25, 2021, we will not be proposing any new mem-
bers, meaning that the number of Board members
will be reduced from 11 to 10. All other Board
members will stand for re-election.
In the first quarter of 2021, the Board of Directors
will subject itself to an external assessment, the
findings of which will be presented in next year’s
annual report. Each year, the Board and its respec-
tive committees conduct self-evaluations.
Since March 2020, all meetings of the Board of
Directors and its committees have been virtual for
reasons of health and safety and in order to
respect travel restrictions. Over the course of
2020, the Board worked closely with the CEO and
the executive management to develop ABB’s
long-term strategy, which was presented to
A B B A N N U A L R E P O R T 2 0 2 0
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41
sustainability being a core part of our value
proposition and our overall strategy, we are
confident of meeting our ambitious targets and
making a meaningful contribution to a more
prosperous, sustainable future.
On behalf on the Board of Directors, I would like
to thank you for your trust and support.
Peter Voser
Chairman of the Board of Directors
Zurich, February 25, 2021
shareholders in November 2020. Other milestones
in 2020 were the implementation of a new struc-
ture for the Executive Committee, including the
new position of Chief Communications Officer, to
support our new ABB Way operating model, which
was also reviewed and approved by the Board.
Our values
Last year, we also revisited and revised our com-
pany values in much the same way as we
developed our Purpose – through listening to our
leaders and people and using their ideas and
input to capture the essence of our culture. Our
values reflect the attitudes and behaviors we
need to be successful, and they guide and shape
our interactions with each other, our customers,
partners and society as a whole.
To work at ABB today, you are expected to live our
values of Courage, Care, Curiosity and Collabora-
tion (see page 14). We expect our people to take
action and to speak up; to take care of them-
selves, colleagues and customers; to seek better
ways of doing things; and to work together and
build on each other’s strengths and successes. In
this way, we are making ABB an even more suc-
cessful company and a better place to work.
Sustainability strategy 2030
Our Purpose and values led directly to our 2030
sustainability strategy, launched at our capital
markets day in November. Our new strategy aims
to create superior value for all of our stakeholders
by focusing on those areas where we, as a global
technology leader, can have the biggest impact
– reducing carbon emissions, preserving re-
sources and promoting social progress (see page
16). Our key targets for 2030 include: achieving
carbon neutrality in our own operations; helping
our customers reduce their annual CO2e (carbon
dioxide equivalent) emissions by at least 100
megatonnes, equivalent to the annual emissions
of 30 million combustion cars; and embedding
circularity across our value chain. We will also aim
to double the number of women in senior man-
agement roles to 25 percent, as part of our
comprehensive diversity and inclusion
framework.
As part of its overall responsibility for the compa-
ny’s strategy and targets, the Board of Directors
oversees ABB’s sustainability strategy and moni-
tors progress and target achievements. For the
2030 strategy, sustainability will specifically be
added to the responsibilities of the Board’s
Governance and Nomination Committee, while
the Compensation Committee will ensure that
ABB’s remuneration policies are linked to the
achievement of its sustainability targets. With
42
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—
Summary of corporate governance
approach
Corporate governance – general
principles
ABB is committed to the highest international
standards of corporate governance and this is
reinforced in its structure, processes and rules as
outlined in this section of the Annual Report. In
line with this, ABB complies with the general
principles as set forth in the Swiss Code of Best
Practice for Corporate Governance, as well as
those of the capital markets where its shares are
listed and traded. In addition to the provisions of
the Swiss Code of Obligations, ABB’s key princi-
ples and rules on corporate governance are laid
down in ABB’s Articles of Incorporation, the
ABB Ltd Board Regulations & Corporate Gover-
nance Guidelines (which includes the regulations
of ABB’s Board committees and the ABB Ltd
Related Party Transaction Policy, which was
prepared based on the Swiss Code of Best Prac-
tice for Corporate Governance and the
independence criteria set forth in the corporate
governance rules of the New York Stock Ex-
change), and the ABB Code of Conduct. These
documents are available on ABB’s website at
https://new.abb.com/about/corporate-gover-
nance. It is the duty of ABB’s Board of Directors
(the Board) to review and amend or propose
amendments to those documents from time to
time to reflect the most recent developments and
practices, as well as to ensure compliance with
applicable laws and regulations. Shareholders and
other interested parties may communicate with
the Chairman of the Board or the independent
directors by writing to ABB Ltd (Attn: Chairman of
the Board / independent directors), at Affoltern-
strasse 44, CH-8050 Zurich, Switzerland.
Compensation governance and
Board and EC compensation
Information about ABB’s compensation gover-
nance as well as Board and Executive Committee
(EC) compensation and shareholdings is provided
in the Compensation Report that can be found on
pages 62 to 93 of this Annual Report.
—
Board of Directors
Board and Board committees (2020–2021 board term)
Chairman: Peter R. Voser
Matti Alahuhta
Vice-Chairman: Jacob Wallenberg
Gunnar Brock
Board of Directors
David Constable
Frederico Fleury Curado
Lars Förberg
Jennifer Xin-Zhe Li
Geraldine Matchett
David Meline
Satish Pai
Finance, Audit and
Compliance Committee
David Meline (chairman)
Gunnar Brock
Geraldine Matchett
Satish Pai
Governance and
Nomination Committee
Compensation
Committee
Jacob Wallenberg (chairman)
David Constable (chairman)
Matti Alahuhta
Lars Förberg
Frederico Fleury Curado
Jennifer Xin-Zhe Li
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43
Board governance
Chairman of the Board
The Board
The Board defines the ultimate direction of the
business of ABB and issues the necessary instruc-
tions. It determines the organization of the ABB
Group and appoints, removes and supervises the
persons entrusted with the executive manage-
ment and representation of ABB. The internal
organizational structure and the definition of the
areas of responsibility of the Board, as well as the
information and control instruments vis-à-vis the
Executive Committee are set forth in the ABB Ltd
Board Regulations & Corporate Governance
Guidelines (available at https://new.abb.com/
about/corporate-governance).
The Board takes decisions as a whole, supported
by its three committees: the Finance, Audit and
Compliance Committee (FACC), the Governance
and Nomination Committee (GNC), and the Com-
pensation Committee (CC). These committees
assist the Board in its tasks and report regularly
to the Board. The members of the Board commit-
tees either are required to be independent or are
elected directly by the shareholders. The Board
and its committees meet regularly throughout
the year.
The directors and officers of a Swiss corporation
are bound, as specified in the Swiss Code of
Obligations, to perform their duties with all due
care, to safeguard the interests of the corporation
in good faith and to extend equal treatment to
shareholders in like circumstances.
The Swiss Code of Obligations does not specify
what standard of due care is required of the
directors of a corporate board. However, it is
generally held by Swiss legal scholars and juris-
prudence that the directors must have the
requisite capability and skill to fulfill their func-
tion, and must devote the necessary time to the
discharge of their duties. Moreover, the directors
must exercise all due care that a prudent and
diligent director would have taken in like circum-
stances. Finally, the directors are required to take
actions in the best interests of the corporation
and may not take any actions that may be harmful
to the corporation.
Although the Swiss Code of Obligations does not
discuss specifically conflicts of interest for board
members, the ABB Ltd Board Regulations & Cor-
porate Governance Guidelines (available at
https://new.abb.com/about/corporate-gover-
nance) state that board members shall avoid
entering into any situation in which their personal
or financial interest may conflict with the inter-
ests of ABB.
The Chairman is elected by the shareholders to
represent their interests in creating sustainable
value through effective governance. In addition,
the Chairman (1) takes provisional decisions on
behalf of the Board on urgent matters where a
regular Board decision cannot be obtained,
(2) calls for Board meetings and sets the related
agendas, (3) interacts with the CEO and other EC
members on a more frequent basis outside of
Board meetings and (4) represents the Board
internally and in the public sphere.
Vice-Chairman of the Board
The Vice-Chairman is elected by the Board and
handles the responsibilities of the Chairman to
the extent the Chairman is unable to do so or
would have a conflict of interest in doing so. He
also acts as counselor/advisor to the Chairman on
any matters that are Company or Board relevant
and as appropriate or as the Chairman may re-
quire and with a particular focus on strategic
aspects related to the Company and its business
in general. In addition, the Vice-Chairman takes
such other actions as may be decided by the
Board or requested by the Chairman.
Finance, Audit and Compliance Committee
The FACC is responsible for overseeing (1) the
integrity of ABB’s financial statements, (2) ABB’s
compliance with legal, tax and regulatory require-
ments, (3) the independent auditors’ qualifica-
tions and independence, (4) the performance of
ABB’s internal audit function and external audi-
tors, and (5) ABB’s capital structure, funding
requirements and financial risk and policies.
The FACC must comprise three or more indepen-
dent directors who have a thorough
understanding of finance and accounting. The
Chairman of the Board and, upon invitation by the
committee’s chairman, the CEO or other members
of the Executive Committee may participate in the
committee meetings, provided that any potential
conflict of interest is avoided and confidentiality
of the discussions is maintained. In addition, the
chief integrity officer, the head of internal audit
and the external auditors participate in the meet-
ings as appropriate. The Board has determined
that each member of the FACC is an audit commit-
tee financial expert as such term is defined in
Form 20-F.
Governance and Nomination Committee
The GNC is responsible for (1) overseeing corpo-
rate governance practices within ABB, (2) over-
seeing corporate social responsibility (including
health, safety and environment as well as
44
A B B A N N U A L R E P O R T 2 0 2 0
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sustainability), (3) nominating candidates for the
Board, the role of CEO and other positions on the
Executive Committee, and (4) succession planning
and employment matters relating to the Board
and the Executive Committee. The GNC is also
responsible for maintaining an orientation pro-
gram for new Board members and an ongoing
education program for existing Board members.
The GNC must comprise three or more indepen-
dent directors. The Chairman of the Board (unless
he is already a member) and, upon invitation by
the committee’s chairman, the CEO or other
members of the Executive Committee may partic-
ipate in the committee meetings, provided that
any potential conflict of interest is avoided and
confidentiality of the discussions is maintained.
Compensation Committee
The CC is responsible for compensation matters
relating to the Board and the Executive Commit-
tee.
The CC must comprise three or more directors
who are elected by the shareholders. The Chair-
man of the Board and, upon invitation by the
committee’s chairman, the CEO or other members
of the Executive Committee may participate in the
committee meetings, provided that any potential
conflict of interest is avoided and confidentiality
of the discussions is maintained.
Board membership
Board composition
In proposing individuals to be elected to the
Board, the Board seeks to align the composition
and skills of the Board with the Company’s strate-
gic needs, business portfolio, geographic reach
and culture. The Board must be diverse in all
aspects including gender, nationalities, geo-
graphic/regional experience and business
experience. In addition, the average tenure of the
members of the Board should be well-balanced.
The Board also considers the number of other
mandates of each Board member to ensure that
he/she will have sufficient time to dedicate to
his/her role as an ABB Board member.
Elections and term of office
The members of the Board of Directors and the
Chairman of the Board as well as the members of
the Compensation Committee are elected by
shareholders at the general meeting of sharehold-
ers for a term of office extending until completion
of the next ordinary general meeting of share-
holders. Members whose terms of office have
expired shall be immediately eligible for
re-election. Our Articles of Incorporation (avail-
able at https://new.abb.com/about/
corporate-governance) do not provide for the
retirement of directors based on their age. How-
ever, an age limit for members of the Board is set
forth in the ABB Ltd Board Regulations & Corpo-
rate Governance Guidelines (although waivers are
possible and subject to Board discretion) (avail-
able at https://new.abb.com/about/
corporate-governance). If the office of the Chair-
man of the Board of Directors or any position on
the Compensation Committee becomes vacant
during a Board term, the Board of Directors may
appoint (shall appoint in the case of the Chairman
of the Board) another individual from among its
members to that position for the remainder of
that term. The Board of Directors shall consist of
no less than 7 and no more than 13 members.
Members of the Board (2020–2021 board term)
Board
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Matti Alahuhta
Gunnar Brock
David Constable
Frederico Fleury Curado
Lars Förberg
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Geraldine Matchett
David Meline
Satish Pai
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A B B A N N U A L R E P O R T 2 0 2 0
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45
Members of the Board
(2020–2021 board term)
Peter R. Voser has been a member
and Chairman of ABB’s Board of
Directors since April 2015. He was
also ABB’s Chief Executive Officer
from April 2019 to February 2020.
He is a member of the board of directors of IBM
Corporation (U.S.). He is also a member of the
board of directors of Temasek Holdings (Private)
Limited (Singapore) as well as chairman of the
board of PSA International Pte Ltd (Singapore),
one of its subsidiaries. In addition, he is the
chairman of the board of trustees of the St. Gallen
Foundation for International Studies. He was
previously the chief executive officer of Royal
Dutch Shell plc (The Netherlands). Mr. Voser was
born in 1958 and is a Swiss citizen.
Jacob Wallenberg has
been a member of ABB’s Board of
Directors since June 1999 and
Vice-Chairman since April 2015. He
is the chairman of the board of
Investor AB (Sweden). He is vice-chairman of the
boards of Telefonaktiebolaget LM Ericsson, FAM
AB and Patricia Industries (all Sweden). He is
also a member of the boards of directors of
Nasdaq, Inc. (U.S.) and the Knut and Alice Wallen-
berg Foundation (Sweden) as well as a member of
the nomination committee of SAS AB (Sweden).
Mr. Wallenberg was born in 1956 and is a Swedish
citizen.
Matti Alahuhta has been a member
of ABB’s Board of Directors since
April 2014. He is the chairman of
the board of DevCo Partners Oy
and vice-chairman of the board of
Metso Outotec Corporation (both Finland). He is
also a member of the boards of directors of KONE
Corporation (Finland) and AB Volvo (Sweden). He
was previously the president and chief executive
officer of KONE Corporation and he served in
several executive positions at Nokia Corporation
(Finland). Mr. Alahuhta was born in 1952 and
is a Finnish citizen.
Gunnar Brock has been a member
of ABB’s Board of Directors since
March 2018. He is currently chair-
man of the boards of Neptunia
Invest AB, Mölnlycke Health Care AB
David Constable has
been a member of ABB’s Board of
Directors since April 2015. Effective
January 2021, he was appointed
chief executive officer of Fluor
Corporation (U.S.), for which he continues to
serve as a member of the board of directors. He
was a member of the boards of directors of Rio
Tinto plc (U.K.) and Rio Tinto Limited (Australia)
until the end of 2020. He was formerly the chief
executive officer and president as well as a member
of the board of directors of Sasol Limited (South
Africa). He joined Sasol after more than 29 years
with Fluor Corporation (U.S.). Mr. Constable was
born in 1961 and is a Canadian and U.S. citizen.
Frederico Fleury Curado has
been a member of ABB’s Board of
Directors since April 2016. He is the
chief executive officer of Ultrapar
Participações S.A. (Brazil), the
holding company of the Ultra Group of
companies. Mr. Curado is a member of the board
of directors of Transocean Ltd. (Switzerland). He
was formerly the chief executive officer of
Embraer S.A. (Brazil). Mr. Curado was born in 1961
and is a Brazilian and Portuguese citizen.
Lars Förberg has been a member of
ABB’s Board of Directors since April
2017. He is co-founder and manag-
ing partner of Cevian Capital.
Mr. Förberg was born in 1965 and
is a Swedish and Swiss citizen.
Jennifer Xin-Zhe Li has been a
member of ABB’s Board of Direc-
tors since March 2018. She is a
member of the board of directors
of Flex Ltd (Singapore/U.S.) as well
as, through May 2021, of the boards of directors
of Philip Morris International Inc. (U.S.) and The
Hongkong and Shanghai Banking Corporation
Limited (Hong Kong). Ms. Li is a founder and
general partner of Changcheng Investment Part-
ners (P.R.C.), a private investment fund. From
2008 to 2018, she served as chief financial officer
of Baidu Inc. (P.R.C.) and chief executive officer of
Baidu Capital (P.R.C.). Prior to that, Ms. Li spent
14 years with General Motors, holding various
senior finance positions, including chief financial
officer of GM China and corporate controller for
GMAC North American Operations. Ms. Li was
born in 1967 and is a Canadian citizen.
and Stena AB (all Sweden). He is a member of the
boards of directors of Investor AB and Patricia
Industries (both Sweden). He was formerly presi-
dent and chief executive officer of Atlas Copco AB
(Sweden). Mr. Brock was born in 1950 and
is a Swedish citizen.
Geraldine Matchett has
been a member of ABB’s Board of
Directors since March 2018. She is
the co-chief executive officer (since
February 2020), the chief financial
officer and a member of the managing board of
46
A B B A N N U A L R E P O R T 2 0 2 0
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necessary. Board meetings are convened by the
Chairman or upon request by any other board
member or the CEO. Documentation covering the
various items of the agenda for each Board meet-
ing is sent out in advance to each Board member
in order to allow each member time to study the
covered matters prior to the meetings. Each
board meeting has a private session without
management or others being present. Decisions
made at the Board meetings are recorded in
written minutes of the meetings. Some decisions
are also taken by circular resolution.
2020 was an intensive year for the Board and its
committees. The table below shows the number
of meetings held during 2020 by the Board and its
committees, their average duration, as well as the
attendance of the individual Board members. The
Board meetings shown include a strategic retreat
attended by the members of the Board and
the EC.
Mandates of Board members
outside the ABB Group
No member of the Board may hold more than ten
additional mandates of which no more than four
may be in listed companies. Certain types of
mandates, such as those in our subsidiaries,
those in the same group of companies and those
in non-profit and charitable institutions, are not
subject to those limits. Additional details can be
found in Article 38 of ABB’s Articles of Incorpora-
tion (available at https://new.abb.com/about/
corporate-governance).
Royal DSM N.V. (The Netherlands). She was previ-
ously chief financial officer of SGS Ltd
(Switzerland). Prior to joining SGS she worked as
an auditor at Deloitte Ltd (Switzerland) and KPMG
LLP (U.K.). Ms. Matchett was born in 1972 and
is a Swiss, British and French citizen.
David Meline has been a member of
ABB’s Board of Directors since April
2016. He is the chief financial
officer of Moderna Inc. (U.S.). From
2014 through 2019, Mr. Meline was
the chief financial officer of Amgen Inc. (U.S.). He
was formerly with the 3M Company (U.S.), where
he served as chief financial officer. Prior to joining
3M, Mr. Meline worked for more than 20 years for
General Motors Company (U.S.). Mr. Meline was
born in 1957 and is a U.S. and Swiss citizen.
Satish Pai has been a member of
ABB’s Board of Directors since April
2016. He is the managing director
and a member of the board of
directors of Hindalco Industries
Ltd. (India). He joined Hindalco in 2013 after 28
years with Schlumberger Limited (U.S.). Mr. Pai
was born in 1961 and is an Indian citizen.
As of December 31, 2020, none of the Board
members held any official functions or political
posts. Further information on ABB’s Board mem-
bers can be found by clicking on the ABB Board of
Directors link (available at https://new.abb.com/
about/corporate-governance).
Board meetings and attendance
The Board and its committees have regularly
scheduled meetings throughout the year. These
meetings are supplemented by additional meet-
ings (either in person or by conference call), as
2020 Board and Board Committee Meetings
Pre annual general meeting 2020
Post annual general meeting 2020
Meetings and attendance
Mtg.
Conf.
Call
Board
Average duration (hours)
Number of meetings
Meetings attended:
Peter R. Voser
Jacob Wallenberg
Matti Alahuhta
Gunnar Brock
David Constable
Frederico Fleury Curado
Lars Förberg
Jennifer Xin-Zhe Li
Geraldine Matchett
David Meline
Satish Pai
10
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
FACC
2.75
2
GNC
1.5
2
CC
1.75
2
2
2
2
2
2
2
2
2
2
2
Board
Mtg.
8.5
4
4
4
4
4
4
4
4
4
4
4
4
Conf.
Call
1
3
3
3
3
3
3
3
3
3
2
3
3
FACC
3.25
5
GNC
1.5
3
CC
1.6
6
3
3
3
6
6
6
5
5
5
5
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47
Business relationships between
ABB and its Board members
This section describes important business rela-
tionships between ABB and its Board members,
or companies and organizations represented by
them. This determination has been made based
on ABB Ltd’s Related Party Transaction Policy.
This policy is contained in the ABB Ltd Board
Regulations & Corporate Governance Guidelines
(available at https://new.abb.com/about/
corporate-governance).
IBM Corporation (IBM) is an important supplier to
ABB. IBM supplies ABB primarily with IT related
hardware, software and services. Peter Voser
is a director of IBM.
After reviewing the level of purchases from IBM,
the Board has determined that ABB’s business
relationship with IBM is not unusual in its nature
or conditions and does not constitute a material
business relationship. As a result, the Board
concluded that all members of the Board are
considered to be independent directors. This
determination was made in accordance with
ABB Ltd’s Related Party Transaction Policy which
was prepared based on the Swiss Code of Best
Practice for Corporate Governance and the
independence criteria set forth in the corporate
governance rules of the New York Stock Exchange.
Information and control systems
of the Board vis-à-vis the
Executive Committee
Information from the Executive Committee
In accordance with the ABB Board Regulations
and Corporate Governance Guidelines (available
at https://new.abb.com/about/corporate-gover-
nance), the CEO reports regularly to the Board
about ABB’s overall business and when circum-
stances require on any extraordinary events that
may arise. This includes:
• Reports on financial results (including profit
and loss, balance sheet and cash flows);
• Changes in key members of management;
• Information that may affect the supervisory or
monitoring function of the Board (including on
matters of strategy and compliance); and
• Significant developments in legal matters.
At each Board meeting, Board members are
briefed by the Chairman, CEO, CFO and other EC
members on ABB’s business performance and on
material developments affecting ABB. Outside of
Board meetings, Board members generally chan-
nel any requests for information through the
Chairman. Board members also obtain informa-
tion through offsite retreats with the Executive
Committee and visits to ABB sites. In addition,
Board members obtain information through the
Board committees in which they participate and
which are also attended by relevant EC members
and management representatives from human
resources, finance, legal and the business.
Internal Audit
ABB has an Internal Audit team that provides
independent objective assurance and other
services to help ensure that ABB operates in
accordance with applicable laws as well as inter-
nal policies and procedures. Internal Audit reports
to the FACC and to the CFO. The FACC reviews and
approves the internal audit plan, and material
changes to the plan. Investigations of potential
fraud and inappropriate business conduct are an
integral part of the internal audit process. De-
pending on circumstances, Internal Audit may act
together with ABB’s Office of Special Investiga-
tions, which is part of ABB’s integrity function.
Internal Audit reports on a regular basis its main
observations and recommendations to the rele-
vant members of the EC and to the FACC as
appropriate.
Risk Management
ABB has an enterprise risk management program
(ERM) in place which takes into account ABB’s size
and complexity. ERM provides the EC and the
Board with a comprehensive and holistic view of
the risks facing the business. ERM involves
managing the acceptance of risk to achieve the
objectives of the business. The ERM process is
typically cyclical in nature, conveying the idea of
continuous refinement of the risk management
approach in a dynamic business environment.
Furthermore, ABB runs a mitigation process for
the identified risks that is key to the success of
this process. ERM assessments are both top down
and bottom up. They cover strategic, financial,
and operational risks, both current and long term.
Key risks identified and managed in 2020 were
those related to the COVID-19 pandemic, as well
as those related to the finalization of both the
transformation of the Group and the separation
of the Power Grids business. ERM results are
reported to the FACC and the entire Board. This
information becomes part of the overall strategic
and risk discussions by the Board to help create
value for stakeholders.
48
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—
Executive Committee
Composition of the Executive Committee
(at December 31, 2020)
Björn Rosengren
Chief Executive Officer
C O R P O R AT E O F F I C E R S
B U S I N E S S A R E A P R E S I D E N T S
Timo Ihamuotila
Chief Financial Officer
Sylvia Hill
Chief Human Resources Officer
Maria Varsellona
General Counsel
Theodor Swedjemark
Chief Communications Officer
Tarak Mehta
Electrification
Peter Terwiesch
Industrial Automation
Morten Wierod
Motion
Sami Atiya
Robotics & Discrete Automation
Timo Ihamuotila was appointed
Chief Financial Officer and member
of the Executive Committee
effective April 2017. He is a member
of the board of directors of
SoftwareONE Holding AG (Switzerland). From
2009 to 2016, Mr. Ihamuotila was chief financial
officer and an executive vice president of the
Nokia Corporation (Finland). From 1999 to 2009,
he held various senior roles with Nokia.
Mr. Ihamuotila was born in 1966 and is a Finnish
citizen.
Sylvia Hill was appointed Chief
Human Resources Officer and
member of the Executive Commit-
tee effective June 2019. From 2014
until June 2019 she was ABB’s Head
of Global HR Services and HR Transformation.
From 2011 to 2014 Ms. Hill was the Head of HR for
ABB’s Discrete Automation division. During 2005
to 2010 she was the Head of HR and Organization
Health & Safety for ABB in France and for part of
that time she was also the Head of HR for the
Mediterranean region. From 1993 through 2005
she held various HR roles with ABB. Ms. Hill was
born in 1960 and is a German citizen.
Executive Committee
responsibilities and
organization
The Board has delegated the executive manage-
ment of ABB to the CEO. The CEO and, under his
direction, the other members of the Executive
Committee are responsible for ABB’s overall
business and affairs and day-to-day management.
The CEO reports to the Board regularly, and
whenever extraordinary circumstances so require,
on the course of ABB’s business and financial
performance and on all organizational and per-
sonnel matters, transactions and other issues
material to the Group. Each member of the Execu-
tive Committee is appointed and discharged by
the Board.
Members of the
Executive Committee
(at December 31, 2020)
Björn Rosengren was appointed
Chief Executive Officer and
member of the Executive Commit-
tee effective March 2020. Before
joining ABB, he was the president
and chief executive officer of Sandvik AB
(Sweden) since 2015. Prior to that, Mr. Rosengren
was the chief executive officer of Wärtsilä Corpo-
ration (Finland) from 2011 to 2015. He held a
variety of management roles at Atlas Copco AB
(Sweden) from 1998 to 2011. Mr. Rosengren was
born in 1959 and is a Swedish citizen.
A B B A N N U A L R E P O R T 2 0 2 0
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49
Morten Wierod was appointed
President of the Motion Business
and member of the Executive
Committee effective April 2019.
From 2015 until April 2019 he was
the Managing Director of the drives business unit
in the Robotics and Motion division. During 2011
to 2015, Mr. Wierod was the Managing Director of
the control products business unit in the Low
Voltage Products division. Between 1998 to 2011,
Mr. Wierod held various management roles with
ABB. Mr. Wierod was born in 1972 and is a Norwe-
gian citizen.
Sami Atiya was appointed Presi-
dent of the Robotics & Discrete
Automation Business effective
April 2019 and has been a member
of the Executive Committee since
June 2016. He is a member of the board of direc-
tors of SGS SA (Switzerland). He had previously
been President of the Robotics and Motion divi-
sion since January 2017. From June to December
2016 he was President of the Discrete Automation
and Motion division. Prior to joining ABB, Mr. Atiya
held senior roles at Siemens in Germany from 1997
to 2015, including as chief executive officer of the
mobility and logistics division in the infrastruc-
ture and cities sector from 2011. Mr. Atiya was
born in 1964 and is a German citizen.
Effective as of January 1, 2021, Carolina Granat
has been appointed as Chief Human Resources
Officer and member of the Executive Committee
of ABB (press release available at https://new.
abb.com/news/detail/71950/abb-appoints-
carolina-granat-as-chief-human-resources-
officer). Ms. Granat was previously ABB’s Global
Head of People Development and prior to that she
was globally responsible for Human Resources at
Sandvik’s Machining Solutions business area.
Further information about the members of the
Executive Committee can be found by clicking on
the Executive Committee link (available at https://
new.abb.com/about/corporate-governance).
Maria Varsellona was appointed
General Counsel and member of the
Executive Committee effective
November 2019. She was a member
of the board of directors of Nordea
Bank Abp (Finland) through May 2020. From 2014
to 2019 she was the Chief Legal Officer of Nokia
Corporation and from 2018 to 2019 she was also
the president of Nokia Technologies. From 2013 to
2014 she was the General Counsel of Nokia Sie-
mens Networks. During the period from 2011 to
2013 Ms. Varsellona was the Group General Coun-
sel of Tetra Pak and from 2009 to 2010 she was
the Group General Counsel of Sidel, both part of
the Tetra Laval Group. From 2001 to 2009 she held
various senior legal roles mainly with GE Oil & Gas.
Ms. Varsellona was born in 1970 and is an Italian
citizen.
Theodor Swedjemark was
appointed Chief Communications
Officer and member of the Execu-
tive Committee effective August
2020. He is a member of the board
of directors of the Swedish Swiss Chamber of
Commerce. Mr. Swedjemark assumed the role of
Chief of Staff in 2017, later adding group responsi-
bility for government relations and public affairs.
During 2016, he managed the Strategic Portfolio
Review of the Power Grids project. From 2006 to
2015, he held various management positions at
ABB in different functions and businesses.
Mr. Swedjemark was born in 1980 and is a Swedish
citizen.
Tarak Mehta was appointed Presi-
dent of the Electrification Business
effective April 2019 and has
been a member of the Executive
Committee since October 2010. He
had previously been President of the Electrifica-
tion Products division since January 2016. From
October 2010 through December 2015, he was
President of the Low Voltage Products division.
From 2007 to 2010, he was Head of ABB’s trans-
formers business. Between 1998 and 2006, he
held several management positions with ABB. Mr.
Mehta was born in 1966 and is a U.S. citizen.
Peter Terwiesch was appointed
President of the Industrial Automa-
tion Business effective January
2017 and has been a member of the
Executive Committee since January
2015. He is a member of the board of directors of
Metall Zug AG (Switzerland). He was the President
of the Process Automation division from 2015 to
2016. From 2011 to 2014, Mr. Terwiesch was Head
of ABB’s Central Europe region. He was ABB’s
Chief Technology Officer from 2005 to 2011. From
1994 to 2005, he held several positions with ABB.
Mr. Terwiesch was born in 1966 and is a Swiss and
German citizen.
50
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Mandates of EC members
outside the ABB Group
No member of the EC may hold more than five
additional mandates of which no more than one
may be in a listed company. Certain types of
mandates, such as those in our subsidiaries,
those in the same group of companies and those
in non-profit and charitable institutions, are not
subject to those limits. Additional details can be
found in Article 38 of ABB’s Articles of Incorpora-
tion (available at https://new.abb.com/about/
corporate-governance).
Business relationships between
ABB and its EC members
This section describes important business rela-
tionships between ABB and its EC members, or
companies and organizations represented by
them. This determination has been made based
on ABB Ltd’s Related Party Transaction Policy.
This policy is contained in the ABB Ltd Board
Regulations & Corporate Governance Guidelines
(available at https://new.abb.com/about/
corporate-governance).
ABB has an unsecured syndicated $2 billion,
revolving credit facility. As of December 31, 2020,
Nordea Bank Abp (Nordea) had committed to
approximately $105.7 million out of the $2 billion
total. In addition, ABB has regular banking busi-
ness with Nordea. Maria Varsellona was a director
of Nordea through May 2020.
After reviewing the banking commitments of
Nordea, the Board has determined that ABB’s
business relationship with Nordea is not unusual
in its nature or conditions and does not consti-
tute a material business relationship. This
determination was made in accordance with
ABB Ltd’s Related Party Transaction Policy which
was prepared based on the Swiss Code of Best
Practice for Corporate Governance and the inde-
pendence criteria set forth in the corporate
governance rules of the New York Stock Exchange.
—
Shares
Share capital of ABB
At December 31, 2020, ABB’s ordinary share
capital (including treasury shares) as registered
with the Commercial Register amounted to
CHF 260,177,791.68, divided into 2,168,148,264
fully paid registered shares with a par value of
CHF 0.12 per share.
ABB Ltd’s shares are listed on the SIX Swiss
Exchange, the NASDAQ OMX Stockholm Exchange
and the New York Stock Exchange (where its
shares are traded in the form of American deposi-
tary shares (ADS) – each ADS representing one
registered ABB share). At December 31, 2020, ABB
Stock exchange listings (at December 31, 2020)
Ltd had a market capitalization based on out-
standing shares (total number of outstanding
shares: 2,030,834,169) of approximately
CHF 50 billion ($57 billion, SEK 465 billion). The
only consolidated subsidiary in the ABB Group
with listed shares is ABB India Limited, Bangalore,
India, which is listed on the BSE Ltd. (Bombay
Stock Exchange) and the National Stock Exchange
of India. At December 31, 2020, ABB Ltd, Switzer-
land, directly or indirectly owned 75 percent of
ABB India Limited, Bangalore, India, which at that
time had a market capitalization of approximately
INR 257 billion.
Stock exchange
SIX Swiss Exchange
SIX Swiss Exchange
Security
Ticker symbol
ISIN code
ABB Ltd, Zurich, share
ABBN CH0012221716
ABB Ltd, Zurich, share buyback
(second trading line)
ABBNE CH0357679619
NASDAQ OMX Stockholm Exchange
ABB Ltd, Zurich, share
ABB CH0012221716
New York Stock Exchange
ABB Ltd, Zurich, ADS
ABB US0003752047
BSE Ltd. (Bombay Stock Exchange)
ABB India Limited, Bangalore, share
ABB(1)
INE117A01022
National Stock Exchange of India
ABB India Limited, Bangalore, share
ABB
INE117A01022
(1) Also called Scrip ID.
A B B A N N U A L R E P O R T 2 0 2 0
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51
Share repurchases and
cancellation
Under the share buyback program announced in
July 2020, ABB repurchased a total of 108,829,359
shares as per December 31, 2020, and a total of
117,012,859 shares as per February 15, 2021. ABB
intends to ask the shareholders at the Annual
General Meeting 2021 to approve the cancellation
of 115,000,000 shares that were repurchased. In
addition, ABB repurchased a total of 13,046,013
shares as per December 31, 2020, primarily for use
in connection with employee share programs.
Further information can be found at https://www.
abb.com/investorrelations.
Changes to the ordinary share
capital
In 2020, ABB paid a dividend of 0.80 Swiss francs
per share relating to the year 2019. In 2019, ABB
paid a dividend of 0.80 Swiss francs per share
relating to the year 2018. In 2018, ABB paid a
dividend of 0.78 Swiss francs per share relating to
the year 2017.
There were no changes to ABB’s ordinary share
capital during 2020, 2019 and 2018.
Convertible bonds and options
ABB does not have any bonds outstanding that
are convertible into ABB shares. For information
about options on shares issued by ABB, please
refer to “Note 19 - Stockholders’ equity” to ABB’s
Consolidated Financial Statements.
Contingent share capital
At December 31, 2020, ABB’s share capital may be
increased by an amount not to exceed
CHF 24,000,000 through the issuance of up to
200,000,000 fully paid registered shares
with a par value of CHF 0.12 per share through the
exercise of conversion rights and/or warrants
granted in connection with the issuance on na-
tional or international capital markets of newly or
already issued bonds or other financial market
instruments. If this contingent share capital were
fully issued this would increase the existing share
capital by approximately 9.2 percent. The contin-
gent share capital has not changed during the last
three years.
At December 31, 2020, ABB’s share capital may be
increased by an amount not to exceed
CHF 1,200,000 through the issuance of up to
10,000,000 fully paid registered shares with a par
value of CHF 0.12 per share through the exercise
of warrant rights granted to its shareholders. If
this contingent share capital were fully issued this
would increase the existing share capital by
approximately 0.5 percent. This contingent share
capital has not changed during the last three
years. The Board may grant warrant rights not
taken up by shareholders for other purposes in
the interest of ABB.
The pre-emptive rights of the shareholders are
excluded in connection with the issuance of
convertible or warrant-bearing bonds or other
financial market instruments or the grant of
warrant rights. The then current owners of con-
version rights and/or warrants will be entitled to
subscribe for new shares. The conditions of the
conversion rights and/or warrants will be deter-
mined by the Board.
The acquisition of shares through the exercise of
warrants and each subsequent transfer of the
shares will be subject to the restrictions of ABB’s
Articles of Incorporation (see “Limitations on
transferability of shares and nominee registra-
tion” in the Shareholders section below) (available
at https://new.abb.com/about/corporate-gover-
nance).
In connection with the issuance of convertible or
warrant-bearing bonds or other financial market
instruments, the Board is authorized to restrict or
deny the advance subscription rights of share-
holders if such bonds or other financial market
instruments are for the purpose of financing or
refinancing the acquisition of an enterprise, parts
of an enterprise, participations or new invest-
ments or an issuance on national or international
capital markets. If the Board denies advance
subscription rights, the convertible or war-
rant-bearing bonds or other financial market
instruments will be issued at the relevant market
conditions and the new shares will be issued
pursuant to the relevant market conditions taking
into account the share price and/or other compa-
rable instruments having a market price.
Conversion rights may be exercised during a
maximum ten-year period, and warrants may be
exercised during a maximum seven-year period,
in each case from the date of the respective
issuance. The advance subscription rights of the
shareholders may be granted indirectly.
52
A B B A N N U A L R E P O R T 2 0 2 0
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with a subsequent offer of these shares to the
shareholders. The Board may permit pre-emptive
rights that have not been exercised by sharehold-
ers to expire or it may place these rights and/or
shares as to which pre-emptive rights have been
granted but not exercised at market conditions or
use them for other purposes in the interest of the
Company. Furthermore, the Board is authorized to
restrict or deny the pre-emptive rights of share-
holders and allocate such rights to third parties if
the shares are used (1) for the acquisition of an
enterprise, parts of an enterprise, or participa-
tions, or for new investments, or in case of a share
placement, for the financing or refinancing of
such transactions; or (2) for the purpose of broad-
ening the shareholder constituency in connection
with a listing of shares on domestic or foreign
stock exchanges. The subscription and the acqui-
sition of the new shares, as well as each
subsequent transfer of the shares, will be subject
to the restrictions of ABB’s Articles of Incorpora-
tion (available at https://new.abb.com/about/
corporate-governance).
Share Developments
ABB Ltd share price trend during 2020
During 2020, the price of ABB Ltd shares listed on
the SIX Swiss Exchange increased 6 percent, while
the Swiss Market Index increased 1 percent. The
price of ABB Ltd shares on NASDAQ OMX Stock-
holm increased 2 percent, compared to the OMX
30 Index, which increased 6 percent. The price of
ABB Ltd American Depositary Shares traded on
the New York Stock Exchange increased 16 per-
cent, compared to the S&P 500 Index, which also
increased 16 percent.
At December 31, 2020, ABB’s share capital may be
increased by an amount not to exceed
CHF 11,284,656 through the issuance of up to
94,038,800 fully paid shares with a par value of
CHF 0.12 per share to employees. If this contin-
gent share capital were fully issued this would
increase the existing share capital by approxi-
mately 4.3 percent. This contingent share capital
has not changed during the last three years. The
pre-emptive and advance subscription rights of
ABB’s shareholders are excluded. The shares or
rights to subscribe for shares will be issued to
employees pursuant to one or more regulations to
be issued by the Board, taking into account
performance, functions, level of responsibility
and profitability criteria. ABB may issue shares or
subscription rights to employees at a price lower
than that quoted on a stock exchange. The acqui-
sition of shares within the context of employee
share ownership and each subsequent transfer of
the shares will be subject to the restrictions of
ABB’s Articles of Incorporation (see “Limitations
on transferability of shares and nominee registra-
tion” in the Shareholders section below).
Authorized share capital
At December 31, 2020, ABB had an authorized
share capital in the amount of up to
CHF 24,000,000 through the issuance of up to
200,000,000 fully paid registered shares
with a par value of CHF 0.12 each, which is valid
through May 2, 2021. If the authorized share
capital were fully issued, this would increase the
existing share capital by approximately 9.2 per-
cent. Aside from renewal at the 2019 AGM, the
authorized share capital has not changed during
the last three years. The Board is authorized to
determine the date of issue of new shares, the
issue price, the type of payment, the conditions
for the exercise of pre-emptive rights and the
beginning date for dividend entitlement. In this
regard, the Board may issue new shares by means
of a firm underwriting through a banking institu-
tion, a syndicate or another third party
A B B A N N U A L R E P O R T 2 0 2 0
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53
ABBN SW Equity
Swiss Market Index Rebased
—
Source:
Bloomberg
Zurich
CHF
28
26
24
22
20
18
16
14
0
2
0
2
n
a
J
0
2
0
2
b
e
F
0
2
0
2
r
a
M
0
2
0
2
r
p
A
0
2
0
2
y
a
M
0
2
0
2
n
u
J
0
2
0
2
l
u
J
0
2
0
2
g
u
A
0
2
0
2
p
e
S
0
2
0
2
t
c
O
0
2
0
2
v
o
N
0
2
0
2
c
e
D
ABB SS Equity
OMX 30 Index Rebased
—
Source:
Bloomberg
Stockholm
SEK
290
270
250
230
210
190
170
150
0
2
0
2
n
a
J
0
2
0
2
b
e
F
0
2
0
2
r
a
M
0
2
0
2
r
p
A
0
2
0
2
y
a
M
0
2
0
2
n
u
J
0
2
0
2
l
u
J
0
2
0
2
g
u
A
0
2
0
2
p
e
S
0
2
0
2
t
c
O
0
2
0
2
v
o
N
0
2
0
2
c
e
D
—
Source:
Bloomberg
New York
USD
ABB US Equity
S&P 500 Index Rebased
28
26
24
22
20
18
16
14
0
2
0
2
n
a
J
0
2
0
2
b
e
F
0
2
0
2
r
a
M
0
2
0
2
r
p
A
0
2
0
2
y
a
M
0
2
0
2
n
u
J
0
2
0
2
l
u
J
0
2
0
2
g
u
A
0
2
0
2
p
e
S
0
2
0
2
t
c
O
0
2
0
2
v
o
N
0
2
0
2
c
e
D
—
Source:
Bloomberg
2020
High
Low
Year-end
Average daily traded number of shares, in millions
SIX Swiss
Exchange
(CHF)
NASDAQ OMX
Stockholm
(SEK)
New York
Stock Exchange
(USD)
25.31
14.93
24.71
9.00
239.80
155.85
229.00
1.78
27.96
14.85
27.96
2.05
54
A B B A N N U A L R E P O R T 2 0 2 0
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Dividends
With respect to the year ended December 31,
2020, ABB Ltd’s Board of Directors has proposed
to distribute a dividend to shareholders in the
amount of CHF 0.80 per share. This is subject to
approval by shareholders at ABB Ltd’s 2021 Annual
General Meeting. The proposal is in line with the
Company’s dividend policy to pay a rising, sus-
tainable dividend per share over time.
Key data
Dividend per share (CHF)
Par value per share (CHF)
Votes per share
Basic earnings per share (USD)(2)
Total ABB stockholders’ equity per share (USD)(3)
Cash flow from operations per share (USD)(2), (5)
Dividend payout ratio (%)(4)
Weighted-average number of shares outstanding (in millions)
2020
0.80(1)
0.12
1
2.44
7.72
0.80
37%
2,111
2019
0.80
0.12
1
0.67
6.34
1.09
123%
2,133
2018
0.80
0.12
1
1.02
6.54
1.37
80%
2,132
(1) Proposed by the Board of Directors and subject to approval by shareholders at the Annual General Meeting on March 25, 2021, in Zurich,
Switzerland.
(2) Calculation based on weighted-average number of shares outstanding.
(3) Calculation based on the number of shares outstanding at December 31.
(4) Dividend per share (converted to U.S. dollars at year-end exchange rates) divided by basic earnings per share.
(5) Includes cash flow from operations for both continuing and discontinued operations.
—
Shareholders
Shareholder structure
As of December 31, 2020, the total number of
shareholders directly registered with ABB Ltd was
approximately 102,000 and another 397,000
shareholders held shares indirectly through
nominees. In total as of that date, ABB had
approximately 499,000 shareholders.
Significant shareholders
Investor AB, Sweden, held 265,385,142 ABB shares
as of December 31, 2020 (refer to Investor’s
year-end 2020 report available at https://www.
investorab.com/investors-media/
reports-presentations). This holding represents
approximately 12.2 percent of ABB’s total share
capital and voting rights as registered in the
Commercial Register on December 31, 2020. The
number of shares held by Investor AB does not
include shares held by Mr. Jacob Wallenberg, the
chairman of Investor AB and a director of ABB, in
his individual capacity.
Cevian Capital II GP Limited, Jersey, disclosed that
as of August 3, 2020, it held 105,988,662 ABB
shares (refer to https://www.sec.gov/Archives/
edgar/data/1091587/000090266420002862/
p20-1467sc13da.htm). This holding represents
approximately 4.89 percent of ABB’s total share
capital and voting rights as registered in the
Commercial Register on December 31, 2020.
BlackRock Inc., U.S., disclosed that as of August
31, 2017, it, together with its direct and indirect
subsidiaries, held 72,900,737 ABB shares (refer to
https://www.ser-ag.com/en/resources/
notifications-market-participants/
significant-shareholders.html#/
shareholder-details/TAH91000F4). This holding
represents 3.36 percent of ABB’s total share
capital and voting rights as registered in the
Commercial Register on December 31, 2020.
The Capital Group Companies Inc., USA, disclosed
that as of November 4, 2020, it, together with its
direct and indirect affiliates, held 65,680,803 ABB
shares (refer to https://www.ser-ag.com/en/
resources/notifications-market-participants/
significant-shareholders.html#/
shareholder-details/TAKB900033). This holding
represents 3.03 percent of ABB’s total share
capital and voting rights as registered in the
Commercial Register on December 31, 2020.
At December 31, 2020, to the best of ABB’s knowl-
edge, no other shareholder held 3 percent or more
of ABB’s total share capital and voting rights as
registered in the Commercial Register on that
date.
ABB Ltd has no cross shareholdings in excess of 5
percent of capital, or voting rights with any other
company.
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55
Announcements related to disclosure notifica-
tions made by shareholders during 2020 can be
found via the search facility on the platform of the
Disclosure Office of the SIX Swiss Exchange:
https://www.ser-ag.com/en/resources/
notifications-market-participants/
significant-shareholders.html#/.
Under ABB’s Articles of Incorporation (available at
https://new.abb.com/about/
corporate-governance), each registered share
represents one vote. Significant shareholders do
not have different voting rights. To our knowl-
edge, we are not directly or indirectly owned or
controlled by any government or by any other
corporation or person.
Shareholders’ rights
Shareholders have the right to receive dividends,
to vote and to execute such other rights as
granted under Swiss law and the Articles of
Incorporation (available at https://new.abb.com/
about/corporate-governance).
Right to vote
ABB has one class of shares and each registered
share carries one vote at the general meeting.
Voting rights may be exercised only after a
shareholder has been registered in the share
register of ABB as a shareholder with the right to
vote, or with Euroclear Sweden AB (Euroclear),
which maintains a subregister of the share
register of ABB.
A shareholder may be represented at the Annual
General Meeting by its legal representative, by
another shareholder with the right to vote or by
the independent proxy elected by the sharehold-
ers (unabhängiger Stimmrechtsvertreter). If the
Company does not have an independent proxy,
the Board of Directors shall appoint the indepen-
dent proxy for the next General Meeting of
Shareholders. All shares held by one shareholder
may be represented by one representative only.
For practical reasons shareholders must be
registered in the share register no later than 6
business days before the general meeting in order
to be entitled to vote. Except for the cases
described under “Limitations on transferability of
shares and nominee registration” below, there are
no voting rights restrictions limiting ABB’s
shareholders’ rights.
Annual General Meeting/COVID-19
ABB’s top priority is protecting the health of its
shareholders and employees. Therefore, due to
the extraordinary circumstances and in accor-
dance with applicable Swiss COVID-19 legislation,
shareholders were not able to attend ABB’s
Annual General Meeting 2020 in person, but could
exercise their shareholder rights via the indepen-
dent proxy only. The Board of Directors has
resolved that for ABB’s Annual General Meeting
2021, in accordance with applicable Swiss
COVID-19 legislation, the same procedures
shall apply.
Powers of General Meeting
The Ordinary General Meeting of Shareholders
must be held each year within 6 months after the
close of the fiscal year of the Company; the busi-
ness report, the compensation report and the
Auditors’ reports must be made available for
inspection by the shareholders at the place of
incorporation of the Company by no later than
20 days prior to the meeting. Each shareholder is
entitled to request immediate delivery of a copy
of these documents.
The following powers shall be vested exclusively
in the General Meeting of Shareholders:
• Adoption and amendment of the Articles
of Incorporation;
• Election of the members of the Board of
Directors, the Chairman of the Board of
Directors, the members of the Compensation
Committee, the Auditors and the independent
proxy;
• Approval of the annual management report and
consolidated financial statements;
• Approval of the annual financial statements and
decision on the allocation of profits shown on
the balance sheet, in particular with regard
to dividends;
• Approval of the maximum compensation of the
Board of Directors and of the Executive
Committee pursuant to Article 34 of the Articles
of Incorporation;
• Granting discharge to the members of the
Board of Directors and the persons entrusted
with management;
• Passing resolutions as to all matters reserved to
the authority of the General Meeting by law or
under the Articles of Incorporation or that are
submitted to the General Meeting by the Board
of Directors, subject to Article 716a of the Swiss
Code of Obligations.
Resolutions and elections at General Meetings
Shareholders’ resolutions at general meetings are
approved with an absolute majority of the votes
represented at the meeting, except for those
matters described in Article 704 of the Swiss
Code of Obligations and for resolutions with
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respect to restrictions on the exercise of the right
to vote and the removal of such restrictions,
which all require the approval of two-thirds of the
votes represented at the meeting.
At December 31, 2020, shareholders representing
shares of a par value totaling at least CHF 48,000
may require items to be included in the agenda
of a general meeting. Any such request must be
made in writing at least 40 days prior to the date
of the general meeting and specify the items and
the motions of such shareholder(s).
ABB’s Articles of Incorporation do not contain
provisions on the convocation of the general
meeting of shareholders that differ from the
applicable legal provisions.
Shareholders’ dividend rights
The unconsolidated statutory financial state-
ments of ABB Ltd are prepared in accordance with
Swiss law. Based on these financial statements,
dividends may be paid only if ABB Ltd has suffi-
cient distributable profits from previous years or
sufficient free reserves to allow the distribution
of a dividend. Swiss law requires that ABB Ltd
retain at least 5 percent of its annual net profits
as legal reserves until these reserves amount to at
least 20 percent of ABB Ltd’s share capital. Any
net profits remaining in excess of those reserves
are at the disposal of the shareholders’ meeting.
Under Swiss law, ABB Ltd may only pay out a
dividend if it has been proposed by a shareholder
or the Board of Directors and approved at a
general meeting of shareholders, and the auditors
confirm that the dividend conforms to statutory
law and ABB’s Articles of Incorporation. In prac-
tice, the shareholders’ meeting usually approves
dividends as proposed by the Board of Directors.
Dividends are usually due and payable no earlier
than 2 trading days after the shareholders’ resolu-
tion and the ex-date for dividends is normally 2
trading days after the shareholders’ resolution
approving the dividend. Dividends are paid out to
the holders that are registered on the record date.
Euroclear administers the payment of those
shares registered with it. Under Swiss law, divi-
dends not collected within 5 years after the due
date accrue to ABB Ltd and are allocated to its
other reserves. As ABB Ltd pays cash dividends, if
any, in Swiss francs (subject to the exception for
certain shareholders in Sweden described below),
exchange rate fluctuations will affect the U.S.
dollar amounts received by holders of ADSs upon
conversion of those cash dividends by Citibank,
N.A., the depositary, in accordance with the
Amended and Restated Deposit Agreement dated
May 7, 2001.
For shareholders who are residents of Sweden,
ABB has established a dividend access facility (for
up to 600,004,716 shares). With respect to any
annual dividend payment for which this facility is
made available, shareholders who register with
Euroclear may elect to receive the dividend from
ABB Norden Holding AB in Swedish krona (in an
amount equivalent to the dividend paid in Swiss
francs) without deduction of Swiss withholding
tax. For further information on the dividend
access facility, see ABB’s Articles of Incorporation.
Limitations on transferability of shares and
nominee registration
ABB may decline a registration with voting rights
if a shareholder does not declare that it has
acquired the shares in its own name and for its
own account. If the shareholder refuses to make
such declaration, it will be registered as a
shareholder without voting rights. A person
failing to expressly declare in its registration/
application that it holds the shares for its own
account (a nominee), will be entered in the share
register with voting rights, provided that such
nominee has entered into an agreement with ABB
concerning its status, and further provided that
the nominee is subject to recognized bank or
financial market supervision. In special cases the
Board may grant exemptions. There were no
exemptions granted in 2020. The limitation on the
transferability of shares may be removed by an
amendment of ABB’s Articles of Incorporation
by a shareholders’ resolution requiring two thirds
of the votes represented at the meeting.
No restriction on trading of shares
No restrictions are imposed on the transferability
of ABB shares. The registration of shareholders in
the ABB Share register, Euroclear and the ADS
register kept by Citibank does not affect
transferability of ABB shares or ADSs. Registered
ABB shareholders or ADR holders may therefore
purchase or sell their ABB shares or ADRs at any
time, including before a General Meeting regard-
less of the record date. The record date serves
only to determine the right to vote at a General
Meeting.
Duty to make a public tender offer
ABB’s Articles of Incorporation do not contain any
provisions raising the threshold (opting up) or
waiving the duty (opting out) to make a public
tender offer pursuant to Article 135 of the Swiss
Act on Financial Market Infrastructures and
Market Conduct in Securities and Derivatives
Trading.
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—
Independent external auditors
Duration of the mandate and
term of office of the auditor
On March 26, 2020, shareholders at the Annual
General Meeting of ABB Ltd, approved the ap-
pointment of KPMG AG (KPMG) to be the auditors
of the Company for the 2020 financial year.
KPMG are the auditors of ABB’s statutory and
consolidated financial statements. KPMG, Swit-
zerland, assumed the sole auditing mandate of
the consolidated financial statements of the ABB
Group beginning in the year ended December 31,
2018. The auditor in charge and responsible for
the mandate, Hans-Dieter Krauss, began serving
in this capacity in respect of the financial year
ended December 31, 2018. Pursuant to ABB’s
Articles of Incorporation (available at https://new.
abb.com/about/corporate-governance), the term
of office of ABB’s auditors is one year.
Information to the Board and
the Finance, Audit and
Compliance Committee
Supervisory and control instruments vis-à-vis
the auditors
Our auditors, KPMG, attend each meeting of the
FACC and each meeting includes a private session
between the auditors and the FACC without the
management being present. In 2020, the FACC
had 7 meetings (either in person or via telephone
call). On at least an annual basis, the FACC reviews
and discusses with the external auditors all
significant relationships that the auditors have
with the Company that could impair their inde-
pendence. The FACC reviews the auditor
engagement letter and the audit plan including
discussion of scope, staffing, locations and
general audit approach. The FACC also reviews
and evaluates the auditors’ judgment on the
quality and appropriateness of the Company’s
accounting principles as applied in the financial
reporting. In addition, the FACC approves in
advance any non-audit services to be performed
by the auditors.
At least annually, the FACC obtains and reviews
a report by the auditors that includes discus-
sion on:
• The Company’s internal control procedures;
• Material issues, if any, raised by the most recent
internal quality control review;
• Critical accounting policies and practices of
the Company;
• All alternative accounting treatments of
financial information that were discussed
between the auditors and management as well
as the related ramifications; and
• Material communications between the auditors
and management such as any management
letter or schedule of audit differences.
Taking into account the opinions of management
the FACC evaluates the qualifications, indepen-
dence and performance of the auditors. The FACC
reports the material elements of its supervision
of the auditors to the Board and on an annual
basis recommends to the Board the auditors to
be proposed for election at the shareholders
meeting.
Audit and additional fees paid
to the auditor
The audit fees charged by KPMG for the legally
prescribed audit amounted to $40.6 million in
2020. Audit services are defined as the standard
audit work performed each fiscal year necessary
to allow the auditors to issue an opinion on the
consolidated financial statements of ABB and to
issue an opinion on the local statutory financial
statements.
This classification may also include services that
can be provided only by the auditors, such as
pre-issuance reviews of quarterly financial results
and comfort letters delivered to underwriters in
connection with debt and equity offerings.
Included in the 2020 audit fees were approxi-
mately $4.5 million related to audits from 2019
and earlier, which were not agreed until after the
Company had filed its annual report on Form 20-F
with the SEC on February 26, 2020.
In addition, KPMG charged $3.5 million for
non-audit services during 2020. Non-audit
services include primarily agreed-upon procedure
reports, accounting consultations, audits of
pension and benefit plans, accounting advisory
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services, other attest services related to financial
reporting that are not required by statute or
regulation, income tax and indirect tax compli-
ance services and tax advisory services. In
accordance with the requirements of the U.S.
Sarbanes-Oxley Act of 2002 and rules issued by
the SEC, ABB has, on a global basis, a process for
the review and pre-approval of audit and
non-audit services to be performed by KPMG.
—
Other governance information
ABB Group organizational
structure
Employee participation
programs
ABB Ltd, Switzerland is the ultimate parent com-
pany of the ABB Group. It is the sole shareholder
of ABB Asea Brown Boveri Ltd which directly or
indirectly owns the other companies in the ABB
Group. The table in the appendix to this Corporate
governance report sets forth, as of December 31,
2020, the name, place of incorporation, ownership
interest and share capital of the significant direct
and indirect subsidiaries of ABB Ltd. In addition,
ABB Ltd also owns 19.9 percent of Hitachi ABB
Power Grids Ltd. ABB’s operational group struc-
ture is described in the “Financial review of ABB
Group” section of this Annual Report under “Oper-
ating and financial review and prospects
– Organizational structure”.
Management contracts
There are no management contracts between ABB
and companies or natural persons not belonging
to the ABB Group.
Change of control clauses
Board members, Executive Committee members,
and other members of senior management do not
receive any special benefits in the event
of a change of control. However, the conditional
grants under the Long Term Incentive Plan (LTIP)
and the Management Incentive Plan (MIP) may be
subject to accelerated vesting in the event
of a change of control. From 2021, the rules for the
LTIP will be amended to no longer provide for
accelerated vesting upon a change in control. This
amendment will apply to future grants made
under the LTIP. No further grants are made under
the MIP.
In order to align its employees’ interests with the
business goals and financial results of the Com-
pany, ABB operates a number of incentive plans,
linked to ABB’s shares, such as the Employee
Share Acquisition Plan, the Management Incentive
Plan and the Long Term Incentive Plan. For a more
detailed description of these incentive plans,
please refer to “Note 18 - Share-based payment
arrangements” to ABB’s Consolidated Financial
Statements.
Governance differences from
NYSE Standards
According to the New York Stock Exchange’s
corporate governance standards (the Standards),
ABB is required to disclose significant ways in
which its corporate governance practices differ
from the Standards. ABB has reviewed the Stan-
dards and concluded that its corporate
governance practices are generally consistent
with the Standards, with the following significant
exceptions:
• Swiss law requires that the external auditors be
elected by the shareholders at the Annual
General Meeting rather than by the audit
committee or the board of directors.
• The Standards require that all equity
compensation plans and material revisions
thereto be approved by the shareholders.
Consistent with Swiss law such matters are
decided by our Board. However, the
shareholders decide about the creation of new
share capital that can be used in connection
with equity compensation plans.
• Swiss law requires that the members of the
compensation committee are elected by the
shareholders rather than appointed by
our Board.
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59
• Swiss law requires shareholders to approve the
maximum aggregate Board compensation and
the maximum aggregate Executive
Committee compensation.
Further information on
corporate governance
The list below contains references to additional
information concerning the corporate governance
of ABB (available at https://new.abb.com/about/
corporate-governance).
• Articles of Incorporation
• ABB Ltd Board Regulations & Corporate
Governance Guidelines which includes:
– Regulations of the Finance, Audit and Compli-
ance Committee
– Regulations of the Governance and Nomina-
tion Committee
– Regulations of the Compensation Committee
– Related Party Transaction Policy
• ABB Code of Conduct
• Comparison of ABB’s corporate governance
practices to the New York Stock Exchange rules
• Summary of differences of shareholder rights
under Swedish and Swiss law applicable to ABB
• CVs of the Board members
• CVs of the Executive Committee members
ABB’s corporate calendar can be found at
https://new.abb.com/investorrelations/
calendar-events-and-publications/
financial-calendar.
Information policy
ABB, as a publicly traded company, is committed
to communicating in a timely and consistent way
to shareholders, potential investors, financial
analysts, customers, suppliers, the media and
other interested parties. ABB is required to dis-
seminate material information pertaining to its
businesses in a manner that complies with its
obligations under the rules of the stock ex-
changes where its shares are listed and traded.
ABB publishes an annual report that provides
audited financial statements and information
about ABB including our business results, strat-
egy, products and services, corporate governance
and executive compensation. ABB also submits an
annual report on Form 20-F to the Securities and
Exchange Commission (SEC). In addition, ABB
publishes its results on a quarterly basis as press
releases, distributed pursuant to the rules and
regulations of the stock exchanges on which its
shares are listed and traded. Press releases
relating to financial results and material events
are also filed with the SEC on Form 6-K. An archive
containing Annual Reports, Form 20-F reports,
quarterly results releases and related presenta-
tions can be found in the “Financial results and
presentations” section at https://www.abb.com/
investorrelations. The quarterly results press
releases contain unaudited financial information
prepared in accordance with or reconciled to U.S.
GAAP. To subscribe to important press releases,
please click on the “Contacts and Services” and
choose “Subscribe to updates” at https://www.
abb.com/investorrelations. Ad-hoc notices can
also be found in the press releases section at
https://www.abb.com/news.
ABB’s official means of communication is the
Swiss Official Gazette of Commerce (https://
www.shab.ch). The invitation to the Company’s
Annual General Meeting is sent to registered
shareholders by mail.
Inquiries may also be made to ABB Investor
Relations:
Affolternstrasse 44
CH-8050 Zurich, Switzerland
Telephone: +41 43 317 7111
E-Mail: investor.relations@ch.abb.com
ABB’s website is: www.abb.com
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Appendix – ABB Ltd’s significant subsidiaries
Company name/location
ABB S.A., Buenos Aires
ABB Australia Pty Limited, Moorebank, NSW
ABB Group Investment Management Pty. Ltd., Moorebank, NSW
ABB AG, Wiener Neudorf
B&R Holding GmbH, Eggelsberg
B&R Industrial Automation GmbH, Eggelsberg
ABB N.V., Zaventem
ABB Automacao Ltda., Sorocaba
ABB Eletrificacao Ltda., Sorocaba
ABB Bulgaria EOOD, Sofia
ABB Electrification Canada ULC, Edmonton, Alberta
ABB Inc., Saint-Laurent, Quebec
ABB S.A., Santiago
ABB (China) Investment Limited, Beijing
ABB (China) Ltd., Beijing
ABB Beijing Drive Systems Co. Ltd., Beijing
ABB Beijing Switchgear Limited, Beijing
ABB Electrical Machines Ltd., Shanghai
ABB Engineering (Shanghai) Ltd., Shanghai
ABB Shanghai Free Trade Zone Industrial Co., Ltd., Shanghai
ABB Shanghai Motors Co. Ltd., Shanghai
ABB Xiamen Low Voltage Equipment Co. Ltd., Xiamen
ABB Xiamen Switchgear Co. Ltd., Xiamen
ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui
ABB s.r.o., Prague
ABB A/S, Skovlunde
ABB for Electrical Industries (ABB ARAB) S.A.E., Cairo
Asea Brown Boveri S.A.E., Cairo
ABB AS, Jüri
ABB Oy, Helsinki
ABB France, Cergy Pontoise
ABB SAS, Cergy Pontoise
ABB AG, Mannheim
ABB Automation GmbH, Mannheim
ABB Automation Products GmbH, Ladenburg
ABB Beteiligungs- und Verwaltungsges. mbH, Mannheim
ABB Stotz-Kontakt GmbH, Heidelberg
B + R Industrie-Elektronik GmbH, Bad Homburg
Busch-Jaeger Elektro GmbH, Lüdenscheid
ABB Engineering Trading and Service Ltd., Budapest
Industrial C&S Hungary Kft., Budapest
ABB Global Industries and Services Private Limited, Bangalore
ABB India Limited, Bangalore
ABB S.p.A., Milan
ABB K.K., Tokyo
ABB Ltd., Seoul
ABB Electrical Control Systems S. de R.L. de C.V., Monterrey
ABB Mexico S.A. de C.V., San Luis Potosi SLP
Asea Brown Boveri S.A. de C.V., San Luis Potosi SLP
ABB B.V., Rotterdam
ABB Finance B.V., Rotterdam
ABB Holdings B.V., Rotterdam
ABB AS, Fornebu
ABB Electrification Norway AS, Skien
ABB Holding AS, Fornebu
ABB Business Services Sp. z o.o., Warsaw
ABB
interest %
Share
capital in
thousands Currency
Country
Argentina
Australia
Australia
Austria
Austria
Austria
Belgium
Brazil
Brazil
Bulgaria
Canada
Canada
Chile
China
China
China
China
China
China
China
China
China
China
China
Czech Republic
Denmark
Egypt
Egypt
Estonia
Finland
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Hungary
Hungary
India
India
Italy
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
278,860
131,218
505,312
15,000
35
1,240
34,308
196,554
268,759
65,110
– (1)
– (1)
100.00
5,484,348
100.00
100.00
90.00
60.00
100.00
100.00
100.00
75.00
100.00
66.52
90.00
100.00
100.00
100.00
100.00
100.00
100.00
99.83
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
95,000
140,000
5,000
16,500
14,400
40,000
6,500
11,217
15,800
29,500
6,200
400,000
100,000
353,479
166,000
1,663
10,003
25,778
45,921
167,500
15,000
10,620
61,355
7,500
358
1,535
100.00 26,436,281
100.00
100.00
3,000
366,923
75.00
423,817
100.00
110,000
Japan
100.00
1,000,000
Korea, Republic of
100.00 23,670,000
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Norway
Norway
Norway
Poland
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.93
315,134
638,418
667,686
9,200
20
119
134,550
60,450
240,000
24
ARS
AUD
AUD
EUR
EUR
EUR
EUR
BRL
BRL
BGN
CAD
CAD
CLP
USD
USD
USD
USD
USD
USD
CNY
USD
USD
USD
USD
CZK
DKK
EGP
USD
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
HUF
HUF
INR
INR
EUR
JPY
KRW
MXN
MXN
MXN
EUR
EUR
EUR
NOK
NOK
NOK
PLN
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61
Company name/location
ABB Industrial Solutions (Bielsko-Biala) Sp. z o.o., Bielsko-Biala
ABB Industrial Solutions (Klodzko) Sp.z o.o., Klodzko
ABB Sp. z o.o., Warsaw
Industrial C&S of P.R. LLC, San Juan
ABB Ltd., Moscow
Country
Poland
Poland
Poland
Puerto Rico
Russian Federation
99.93
99.93
99.93
100.00
100.00
328,125
50
245,461
–
5,686
ABB Electrical Industries Co. Ltd., Riyadh
Saudi Arabia
65.00
181,000
ABB
interest %
Share
capital in
thousands Currency
PLN
PLN
PLN
USD
RUB
SAR
SGD
ZAR
ZAR
EUR
SEK
SEK
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Singapore
South Africa
South Africa
Spain
Sweden
Sweden
100.00
100.00
74.91
100.00
100.00
32,797
4,050
1
33,318
200,000
100.00
2,344,783
Switzerland
100.00
2,768,000
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
100.00
100.00
100.00
100.00
100.00
100.00
1000
100
500
20
571
55,000
Taiwan (Chinese
Taipei)
100.00
195,000
TWD
Turkey
99.99
United Arab Emirates
49.00(2)
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
United States
United States
United States
United States
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
13,410
5,000
226,014
120,000
1
2
1
1
–
–
1
–
–
TRY
AED
GBP
GBP
USD
USD
USD
USD
USD
USD
USD
USD
USD
ABB Pte. Ltd., Singapore
ABB Holdings (Pty) Ltd., Modderfontein
ABB South Africa (Pty) Ltd., Modderfontein
Asea Brown Boveri S.A., Madrid
ABB AB, Västerås
ABB Norden Holding AB, Västerås
ABB Asea Brown Boveri Ltd, Zurich
ABB Canada EL Holding GmbH, Zurich
ABB Capital AG, Zurich
ABB Information Systems Ltd., Zurich
ABB Investment Holding 2 GmbH, Zurich
ABB Management Services Ltd., Zurich
ABB Schweiz AG, Baden
ABB Ltd., Taipei
ABB Elektrik Sanayi A.S., Istanbul
ABB Industries (L.L.C.), Dubai
ABB Holdings Limited, Warrington
ABB Limited, Warrington
ABB Finance (USA) Inc., Wilmington, DE
ABB Holdings Inc., Cary, NC
ABB Inc., Cary, NC
ABB Installation Products Inc, Memphis, TN
ABB Installation Products International LLC., Wilmington, DE
ABB Motors and Mechanical Inc, Fort Smith, AR
ABB Treasury Center (USA), Inc., Wilmington, DE
Edison Holding Corporation, Wilmington, DE
Industrial Connections & Solutions LLC, Cary, NC
(1) Shares without par value.
(2) Company consolidated as ABB exercises full management control.
03
Compensation
report
—
62 – 93
64
67
93
Letter from the Chairman of the
Compensation Committee
Compensation report
Report of the statutory auditor
on the compensation report
64
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—
Letter from the Chairman of the
Compensation Committee
Dear Shareholders,
On behalf of the Board of Directors (Board) and
the Compensation Committee (CC), I am pleased
to present the Compensation Report (‘the
Report’) for 2020.
Our Committee’s focus remains to ensure that the
compensation structure at ABB drives value
creation for our shareholders, a motivating pack-
age for our executives and meets best-practice
corporate governance standards.
I appreciated the opportunity to meet with many
of our shareholders to discuss compensation
matters last year as part of our annual engage-
ment process. During these meetings, we
discussed our response to the challenges brought
upon us by the Coronavirus (COVID-19) pandemic,
our approach to linking progress on environmen-
tal, social and corporate governance (ESG)
matters to compensation outcomes, and any
changes that could be made to our compensation
policy and structure to increase its shareholder
alignment, market competitiveness and perfor-
mance driven culture. Furthermore, we discussed
ways in which we could improve disclosures in the
Report to create greater clarity for you, our
stakeholders.
Response to the COVID-19 pandemic
You will have seen in this Annual Report the way in
which our organization and our people have been
affected by the social and economic impacts of
the COVID-19 pandemic.
I was proud to see the response from the Board,
members of the Executive Committee (EC), and
over 200 senior managers, in voluntarily donating
10 percent of their fees or salaries for a six month
period during 2020, and thereby raising over
$3 million to support their ABB colleagues to fight
the impacts of the COVID-19 crisis. In a number of
cases, this donation was in addition to participat-
ing in business or country programs, such as
furlough schemes. To date, assistance has been
provided to support ABB employees in 19 coun-
tries and will continue in the year ahead.
In terms of the impact on incentives, the 2020
Annual Incentive Plan (AIP) targets, which were
set before the Coronavirus crisis, were not
adjusted for the impact of COVID-19. In addition,
caps were placed on the outcomes for Corporate
Officers to ensure there were not unintended
windfalls for those with cost or other qualitative
measures. This, together with the impact of the
voluntary salary donation, has had a material
negative impact on AIP awards for 2020.
The EPS targets for outstanding Long-Term
Incentive Plan (LTIP) grants, which were set before
the COVID-19 crisis occurred, have also not been
changed for the impact of COVID-19. The refer-
ence price set for the 2020 LTIP grant was set
using the 2019 price, given the high level of
market volatility at the time of making the grant
in March.
Linking ESG to compensation outcomes
ABB (‘the Company’) presented its refreshed
Sustainability Strategy, and associated ambitious
and challenging targets for 2030, at the last
Capital Markets Day.
I appreciated the discussion with shareholders,
who hold a wide range of views on whether and
how to best link ESG with compensation out-
comes. The CC discussed the matter and agreed
that, in future, progress against defined ESG
targets will be a ‘boundary condition’ for making
AIP awards. Under this approach, the Board will,
each year, agree specific ESG target(s) and review
whether the Company had made sufficient prog-
ress at the end of the year to justify making the
indicated AIP award. If, in the opinion of the
Board, insufficient progress has been made, the
AIP award may be reduced on a discretionary
basis. This approach will apply to the Executive
Committee and our top 100 senior leaders.
For 2021, the ‘boundary condition’ will be the
setting of plans in each ABB Division to mitigate
for ABB scope 1 and 2 emissions. Further details
of the relevant targets, and the progress made
against them, will be disclosed in future Compen-
sation Reports. This new feature of the AIP
complements the focus on safety which has
been a long-standing feature of short-term incen-
tive measures for senior executives. From 2021,
the safety goal under the AIP for EC members will
be the percentage improvement in the Lost Time
Incident Frequency Rate (LTIFR). LTIFR is seen
as a clear indicator of the effectiveness of inci-
dent prevention programs in ABB.
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65
Compensation policy and structure
The change in approach to ESG is the main change
to the compensation policy for 2021. In addition,
in direct response to feedback from shareholders,
there will be a change to the LTIP rules to remove
the automatic accelerated vesting of awards in
the unlikely event of a change of control, which
will apply to LTIP grants made from 2021.
The compensation structure for the EC, its pur-
pose and links to our Company strategy, and
associated performance measures, valid as of
2021, are set out in the table below.
Compensation structure
Purpose and link to
strategy
Fixed compensation-
annual base salary
and benefits
Compensates
EC members
for the role
Short-term
incentive (AIP)
Long-term
incentive (LTIP)
Wealth at Risk/
Share Ownership
Rewards annual
company and
individual
performance. Drives
annual strategy
implementation
Encourages creation
of long-term,
sustainable value for
shareholders, and
delivery of long term
strategic goals
Aligns individual’s
personal wealth at risk
directly to the ABB
share price
Operation
Cash salary, benefits
in kind, and pension
contribution
Annual awards,
payable in cash after a
1-year performance
period
Annual awards in
shares which may vest
after 3 years subject
to performance
conditions
Individuals required
to hold ABB shares
Opportunity level
(as % of annual base salary)
Based on scope of
responsibilities,
individual experience
and skillset
Target: 100%
Maximum: 150%
CEO
Target at grant: 150%
Vesting: 0-300%
EC
Target at grant: 100%
Vesting: 0-200%
CEO wealth at risk:
500% (net)
EC wealth at risk:
400% (net)
Time period
Delivered in year
1 year
3 years
Total EC tenure
Relative TSR(1) (50%)
Average EPS(2) (50%)
Direct link to
ABB share price
Performance measures
Changes to annual
base salary takes into
account the
Executive’s
performance in the
preceding year and
potential for the future
All: ABB Op EBITA
margin % (20-25%);
Business measures,
which may include,
for example:
ROCE, Business Area
Op EBITA margin (%),
productivity,
OFCF (55-60%);
All: individual
objectives (20%);
All: ESG boundary
condition for awards
(1) Total Shareholder Return.
(2) Earnings Per Share.
Note that the common AIP measure for 2021,
which applies to all EC members and the top 100
senior leaders, will be Operational EBITA margin
(%), to reflect the strategic focus on ambitious
longer-term margin targets. A return measure
– ROCE – will be retained for the CEO and the
majority of the EC to continue the focus on profit-
ability and the efficiency with which capital is
used. Corporate Officers will be aligned to the
CEO’s business measures, to increase alignment
with operational business outcomes, with any
functional imperatives included in the relevant
individual objectives.
The LTIP will be reviewed during 2021 to ensure
that it continues to align with business strategy
and the needs of stakeholders. Shareholders will
be consulted on any proposed changes before
they are tabled as resolutions for approval at the
next AGM.
Compensation policy outcomes
A review of Board fees was undertaken during
2020, which was informed by a benchmarking
study of comparable Swiss corporations. Follow-
ing this review, there were no changes in the fees
for Board members for the roles they perform.
The aggregate Board compensation for the
2019-2020 term was in line with the amount
approved at the 2019 Annual General Meeting.
Board compensation for 2020 was lower than in
2019 due to Board members voluntarily donating
10 percent of their fees to fight the impacts of the
COVID-19 crisis for a six-month period during
2020.
EC members received total compensation of
CHF 35.4 million in 2020, compared to
CHF 51.4 million in 2019, as summarized in Ex-
hibit 12 and presented in detail in Exhibits 27
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Governance
During 2020, the CC completed a benchmarking
review for the Board and EC and reviewed the
Swiss gender pay regulatory and disclosure
requirements. It also performed its regular activi-
ties, including recommending performance
measures and targets for the EC to the Board
which impact variable compensation, recom-
mending the compensation of ABB’s Board, CEO
and EC members, formulating the Compensation
Report, preparing the “say-on-pay” vote at the
Annual General Meeting (AGM), and reviewing the
terms of appointment and departure for mem-
bers of the EC. You will find further information
on our activities and on ABB´s compensation
system and governance in the following pages.
At the AGM in March 2021, you will be asked to
vote on the maximum aggregate compensation
for the Board for its 2021–2022 term and on the
maximum aggregate compensation for the EC for
2022. This Compensation Report will also be
submitted for a non-binding, consultative vote by
shareholders.
We encourage and pursue an open and regular
dialogue with all of our stakeholders. Your con-
structive input is highly valued and appreciated as
we continue to improve the compensation
system. On behalf of ABB, the Compensation
Committee and the Board, I thank you for your
continued trust in ABB and for your consistently
supportive feedback regarding our compensation
framework.
David E. Constable
Chairman of the Compensation Committee
Zurich, February 25, 2021
and 28. This 31 percent decrease in total compen-
sation was influenced by the reduction in the
number of active EC members, lower payments to
former EC members, EC members voluntarily
donating 10 percent of their salary to fight the
impacts of the COVID-19 pandemic
for a six-month period during 2020, and much
lower short-term incentive awards due to the
impact of COVID-19.
Three of the nine EC members in place in March
2020, received a salary adjustment, which ranged
from 4.3 to 7.1 percent, the latter being for an
exceptional performance and market adjustment.
This corresponded to a 1.6 percent increase on
annual base salaries for the EC members in post
in March, 2020.
The average award for the EC under the AIP for
2020 was 72.4 percent (out of a maximum 150
percent), compared to 94.7 percent in 2019. This
significant drop in outcomes from the prior year
was heavily influenced by the impact on the
business from COVID-19.
The vesting of the 2017 LTIP grant in 2020 was
determined with reference to Net income and EPS
targets. The average achievement level of the two
performance measures under the 2017 LTIP was
73.0 percent (out of a maximum 175 percent), with
the actual vesting varying by individual EC
member, from 69.4 percent to 75.4 percent. Note
that the performance period for determining the
value of the award, from 2017 to 2019, was not
affected by the impact of COVID-19.
Disclosure
During the reporting year, the CC listened care-
fully to ideas and suggestions to increase the
clarity of disclosures in the Report. As such, we
provide an overview of the compensation struc-
ture and its links to our strategy in this letter and
continue to structure the Report to clearly differ-
entiate between our compensation policies and
their implementation.
The key changes to the Report this year include an
update to the benchmarking section to reflect the
changes to the benchmarking peer groups for the
EC, an enhanced description and Exhibit to illus-
trate short-term incentive outcomes, the
retrospective disclosure of EPS targets under the
long-term incentive and an additional table
with a simplified way to show realized
compensation.
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—
Compensation report
Compensation governance
Shareholder engagement
ABB’s Articles of Incorporation, approved by its
shareholders, contain provisions on compensa-
tion which govern and outline the principles of
compensation relating to our Board of Directors
(Board) and Executive Committee (EC). They can
be found on ABB’s Corporate governance Web site
new.abb.com/about/corporate-governance and
are summarized below:
• Compensation Committee (Articles 28 to 31):
The Compensation Committee (CC) is
composed of a minimum of three members of
the Board of Directors who are elected
individually by the shareholders at the Annual
General Meeting (AGM) for a period of one year.
The CC supports the Board in establishing and
reviewing the compensation strategy, principles
and programs, in preparing the proposals to the
AGM on compensation matters and in
determining the compensation of the Board and
of the EC. The responsibilities of the CC are
defined in more detail in the Board Regulations
and Corporate Governance guidelines, which are
available on ABB’s Corporate governance
Web site.
• Compensation principles (Article 33):
Compensation of the members of the Board
consists of fixed compensation only, which is
delivered in cash and shares (with an option to
elect for shares only). Compensation of the
members of the EC consists of fixed and
variable compensation. Variable compensation
may comprise short-term and long-term
elements. Compensation may be paid in cash,
shares or other benefits.
Exhibit 1: Authority levels in compensation matters
Compensation policy including incentive plans
Maximum aggregate compensation amount EC members
CEO compensation
Individual compensation EC members
Performance target setting and assessment CEO
Performance target setting and assessment EC members
Shareholding requirements CEO and EC members
Maximum aggregate compensation amount Board members
Individual compensation Board members
Compensation report
Proposal
Recommendation
Approval
• “Say-on-pay” vote (Article 34): Shareholders
approve the maximum aggregate amount of
compensation of the Board for the following
Board term and of the EC for the following
financial year.
• Supplementary amount for new EC members
(Article 35): If the maximum approved
aggregate compensation amount is not
sufficient to also cover the compensation of
newly promoted/hired EC members, up to 30
percent of the last maximum approved
aggregate amount shall be available
as a supplementary amount to cover the
compensation of such new EC members.
• Loans (Article 37): Loans may not be granted to
members of the Board or of the EC.
Shareholders also have a consultative vote on the
prior year’s Compensation Report at the AGM. The
Compensation Policy sections of this Report
describe the compensation policies and programs
as well as the governance framework related to
the compensation of the Board and EC. The
Compensation Implementation sections of this
Report provide details of the compensation paid
to the members of the Board and of the EC in the
prior calendar year.
The Compensation Report is prepared in accor-
dance with the Ordinance against Excessive
Remuneration in Listed Stock Corporations
(Ordinance), the Directive on Information relating
to Corporate Governance of the SIX Exchange
Regulation, the rules of the stock markets of
Sweden and the United States where ABB’s shares
are also listed, and the principles of the Swiss
Code of Best Practice for Corporate Governance
of economiesuisse.
CEO
CC
Board
AGM
Consultative vote
68
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Authority levels in compensation matters
The CC acts in an advisory capacity while the
Board retains the decision authority on compen-
sation matters, except for the maximum
aggregate compensation amounts of the Board
and of the EC, which are subject to the approval of
shareholders at the AGM. The authority levels of
the different bodies on compensation matters are
detailed in Exhibit 1.
Activities of the CC in 2020
The CC meets as often as business requires but at
least four times a year. In 2020, the CC held seven
meetings and performed the activities described
in Exhibit 2. Details on meeting attendance of the
individual CC members are provided in the sec-
tion titled “Board of Directors – Meetings and
attendance” of the Corporate Governance Report.
The Chairman of the CC reports to the full Board
after each CC meeting. The minutes of the meet-
ings are available to the members of the Board.
The CC retains independent, external advisors for
compensation matters. PricewaterhouseCoopers
(PwC) are currently mandated to provide services
related to executive compensation matters. Apart
from its CC advisory role, PwC also provides
human resources, tax and advisory services
to ABB.
The CEO, the Chief Human Resources Officer
(CHRO) and the Head of Performance and Reward
also attend all or part of the CC meetings in an
advisory capacity. The Chairman of the CC may
decide to invite other executives upon consulta-
tion with the CEO, as appropriate. Executives do
not attend the meetings or the parts of the meet-
ings in which their own compensation and/or
performance are being discussed.
Exhibit 2: CC activities during 2020
Board Compensation
Review of approach to benchmarking
Review of benchmark data
EC Compensation
Review of approach to benchmarking
Review of benchmark data and recommendations on individual compensation for EC members
Review of the share ownership of EC members
Review and approval of compensation for new and departing EC members
Performance – relating to past performance cycle
Assessment of short-term incentive awards for 2019
Assessment of achievement of performance targets for Long-Term Incentive Plan (LTIP) awards vesting in 2020
Performance – relating to forthcoming performance cycle
Setting of preliminary Annual Incentive Plan (AIP) targets for 2021
Setting of performance targets for LTIP awards granted in 2020
Review impact of Power Grids (PG) joint venture on LTIP targets
Updates on achievement against performance targets for 2020 AIP and unvested LTIP awards
Compliance
Review of the Swiss gender pay regulatory and disclosure requirements
Review of the LTIP rules
Review of feedback from Investor Engagement meetings
Regulatory and market updates
Review of the compensation report for publication
Preparation of maximum aggregate compensation for Board to be submitted for AGM vote
Preparation of maximum aggregate compensation for EC to be submitted for AGM vote
Board compensation policy
Overview
The compensation system for the members of the
Board is designed to attract and retain experi-
enced people on the Board. Compensation of
Board members takes into account the responsi-
bilities, time and effort required to fulfill their
roles on the Board and its committees. A fixed fee
is payable for the Chairman, Vice-Chairman and
members of the Board, and additional fees are
payable for chairing or membership of a Board
Committee, except for the Chairman and
Vice-Chairman.
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69
Board members do not receive variable compen-
sation or pension benefits, underscoring their
focus on corporate strategy, supervision and
governance. In accordance with Swiss law, Board
members may not receive ‘golden parachutes’ or
other special benefits in the event of a change of
control. Board members are paid for their service
over a 12-month period that starts with their
election at the AGM. Payment of fees is made in
semi-annual installments in arrears.
In order to further align the interests of the Board
members with those of ABB’s shareholders, half
of their fee must be paid in ABB shares, although
Board members may choose to receive all of their
fee in shares. The number of shares delivered is
calculated prior to each semi-annual payment by
dividing the monetary amount to which the Board
members are entitled by the average closing price
of the ABB share over a predefined 30-day period.
The shares are subject to a three-year restriction
period during which they cannot be sold, trans-
ferred or pledged. Any restricted shares are
unblocked when the Board member leaves
the Board.
Implementation of Board compensation policy
From time to time, the levels and mix of compen-
sation of Board members are compared against
the compensation of non-executive board mem-
bers from a cross section of publicly traded
companies in Switzerland that are part of the
Swiss Market Index (i.e. Adecco, Alcon, Geberit,
Givaudan, LafargeHolcim, Lonza, Richemont, SGS,
Sika, Swisscom, Swiss Life, Zurich Insurance).
Such a review was undertaken in 2020, and there
was no adjustment made to Board fees for the
term of office from the 2020 AGM to the 2021
AGM, as set out in Exhibit 3 below.
Exhibit 3: Current Board fees
Chairman of the Board(2)
Vice-Chairman of the Board(2)
Member of the Board
Additional committee fees:
Chairman of FACC(3)
Chairman of CC or GNC(3)
Member of FACC(3)
Member of CC or GNC(3)
Board term fee (CHF)(1)
1,200,000
450,000
290,000
110,000
60,000
40,000
30,000
(1) The Chairman and the Vice-Chairman do not receive any
additional committee fees for their roles on the GNC.
(2) CC: Compensation Committee,
FACC: Finance, Audit and Compliance Committee,
GNC: Governance and Nomination Committee
(3) These fees do not reflect the 10 percent COVID-19 related
voluntary donation in fees for the first half of the 2020-2021
Board term.
The compensation paid to the Board members for
the calendar year 2020 and for the term of office
from the 2020 AGM to the 2021 AGM are disclosed
in Exhibits 24 and 25, respectively, in the section
“Compensation and share ownership tables”.
At the 2020 AGM, the shareholders ap-
proved a maximum aggregate compensation
amount of CHF 4.70 million for the 2020-2021
Board term, the same as was approved for the
previous Board term. The compensation actually
paid was five percent lower than the prior term
due to the voluntary donation of 10 percent of
fees for a six-month period during 2020 to fight
the impacts of the COVID-19 crisis. The Board
compensation is therefore within the amount
approved by the shareholders.
See Exhibit 4 below and Exhibit 25 in the section
“Compensation and share ownership tables”.
Exhibit 4: Board compensation (in CHF)
Board term
Board of Directors
2020–2021
2019–2020
Number of members
Total compensation
11
11
4,436,500
4,670,000
Maximum aggregate
compensation amount approved
at AGM
4,700,000
4,700,000
Shareholdings of Board members
The members of the Board collectively owned less
than one percent of ABB’s total shares outstand-
ing at December 31, 2020.
Exhibit 26 in the section “Compensation and
share ownership tables” shows the number of
ABB shares held by each Board member at Decem-
ber 31, 2020 and 2019. Except as described in this
Exhibit, no member of the Board and no person
closely linked to a member of the Board held any
shares of ABB or options in ABB shares.
In 2020, ABB did not pay any fees or compensa-
tion to the members of the Board for services
rendered to ABB other than those disclosed in this
Compensation Report.
Compensation of former Board members
In 2020, no payment was made to any former
Board member.
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Executive Committee
compensation policy
Overview
ABB’s compensation system reflects its commit-
ment to attract, motivate and retain people with
the talent necessary to strengthen ABB’s position
as a leading global technology company, connect-
ing software to its electrification, robotics,
automation and motion portfolio to drive perfor-
mance to new levels.
The compensation system is designed to provide
competitive compensation and to encourage
executives to deliver outstanding results and
create sustainable shareholder value without
taking excessive risks. The compensation system
balances:
• fixed and variable compensation;
• short-term and long-term incentives;
• the recognition of Group, business and
individual performance.
Compensation structure – overview
The structure for EC members consists of an
annual base salary, a short-term incentive plan
(AIP) based on annual performance targets,
a long-term incentive plan (LTIP) based on
three-year performance targets, and benefits.
This structure is linked to our strategy and, as
illustrated in Exhibits 5 and 6, a significant por-
tion of total compensation depends on variable
pay components which require the achievement
of challenging performance targets.
Competitive positioning of compensation
The Board considers competitive market data
when setting the compensation policy for the EC.
It is also one of several factors in positioning the
target compensation for individual EC members
which include:
• market value of the role
(external benchmarking);
• individual profile of the incumbent in terms of
experience and skills;
• individual performance and potential;
• affordability for the Company.
The CC conducted a comprehensive review of its
approach to competitive benchmarking, in the
light of the new operating model, the ‘ABB Way’,
the consequential change in responsibilities on
the EC and the divestment of the Power Grids (PG)
business.
As a result of this review, the number of competi-
tive benchmarking peer groups has been reduced
from four to three – a Global Industry peer
group, a Pan-European Market peer group
and a Swiss Market peer group. In all cases, these
peer groups have been designed to match the
size, scope and complexity of ABB. Companies
from the financial services sector have been
removed. The U.S. peer group was considered to
be less relevant and was therefore removed.
The Global Industry peer group has been rede-
signed to a specifically tailored group of 16 peers/
competitors matching the size, scope and com-
plexity of ABB, selected from ABB’s competitive
landscape. It now includes companies in Asia,
has a reduced number of companies in North
America and excludes companies from the finan-
cial services sector.
The Pan-European Market peer group has been
streamlined from its original 400 companies
to a robust panel of 50 cross-industry organiza-
tions matching the size, scope and complexity of
ABB, excluding companies from the financial
services sector.
The Swiss Market peer group, included to reflect
ABB’s headquarters and listing location in Swit-
zerland, consists of a panel of 16 cross-industry
companies matching the size, scope and complex-
ity of ABB, and excludes companies from the
financial services sector.
The use of these peer groups will depend on the
nature of the role and the source of relevance. For
example, a stronger emphasis will be placed on
the Global Industry peer group for operational
roles and in compensation design, and on the
Pan-European Market peer group for functional
roles. In all cases, the other two peer groups will
be used to stress test the findings of the primary
peer group (see the summary in Exhibit 7).
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71
Exhibit 5: Structure of EC compensation as from 2021
Compensation structure
Purpose and link to
strategy
Fixed compensation –
annual base salary
and benefits
Compensates
EC members
for the role
Short-term incentive
(AIP)
Long-term incentive
(LTIP)
Wealth at Risk/
Share Ownership
Rewards annual
company and
individual
performance. Drives
annual strategy
implementation
Encourages creation
of long-term,
sustainable value for
shareholders, and
delivery of long term
strategic goals
Aligns individual’s
personal wealth at risk
directly to the ABB
share price
Operation
Cash salary, benefits
in kind, and pension
contribution
Annual awards,
payable in cash after a
1-year performance
period
Opportunity level
(as % of annual base salary)
Based on scope of
responsibilities,
individual experience
and skillset
Target: 100%
Maximum: 150%
Annual awards in
shares which may vest
after 3 years subject
to performance
conditions
CEO
Target at grant: 150%
Vesting: 0-300%
EC
Target at grant: 100%
Vesting: 0-200%
Individuals required
to hold ABB shares
CEO wealth at risk:
500% (net)
EC wealth at risk:
400% (net)
Time period
Delivered in year
1 year
3 years
Total EC tenure
Relative TSR(1) (50%)
Average EPS(2) (50%)
Direct link to
ABB share price
Performance measures
Changes to annual
base salary takes into
account the
Executive’s
performance in the
preceding year and
potential for the future
All: ABB Op EBITA
margin % (20-25%);
Business measures,
which may include,
for example: ROCE,
Business Area Op
EBITA margin (%),
productivity,
OFCF (55-60%);
All: individual
objectives (20%);
All: ESG boundary
condition for awards
(1) Total Shareholder Return.
(2) Earnings Per Share.
Exhibit 6: Compensation components under various scenarios
e
v
i
t
n
e
c
n
i
m
r
e
t
-
t
r
o
h
s
d
n
a
d
e
x
i
F
e
v
i
t
n
e
c
n
i
m
r
e
t
-
g
n
o
L
Minimum Target Maximum
100%
100%
100%
Annual base
salary
and benefits
Annual
Incentive
Plan award
0%
150%
100%
100%
87.5%
112.5%
Conditional
grant
allocation(1)
Annual base salary and benefits
are generally stable.
There will be no award of this component if
performance is below threshold in all performance
criteria. When performance exceeds targets, this
component is capped at 150% of the targeted
amount.
The reference grant size of the LTIP (performance
measures EPS and TSR) may be increased or
decreased by 12.5%(2). Consequently, the total fair
value at grant of ABB’s LTIP may vary from 87.5% to
112.5% of the fair value of the unadjusted reference
grant size. However, the ultimate award on vesting
depends on meeting the performance criteria of
the plan.
(1) Note the grant is conditional. At vesting, the award can vary from zero to 200% of the grant depending on how well the performance
criteria of the LTIP are met.
(2) This is not applicable to the CEO.
200%
100%
Award
of the LTIP
0%
There will be no award if performance is below the
threshold in both the EPS and TSR measures. The
maximum award is 200% of the conditional grant
allocation.
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It is the intention to position target compensa-
tion for individual EC members between median
and upper quartile of the relevant peer group(s)
considering the other factors referenced above
(e.g. skills, experience, performance, potential).
Exhibit 8: Comparison of ABB to compensation
benchmarking peer groups(1)
Market
capitali-
zation(2)(3)(4) Revenues(2)(4)(5)
Number of
employees(5)(6)
ABB
45.6
27.0
110,000
Exhibit 7: Compensation benchmarking peer groups
Reference
Composition
Global
Industry
A tailored group of 16 global
industry peer companies(1),
matching the scale and
complexity of ABB
Pan-European
Market
A panel of 50 cross-industry
European companies(2),
matching the scale and
complexity of ABB
Rationale
Focus for
operational
roles and
benchmarking
compensation
design
Focus for
functional
roles;
continuity and
stability of
data points
Swiss Market A panel of 16 SMI and SMIM
companies(3), matching the
scale and complexity of ABB
Swiss listing
and location of
headquarters
(1) AB SKF, Alstom, Airbus, Atlas Copco, Denso, Eaton, Emerson
Electric, Honeywell, Mitsubishi Electric, Mitsubishi Heavy
Industries, Schneider Electric, Schindler, Siemens, Thermo Fisher
Scientific, Toshiba and Traton.
(2) AB InBev, Adidas, Air Liquide, Associated British Foods,
AstraZeneca, BAE Systems, Bayer, Bouygues, British American
Tobacco, Compass Group, Continental, CRH, Danone, Endesa,
EssilorLuxottica, Fresenius, Fresenius Medical Care, GlaxoSmith-
Kline, HeidelbergCement, Heineken, Henkel, Hennes & Mauritz,
Iberdrola, Imperial Brands, Industria de Diseno Textil, Jeronimo
Martins SGPS, Kuehne & Nagel, LafargeHolcim, Linde, L’Oreal,
Michelin, National Grid, Naturgy Energy Group, Nokia, Novartis,
Novo Nordisk, OMV, Philips, Rio Tinto, Safran, Saint Gobain,
Sanofi, SAP, Schneider Electric, Telefonaktiebolaget LM
Ericsson, Thales, Umicore, Veolia Environment, Vinci, Vodafone.
(3) SMI: Swiss Market Index; SMIM: Swiss Market Index MID;
Companies include: Adecco, Geberit, Givaudan, Glencore,
Kuehne & Nagel, Lafarge Holcim, Nestle, Novartis, Richemont,
Roche, Schindler, SGS, Sika, STMicroelectronics, Swatch, and
Swisscom.
ABB is typically at the median of key comparator
indicators (market capitalization, revenues,
number of employees) against the Global Industry
and Pan-European Market peer groups, and at the
upper quartile of the Swiss Market peer group.
See Exhibit 8.
Global Industry
Upper Quartile
Median
Lower Quartile
Pan-European
Market
Upper Quartile
Median
Lower Quartile
Swiss Market
Upper Quartile
Median
Lower Quartile
54.6
31.1
12.4
68.9
37.4
18.2
31.6
25.9
18.0
37.8
29.2
16.5
38.4
26.9
22.2
31.7
13.4
8.2
137,828
94,500
72,827
126,994
95,331
61,450
93,930
55,930
31,785
(1) Data sources for market capitalization, revenues and number of
employees are Thomson Reuters or Annual Reports.
(2) Market capitalization and revenues are in CHF millions.
(3) Market capitalization is averaged over a period of three months
(May 3, 2020 until August 3, 2020).
(4) Amounts have been translated to CHF using the one-year
average rate from July 1, 2019 until June 30, 2020.
(5) Revenues and number of employees as per last financial year
prior to October 2020.
(6) Number of employees in full-time equivalent (FTE) unless FTE
information was not available, then in total number of
employees.
Compensation elements
Fixed compensation – annual base salary and
benefits
Purpose and link to strategy
• Compensates the EC members for the role.
Operation
• Fixed annual base salary and benefits.
• Benefits consist mainly of retirement, insurance
and healthcare plans that are designed to
provide a reasonable level of support for the
employees and their dependents in case of
retirement, disability or death. Benefit plans are
in line with the local competitive and legal
environment and are, at a minimum, in
accordance with the legal requirements of the
respective country.
Opportunity level
• Annual base salary based on the scope of
responsibilities, individual experience and
skill set.
• The monetary value of benefits is disclosed in
Exhibit 27: EC compensation in 2020.
Performance measures
• When considering changes in annual base
salary, the executive’s performance during the
preceding year against individual objectives as
well as potential for the future are taken
into account.
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Annual Incentive Plan (AIP)
Purpose and link to strategy
The AIP is designed to reward EC members for the
Group’s results, the results of their business or
function and their individual performance
over a time horizon of one year.
Operation
• Annual cash award based on performance
assessment over the given year.
Opportunity levels
• 100 percent of annual base salary at target,
with a maximum opportunity of 150 percent.
Performance measures
• The AIP structure was revised for 2020 in the
light of feedback from shareholders and other
stakeholders, the new ABB operating model,
and to further increase the focus on operational
delivery and underpin our performance culture.
• It is designed to create focus on key priorities,
with a maximum of five measures.
• In 2021, all EC members will have a common
measure with a minimum 20 percent weighting.
• Up to three measures will be linked to specific
Business Area needs, which have a total
60 percent weighting.
• All EC members will also have personal
measures for the remaining total 20 percent
weighting. This individual component is
informed by up to three objectives which may
include a combination of quantitative and
qualitative goals.
– One of these objectives will include a common
safety measure – the percentage improvement
in the Lost Time Incident Frequency Rate
(LTIFR), underpinned by at least two sustain-
ability observation tours.
– The CC has a discretionary authority to adjust
the AIP results based on safety performance,
including fatalities.
– The final outcome against this measure will be
a discretionary judgment based on the com-
bined performance against all objectives.
• For each performance measure, a target will be
set corresponding to the expected level of
performance that will generate a target
(100 percent) award. Further, a minimum level of
performance, below which there is no award
(threshold) and a maximum level of
performance, above which the award is capped
at 150 percent of the target (cap), will also be
defined. For qualitative Group and business
measures, the award percentage achievements
between threshold, target and the cap will be
Exhibit 9: 2021 Annual Incentive Plan for CEO – Measures and Weightings
Measure
Group Operational
EBITA % (Common
measure)
Weighting
(total 100%) Description
25.00%
Group ROCE %
25.00%
Group Productivity
10.00%
Group FCF
(Free cash flow)
20.00%
Individual Measure
20.00%
Operational EBITA margin is Operational EBITA
(as defined in “Note 23 – Operating segment and
geographic data” to the Consolidated Financial
Statements) as a percentage of Operational
revenues, which is total revenues adjusted for
foreign exchange/commodity timing
differences in total revenues
ROCE is calculated as Operational EBITA after
tax divided by the average of the period’s
opening and closing Capital employed, adjusted
to reflect impacts from significant acquisitions/
divestments occurring during the same period.
Capital employed is calculated as the sum of
Adjusted total fixed assets and Net working
capital
Calculation is based on the 12-month rolling
revenues over the average number of total
workforce in the last three months. Productivity
growth is the change of productivity over the
same period a year earlier, represented in
percentage change
Free cash flow is calculated as net cash provided
by operating activities adjusted for: (i)
purchases of property, plant and equipment and
intangible assets, and (ii) proceeds from sales of
property, plant and equipment
Linked to a maximum of three KPIs, which will
include safety targets related to the Lost Time
Incident Frequency Rate (LTIFR). LTIFR is seen as
a clear indicator of the effectiveness of incident
prevention programs in ABB
Link to Strategy
Increased weighting on Group
Operational EBITA to focus on
strategic execution and
improving margin, resulting in a
strong bottom line
ROCE reflects the strong focus on
delivering high return on capital
employed in both business
operations and corporate
portfolio management
An increase in productivity will
lead to an improvement in margin
and drive overall performance
Operating cash flow has been
replaced by free cash flow to
better focus on cash available to
return to shareholders
Reflecting importance of safety
agenda in keeping it with the
sustainability strategy and
commitment to achieve
excellence in health, safety and
the environment at ABB
ESG Boundary
Condition for awards
Setting of plans in each ABB Division to mitigate
for ABB scope 1 and 2 emissions
Aligned to ABB’s sustainability
strategy and associated targets
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determined by linear interpolations from target
to threshold and target to cap.
• Outcomes may be subject to appropriate
discretionary upward or downward adjustments
for non-operational items and other adjustment
principles agreed with the Board.
– For example, in 2020, this included caps on
outcomes for Corporate Officers to ensure
there were not unintended windfalls due to
the impact of the COVID-19 crisis on cost or
other qualitative measures.
• From 2021, progress against defined
ESG target(s) will be a ‘boundary condition’ for
making AIP awards. Under this approach, the
Board will, each year, agree specific
ESG target(s) and review whether the Company
had made sufficient progress at the end of the
year to justify making the indicated AIP award.
If, in the opinion of the Board, insufficient
progress has been made, the AIP award may be
reduced on a discretionary basis. For 2021, the
‘boundary condition’ will be the setting of plans
in each ABB Division to mitigate for ABB
scope 1 and 2 emissions.
according to achievement against two equally
weighted performance measures, one tied to
ABB’s EPS and one to ABB’s TSR (see
performance measures section).
• Default settlement of the final LTIP award is
100 percent in shares, with an automatic
sell-to-cover in place for employees who are
subject to withholding taxes.
• LTIP shares are subject to malus and clawback
rules, which include illegal activities and any
financial misstatement that has a material
impact on any Group company. This means that
the Board of Directors may decide not to pay
any unpaid or unvested incentive compensation
(malus), or may seek to recover incentive
compensation that has been paid in the past
(clawback).
• The CC also has the ability to suspend the
payment of awards if it is likely that the Board
determines that the malus or clawback
provisions may potentially apply (e.g. if the
employee is subject to an external
investigation), in line with leading
market practice.
• An illustration of the measures to be applied to
• For awards from 2021, the LTIP rules will be
the CEO for 2021 is set out in Exhibit 9.
Long-term incentive Plan (LTIP)
Purpose and link to strategy
• Aimed at driving long-term shareholder value
creation in a sustainable manner. It rewards the
achievement of predefined performance goals
over a three-year period.
Operation
• Annual Conditional Grant.
• Target LTIP grant values are defined
as a percentage of annual base salary (see
Exhibit 10 below).
Exhibit 10: Target LTIP grant value (% of annual base salary)
CEO
EC(1)
75%
40-50%
EPS measure
TSR measure
75%
Total
150%
40-50%
80-100%
(1) The target grant value for the Chief Communications
Officer (CCO) is set at 80 percent of annual base salary.
• The total value of the grant size for EC members
as a pool may be increased or decreased by the
Board by up to 12.5 percent. This does not apply
to the CEO.
• The number of shares to be granted is
determined by dividing the grant value by the
average share price over the period 20 trading
days prior, and 20 trading days after, the date of
publication of ABB’s full year financial results.
Settlement of the LTIP is three years after grant,
subject to achievement of performance
conditions, defined prior to grant.
• The actual settlement value of awards will vary
between zero and 200 percent of the grant value
amended to remove the automatic accelerated
vesting of awards in the event of a change
of control.
Performance measures
TSR
• Achievement against this measure is
determined by ABB’s relative TSR performance
against a defined peer group.
• The constituents of the peer group and the
appropriate threshold (zero), target
(100 percent) and maximum (200 percent)
award points are reviewed by the CC on an
annual basis.
• The TSR calculations are made for the reference
period beginning in the year of the conditional
grant of the shares and ending three years later.
The evaluation is performed by an independent
third party.
EPS
• Achievement against this measure is
determined by ABB’s average EPS
over a three-year period.
• The average EPS result is calculated from the
sum of EPS for each of the three relevant years,
divided by three.
• EPS is defined as ‘Diluted earnings per share
attributable to ABB shareholders, calculated
using Income from continuing operations, net of
tax, unless the Board elects to calculate using
Net income for a particular year’.
• Appropriate threshold (zero), target
(100 percent) and maximum (200 percent)
award points are reviewed by the CC on an
annual basis.
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• Performance target points are set using an
‘outside-in’ view, taking into account the growth
expectations, risk profile, investment levels and
profitability levels that are typical for the
industry.
• This ‘outside-in’ approach is provided by
external advisors and assumes that investors
expect a risk-adjusted return on their
investment, which is based on market value (and
not on book value) and translates such expected
returns over a three-year period into EPS
targets.
• Adjustments to the outcome of the EPS may be
considered for items which are not part or the
result of the normal course of business
operation and/or which were not considered,
either by way of inclusion or exclusion, for the
target setting of a specific LTIP launch. Only the
net impact of such adjustments over the vesting
period of the respective LTIP grant will
be considered.
Total wealth at risk
Purpose and link to strategy
• To align EC members’ interests with those of
shareholders in order to maintain focus on the
long-term success of the Company.
• Wealth at risk is broadly defined as two
components – namely personal share ownership
and unvested shares arising from the
Company’s share grants (e.g. LTIP grants).
Share ownership program
• EC members are required to retain all shares
vested from the Company’s LTIP and any other
share-based compensation until his or her share
ownership requirement is met. In circumstances
where there is a withholding tax obligation, the
number of shares received will be considered to
be the number of shares vested minus the
shares sold under the default
sell-to-cover facility.
• The share ownership requirement is equivalent
to a multiple of the EC member’s annual base
salary, net of tax (see Exhibit 11).
• These shareholding requirements are
significantly above market practice and result
in a wealth at risk for each EC member which is
aligned with shareholder interests.
• The CC reviews the status of EC share ownership
on an annual basis. It also reviews the required
shareholding amounts annually, based on salary
and expected share price developments.
Notice period, severance provisions and
non-competition clauses
Operation
• Employment contracts for EC members
include a notice period of 12 months, during
which they are entitled to their annual base
salary, benefits and short-term incentive. In
accordance with Swiss law and ABB’s Articles of
Incorporation, the contracts for the EC
members do not allow for any severance
payment.
• Non-compete agreements have been entered
into with the CEO and all EC members
for a period of 12 months after their
employment. Compensation for such
agreements, if any, may not exceed the EC
member’s last total annual compensation
(annual base salary, short-term incentive
and benefits).
Implementation of executive
compensation policy
Overview
EC members received total compensation of
CHF 35.4 million in 2020 compared with
CHF 51.4 million in 2019, as summarized in Ex-
hibit 12 below and presented in detail in
Exhibits 27 and 28.
Exhibit 12: Total compensation of EC members
(in CHF millions)(1)
Base salaries
Pension benefits
Other benefits
Total fixed compensation
Short-term incentives
Long-term incentives (fair value at grant)
Replacement share grants
Total variable compensation
Total compensation
2020
8.4
4.5
5.9
18.8
6.8
6.5
3.3
16.6
35.4
2019
12.1
5.5
6.9
24.5
12.7
12.6
1.6
26.9
51.4
Exhibit 11: Share ownership requirement
CEO
5 × annual base salary, net of tax
Other EC members
4 × annual base salary, net of tax
(1) Has been adjusted for rounding where appropriate.
For an overview of compensation by individual and component,
please refer to Exhibit 27 and Exhibit 28 in “Compensation and share
ownership tables”. An overview of 2020 realized compensation by
individual is in Exhibit 33.
• Only vested shares owned by an EC member and
the member’s spouse are included in the share
ownership calculation. Vested but unexercised
and unvested stock options under the
“Management Incentive Plan” MIP are not
considered for this purpose.
This 31 percent decrease in total compensation
was influenced by the reduction in the number of
active EC members, lower payments to former EC
members, EC members voluntarily donating 10
percent of their salary to fight the impacts of the
COVID-19 pandemic for a six-month period during
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2020, and much lower short-term incentive
awards due to the impact of COVID-19.
CHF 1,400,000. He is eligible for standard EC
benefits.
At the 2019 AGM, the shareholders ap-
proved a maximum aggregate compensation
amount of CHF 55.5 million for the EC for the year
2020. The EC compensation for 2020 amounted to
CHF 35.4 million and is within the approved
amount. See Exhibit 13 below.
Exhibit 13: EC compensation (in CHF)
Executive Committee
Number of members
Calendar year
2020
9
2019
11
Total compensation
35,448,118(1)
51,355,121
Maximum aggregate
compensation amount
approved at AGM
55,500,000
52,000,000
(1) Total compensation for 2020 compared to 2019 was lower mainly
due to the reduction in the number of active EC members, lower
payments to former EC members, and lower short-term incentive
awards due to the impact of COVID-19.
Overall ratio of compensation components
The ratio of fixed to variable components in any
given year depends on the performance of the
Company and individual EC members against
predefined performance objectives.
In 2020, the variable compensation of the new
CEO was 51 percent of his total annual compensa-
tion (previous year: 52 percent applicable to the
previous interim CEO). The total annual compen-
sation for the new CEO excludes the value of the
one-time replacement share grant to compensate
for foregone benefits with the previous employer.
For the other EC members, the variable compen-
sation represented an average of 41 percent
(previous year: 45 percent).
Terms of appointment for new Executive
Committee members
The new Chief Human Resources Officer (CHRO),
Carolina Granat, was appointed to the EC effec-
tive from January 1, 2021 with an annual base
salary of CHF 700,000, a target short-term and
long-term incentive of 100 percent of annual base
salary. This represents a reduction in total target
direct compensation (TTDC) compared to the
prior incumbent. She is eligible for standard EC
benefits and, where appropriate legacy relocation
benefits.
The Chief Communications Officer (CCO), Theo-
dor Swedjemark, was appointed to a new EC
position on August 1, 2020, with an annual base
salary of CHF 500,000, a target short-term incen-
tive of 100 percent of annual base salary
and a target long-term incentive of 80 percent of
annual base salary, leading to a TTDC of
Compensation elements – 2020
highlights
Annual base salary
Three of the nine EC members in place in March
2020 received a salary adjustment, which ranged
from 4.3 to 7.1 percent, the latter being for an
exceptional performance and market adjustment.
This corresponded to a 1.6 percent increase on
annual base salaries for the EC members in post
in March 2020.
Short-term incentive - design
As disclosed in the 2019 Compensation Report,
ABB’s short-term incentive, the Annual Incentive
Plan (AIP), was redesigned in 2020 to create focus
on key priorities, with a maximum of five perfor-
mance measures.
Under the AIP, all members of the EC have a
common measure, with a 20 to 25 percent weight-
ing. In 2020, this was Group ROCE - designed to
create a greater focus on profitability and the
efficiency with which capital is used.
In line with the new ABB operating model, up to
three measures were linked to specific Business
Area or Function needs, rather than having largely
common measures for all EC members. Together,
these Business Area or Functional measures
had a total of 55 to 60 percent weighting.
• For the CEO and CCO, the measures were Group
Operational EBITA margin (%), Group Revenue
and Group Free Cash Flow.
• For Business Area Presidents, measures were
tailored to business imperatives and included
their respective Business Area Operational
EBITA (absolute), Operational EBITA margin (%),
Net Working Capital, Operational Free Cash
Flow (OFCF), Orders received, and absolute
Gross Profit on orders.
• For other Corporate Officers, measures
included Group financial measures, corporate
function cost and progress against functional
imperatives such as functional effectiveness
and the completion of the divestment of the PG
business. As a reminder, in 2021 all Corporate
Officers will move to the same Group
quantitative measures as the CEO.
Definitions of the quantitative measures for EC
members used above are set out in the Exhibit 14.
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Exhibit 14: Business Area and Function specific quantitative objectives in 2020
Objective
ROCE %
Operational EBITA
(absolute)(1)
Description
ROCE is calculated as Operational EBITA after tax divided by the average of the period’s
opening and closing Capital employed, adjusted to reflect impacts from significant
acquisitions/divestments occurring during the same period. Capital employed is calculated as
the sum of Adjusted total fixed assets and Net Working Capital
Operational EBITA (as defined in “Note 23 – Operating segment and geographic data” to the
Consolidated Financial Statements) is a profit measure before interest, tax and
amortization expenses. It excludes non-operational items such as restructuring, foreign
exchange/commodity timing differences, M&A transaction and integration costs and
certain other non-operational items
Operational EBITA margin
(%)
Operational EBITA margin is Operational EBITA as a percentage of Operational revenues, which
is total revenues adjusted for foreign exchange/commodity timing differences in total revenues
Free Cash Flow (FCF)
Free Cash Flow is calculated as net cash provided by operating activities adjusted for: (i)
purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales
of property, plant and equipment
Operational Free Cash Flow
(OFCF)
Cash generated by business operations after paying expenditures but before paying interests
and taxes (OCF(2) minus Capital expenditures)
Function Cost
Net Working Capital(1)
Total operating costs of the function that include the personnel costs and other operating
expenses such as rent, travel, consultancy, communication, office administration and other
related expenses to run the function
Net Working Capital is the sum of (i) receivables, net, (ii) contract assets, (iii) inventories, net,
and (iv) prepaid expenses; less (v) accounts payable, trade, (vi) contract liabilities, and (vii)
other current liabilities (excluding primarily: (a) income taxes payable, (b) current derivative
liabilities, (c) pension and other employee benefits, (d) payables under the share buyback
program and (e) liabilities related to the divestment of the Power Grids business); and including
the amounts related to these accounts which have been presented as either assets or liabilities
held for sale but excluding any amounts included in discontinued operations
Orders received
Represents the values of goods and services contracted and ordered by customers within a
given accounting period net of cancellations
Gross Profit on orders
(absolute)(1)
Gross profit on orders is calculated by deducting the total costs to complete the order from the
total revenue value of the order
Revenues
Revenues realized from executing and fulfilling customer orders, before any costs or expenses
are deducted
(1) Applied to Industrial Automation Business Area only.
(2) Cash flow from operating activities excluding payments for interest and income taxes.
All EC members also had an individual measure
with a 20 percent weighting. This individual
component was informed by up to three objec-
tives, which included a combination of
quantitative and qualitative objectives. The final
outcome against this measure was based
on a discretionary judgment of the combined
performance against all objectives.
• In 2020, all the EC had a common safety
objective – namely relevant improvement
targets for the Total Recordable Incident
Frequency Rate (TRIFR) – for the CEO and
Corporate Officers, these related to Group
targets, and for Business Area Presidents their
respective Business Areas targets.
• For the CEO, the other two objectives were
linked to the delivery of the long-term Group
strategy and of the Group sustainability
strategy and targets.
• For other EC members, objectives included
qualitative and/or quantitative objectives such
as establishing robust internal controls, delivery
of digital goals and business transformation.
The relative weighting and composition of Group,
Business Area, Functional and Individual mea-
sures for EC members for 2020 are summarized in
Exhibit 15.
Exhibit 15: Weighting and composition of
objectives for EC members for 2020
CEO(1)
Business Area
Presidents
Corporate
Officers(2)
80%
20%
20%
n.a.
20%
60%
20%
60%
20%
Group
measures
Business Area/
Functional
measures
Individual
measures
Overall composition
of AIP measures:
- Quantitative
- Qualitative
80%
20%
80%+
Up to 20%
40-80%
20-60%
(1) Chief Communications Officer (CCO) replicated CEO measures in
2020 (targets in individual measure varied).
(2) Chief Financial Officer (CFO), Chief Human Resources Officer
(CHRO) and General Counsel (GC).
For each measure, a target was set corresponding
to the expected level of performance that would
generate a target (100 percent) award. Fur-
ther, a minimum level of performance, below
which there is no award (threshold) and a maxi-
mum level of performance, above which the award
is capped at 150 percent of the target (cap), were
also defined. For qualitative Group, Business Area
and Functional measures, the award percentage
achievements between threshold and target, as
well as between target and cap were determined
by linear interpolations between these points.
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Outcomes were subject to appropriate discretion-
ary upward or downward adjustments for some
non-operational items and other adjustment
principles agreed with the Board.
measures. The average outcome for the EC with-
out the application of these adjustments would
have been nine percent lower.
2020 Annual Incentive Plan (AIP) – outcomes
In summary, the average award for the EC under
the AIP for 2020 was 72.4 percent (out of a maxi-
mum 150 percent), compared to 94.7 percent in
2019. This significant drop in outcomes from the
prior year was heavily influenced by the impact on
the business from COVID-19.
The 2020 AIP outcomes were net of the applica-
tion of adjustments for some non-operational
items and other adjustment principles agreed
with the Board, specifically including balance
sheet risk mitigation actions, where the benefits
will be factored into the settling of future AIP
targets. It also included caps on outcomes for
Corporate Officers to ensure there were not
unintended windfalls due to the impact of the
COVID-19 crisis on cost or other qualitative
Common measure
Achievement against the 2020 Group ROCE mea-
sure, which applied to all EC members,
with a weighting of 20-25 percentage, was zero
percent (2019: n.a.). The Group’s ROCE was 10.3
percent compared to 11.1 percent in 2019, reflect-
ing the recognition of the investment in the Power
Grids business joint venture as well as lower
business activity.
Group measures
The outcome related to the other Group mea-
sures, which were applied to the CEO and CCO,
with weightings of 10 to 25 percent, ranged from
zero to 109 percent and the weighted achieve-
ment related to all Group measures, including the
common measure is 35 percent.
Exhibit 16: ‘At a Glance’ STI 2020 outcomes (rounded, with 2019 comparisons)
Common Measure
Group ROCE
Group Measures
Cost Savings
Free Cash Flow
Operational Net Income
Operational EBITA margin (%)
Operational Cash Flow
Revenues
Weighted Group results
(Common + Group measures)
Business Area Measures(2)
Gross Profit on orders (absolute)
Operational EBITA margin (%)
Orders received
Operational Free Cash Flow
Operational EBITA (absolute)
Net Working Capital
Range of results
Weighted Business Area results
(Common + Business Area measures)
Functional Measures
Range of results(2)(3)
Weighted Functional results
(Common + Functional measures)
Individual Measures
Range of results(4)
Combined AIP results from Common, Group,
Business Area/Functional and Individual Measures
Range of outcomes(4)
Overall Average(4)
2020
(% of target)
Group(1)
2020
(% of target)
Business Area
Presidents
2020
(% of target)
Corporate
Officers
2019
(% of target)
0%
0%
0%
n.a.
n.a.
109%
n.a.
53%
n.a.
0%
35%
149%
n.a.
79%
83%
93%
89%
97%
n.a.
n.a.
n.a.
0%
0 - 95%
0 - 83%
106 - 150%
0%
105%
0 - 150%
21 - 66%
53 - 125%
47 - 61%
100 - 150%
59 - 111%
51 - 96%
72%
72 - 106%
95%
(1) Applied to CEO and CCO in 2020. Therefore CCO is excluded from Corporate Officers data.
(2) Up to three business measures were applied to each Business Area President and Corporate Officer.
(3) May include Group measures and after the application of relevant caps.
(4) Applies to all Executive Committee members.
A B B A N N U A L R E P O R T 2 0 2 0
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79
Exhibit 17: Overview of targeted and realized AIP 2020 values
Björn Rosengren(3)
Timo Ihamuotila
Sylvia Hill
Maria Varsellona
Theodor Swedjemark(4)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total
Target AIP
award (in % of
base salary)
100%
100%
100%
100%
100%
100%
100%
100%
100%
Target AIP
award
(in CHF)(1)
1,504,131
902,500
730,000
760,000
200,000
760,000
855,000
760,000
712,500
Actual AIP
award
(in % of target)
Actual AIP
award
(in CHF)(2)
65.0%
77.4%
75.0%
86.3%
65.0%
55.0%
81.3%
51.0%
95.6%
977,685
698,535
547,500
655,880
130,000
418,000
695,115
387,600
681,150
7,184,131
5,191,465
(1) Inclusive of adjustments for the COVID-19 salary donation program and pro-rating for time served on the EC.
(2) Represents accrued AIP award for the year 2020, which will be paid in 2021, after the publication of ABB’s financial results.
(3) Björn Rosengren joined the EC on January 27, 2020.
(4) Theodor Swedjemark joined the EC on August 1, 2020.
Business Area and Functional measures
Up to three quantitative business measures were
applied to Business Area Presidents, with weight-
ings from 15 to 40 percent, and the outcomes
ranged from zero to 150 percent of target.
Up to three qualitative or quantitative business
measures were applied to the CFO, CHRO and GC
(‘Corporate Officers’), with weightings from 15 to
25 percent, and the outcomes ranged from 53 to
125 percent of target.
Individual Measures
Thanks to the Company’s strong focus on safety,
in 2020 the target set for the Total Recordable
Incident Frequency Rate (TRIFR) – has been over-
achieved at the Group level, resulting from the
majority of Business Areas and Functions having
overachieved their targets.
In summary, for EC members the assessed
achievement of objectives representing the
personal component, inclusive of the safety
outcomes described, which has a weighting of
20 percent, ranged from 100 to 150 percent of
target for 2020. This compared to a range of 59 to
111 percent in 2019.
Overall outcomes
The overall average award under the AIP for the
entire EC was 72.4 percent of target (2019: 94.7
percent) with a range from 51.0 percent (lowest
achievement) to 95.6 percent of target (highest
achievement). This compared to a range of 72.0 to
106.2 percent in 2019.
These outcomes are summarized in Exhibit 16 on
the previous page.
The table above (Exhibit 17) provides information
related to the actual 2020 AIP achievement, in
comparison to the target for all active EC
members.
2020 Long-term incentive plan outcomes
The estimated value at grant of the share-based
grants to EC members under the 2020 LTIP award
was CHF 6.5 million, compared with CHF 12.6 mil-
lion in 2019. This deviation is primarily driven
from the reduction in the numbers of EC members
between 2019 (11 EC members) and 2020 (9 EC
members).
The companies approved by the Board to deter-
mine ABB’s relative TSR performance for the 2020
LTIP were: 3M, Danaher, Eaton, Emerson Electric,
General Electric, Honeywell Intl., LafargeHolcim,
Legrand, Mitsubishi Electric, Raytheon Technolo-
gies, Rockwell, Rolls Royce, Schneider Electric,
Siemens and Yokogawa. Note that LafargeHolcim
replaced ThyssenKrupp, which had been previ-
ously included in the peer group. These were
selected to provide an appropriate and very
challenging set of peers, and influenced the
payment point setting accordingly (see Ex-
hibit 18).
The EPS targets for the 2020 LTIP, which were set
before the COVID-19 crisis occurred, were not
changed for the impact of COVID-19. This may
have a materially negative impact on the final
amount which may be delivered under the award.
The reference price for the 2020 LTIP grant which
is used to determine the number of shares
granted to participants was set in March,
during a time of high market volatility due to the
COVID-19 crisis. Given the high variability be-
tween the formulaic outcome of the reference
price under the LTIP rules, of CHF 23.00, and the
share price near the date of grant, in the region of
CHF 16.00, it was decided to use the prior year’s
reference price of CHF 19.36.
Also note that, from 2020, for the top 100 senior
leaders outside the EC, future grants under the
“Management Incentive Plan” (MIP) – a stock
80
A B B A N N U A L R E P O R T 2 0 2 0
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Exhibit 18: 2020 LTIP Targets
EPS award curve for the 2020 LTIP
)
t
e
g
r
a
t
f
o
%
(
d
r
a
w
A
200%
100%
0%
Capped award
Threshold Point
(Target Point −17%)
Target Point
Maximum Point
(Target Point +17%)
threshold point: no award; target point: 100% award; maximum point: capped at 200% award; linear award between points.
the actual EPS target is not prospectively disclosed for reasons of commercial sensitivity.
TSR award curve for the 2020 LTIP
)
t
e
g
r
a
t
f
o
%
(
d
r
a
w
A
200%
100%
0%
Capped award
Threshold Point
Target Point
Maximum Point
threshold point: tSr performance within the lower (0–25%) quartile: no award.
target point: tSr performance at the median performing company: 100% award.
Maximum point: tSr performance within the upper (75–100%) quartile: 200% award.
Linear award between points.
option plan, without performance conditions
– were discontinued and replaced by the LTIP.
Other employees previously eligible to receive
grants under the MIP received grants under a
restricted share plan.
The 2020 LTIP award curves are also illustrated in
Exhibit 18 above.
The change in the EPS award curve for the 2020
LTIP (range cut from plus/minus 25 percent of
target to plus/minus 17 percent of target) is a
reflection of the perceived EPS volatility during
the performance period, and also serves to make
the achievement of a threshold award under the
plan more demanding.
2017 LTIP outcome
The final number of shares vesting under the 2017
LTIP grant in 2020 was determined based on the
achievement level against the defined Net income
and EPS targets. The Net income measure was
achieved at 105 percent (2016 grant 100 percent)
out of a potential of 150 percent.
The CC exercised its discretion to apply Net
income to determine EPS rather than income from
continuing operations, net of tax, given the move
of the Power Grids business into discontinued
operations. The average EPS measure vested at 41
percent (previous year: 85 percent) out of a
potential 200 percent, net of adjustments for
items considered outside the normal course of
business operation and/or which were not consid-
ered in the target setting of the 2017 LTIP. On this
occasion, adjustments were made for the impact
of divestments, integration and restructuring
costs. Without the impact of the approved adjust-
ments the vesting level would have been
21 percent.
The average achievement level of the two perfor-
mance measures under the 2017 LTIP was
73.0 percent (out of a maximum 175 percent), with
the actual level varying by individual EC member,
from 69.4 to 75.4 percent, as specified in
Exhibit 20.
Since the performance period for determining the
value of the award was from 2017 to 2019, the
outcome was not affected by the impact of
COVID-19.
As announced in our 2019 Compensation Report,
the EPS performance targets for vested LTIP
awards will be retrospectively disclosed in our
Compensation Reports. The three target points
(threshold, target and maximum) and the actual
achievement for the 2017 EPS performance mea-
sure are shown in Exhibit 19.
A B B A N N U A L R E P O R T 2 0 2 0
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81
Exhibit 19: 2017 LTIP EPS performance measure
LTIP 2017: Actual 3 year average EPS achievement
)
t
e
g
r
a
t
f
o
%
(
d
r
a
w
A
200%
100%
41%
0%
Capped award
1.51
Threshold
1.88
Actual
2.41
Target
3.31
Maximum
target points and actual achievement in uSD
(1) Net income used to determine EPS rather than income from continuing operations, net of tax, given the move of the Power
Grids business into discontinued operations.
(2) Actual value shown net of adjustments for items considered outside the normal course of business operation and/or which
were not considered in the target setting of the LTIP. Please note that as a result of the adjustments applied, the EPS number
shown above will not reconcile with EPS calculated based on Net income only.
Overview of disclosed and realized LTIP 2017
value
A new table (Exhibit 20), requested by stake-
holders, provides information related to the
LTIP 2017 grant, showing the previously dis-
closed ‘fair value’ of the grant to each EC
member and the actual value of the grant at
the time of delivery in 2020. Values are gross,
e.g. before payment of any applicable taxes.
This indicates the gross realized value was
65.4 percent of the disclosed grant fair value.
Exhibit 20: Realized value of 2017 LTIP grant
Shares
granted
related to
the Net
income
measure(1)
Shares
granted
related to
the EPS
measure(2)
Total
number
of shares
granted
Disclosed
grant fair
value(3)
2017 LTIP
vesting date
Vesting
percent-
age
Number
of
vested
shares
Realized
value(4)
Björn Rosengren
2017 LTIP
grant date
n.a.
Timo Ihamuotila
June 13, 2017
20,500
20,500
41,000
998,965 June 13, 2020
73.0% 29,930
593,811
Sylvia Hill
Maria Varsellona
Theodor Swedjemark
n.a.
n.a.
n.a.
Sami Atiya
June 13, 2017
18,691
16,044
34,735
845,147 June 13, 2020
75.4% 26,205
519,907
Tarak Mehta
June 13, 2017
Peter Terwiesch
June 13, 2017
15,331
19,989
19,163
34,494
842,145 June 13, 2020
69.4% 23,955
475,267
17,158
37,147
903,833 June 13, 2020
75.4% 28,024
555,996
Morten Wierod
June 13, 2017
7,029
7,029
14,058
n.a. June 13, 2020
73.0% 10,263
203,618
Total
3,590,090
2,348,599
(1) Actual achievement level of the Net income measure was 105 percent.
(2) Actual achievement level of the EPS measure was 41 percent.
(3) At the time of disclosure Morten Wierod was not member of the EC.
(4) Valued at CHF 19.84, the closing price of the ABB share on the day of vesting
Historical vesting outcomes
Exhibit 21: LTIP historical actual vesting percentages(1)
The historical vesting percentages for the prior
five years are shown in Exhibit 21 below. Over the
last five years vesting has averaged at 79.6 per-
cent of target and 53.1 percent of the
maximum award.
Vesting in % of
target award
Vesting in % of
maximum
potential award
Plan Year of Award
2013
2014
2015
2016
2017
77.2% 74.8% 80.5% 92.5% 73.0%
55.1% 53.4% 53.7% 61.7% 41.7%
(1) Average of relevant performance measures.
82
A B B A N N U A L R E P O R T 2 0 2 0
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Shareholdings of EC members
Three out of nine EC members have achieved or
exceeded their share ownership require-
ment. A further five members have been newly
appointed to the EC in the last two years. The EC
members collectively owned less than 1 percent of
ABB’s total shares outstanding at
December 31, 2020.
At December 31, 2020, members of the EC held
ABB shares and conditional rights to receive
shares, as shown in Exhibit 31 in the section
“Compensation and share ownership tables”.
Their holdings at December 31, 2019, are shown in
Exhibit 32 in the section “Compensation and
share ownership tables”.
As previously stated, no further grants will be
made under the Management Incentive Plan
(MIP), a stock option plan without performance
conditions. Any MIP instruments held by EC
members were awarded prior to their appoint-
ment as EC members. For a more detailed
description of MIP, please refer to “Note 18
– Share-based payment arrangements” in our
Consolidated Financial Statements.
Except as described in Exhibits 29 and 30, no
member of the EC and no person closely linked
to a member of the EC held any shares of ABB or
options on ABB shares at December 31, 2020
and 2019.
Other compensation
Members of the EC are eligible to participate in
the Employee Share Acquisition Plan (ESAP), a
savings plan based on stock options, which is
open to employees around the world. Five mem-
bers of the EC participated in the 17th annual
launch of the plan in 2020. EC members who
participated will, upon vesting, each be entitled to
acquire up to 440 ABB shares at CHF 22.87 per
share, the market share price at the start of the
2020 launch.
For a more detailed description of the ESAP,
please refer to “Note 18 – Share-based payment
arrangements” in our Consolidated Financial
Statements.
In 2020, ABB did not pay any fees or compensa-
tion to the members of the EC for services
rendered to ABB other than those disclosed in this
Compensation Report. Except as disclosed in the
section titled “Executive Committee – Business
relationships between ABB and its EC members”
in the Corporate Governance Report, ABB did not
pay any additional fees or compensation in 2020
to persons closely linked to a member of the EC
for services rendered to ABB.
Terms of departure for former
EC members
The former CHRO, Sylvia Hill, will continue to
receive her annual base salary and benefits during
her notice period, until her termination date, on
December 31, 2021. She will receive a short-term
incentive payment for 2021, based on the average
short-term incentive award percentages achieved
in 2019 and 2020, at the termination date. Out-
standing LTIP grants made for the years 2019 and
2020 will be settled according to the plan-related
vesting schedule, subject to achievement against
the relevant performance conditions. Legacy MIP
awards may be exercised up to one year following
the termination date. She withdrew from the
voluntary 10 percent salary donation program.
Compensation of former EC
members
In 2020, certain former EC members received
contractual compensation for the period after
leaving the EC, as shown in Exhibit 27, foot-
notes (6) and (7).
Votes on compensation at the
2021 AGM
As illustrated in Exhibit 22, the Board’s proposals
to shareholders at the 2021 AGM will relate to
Board compensation for the 2021–2022 term of
office and EC compensation for the calendar year
2022. There will also be a non-binding vote on the
2020 Compensation Report.
A B B A N N U A L R E P O R T 2 0 2 0
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83
Exhibit 22: Shareholders will have three separate votes on compensation at the 2021 AGM
2020
2021
2022
n
o
i
t
a
s
n
e
p
m
o
C
n
o
i
t
a
s
n
e
p
m
o
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t
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p
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r
d
r
a
o
B
C
E
n
o
i
t
a
s
n
e
p
m
o
C
Binding vote on maxi-
mum aggregate Board
compensation for 2021–
2022 term of office
Binding vote on
maximum aggregate
EC compensation
for 2022
Non-binding vote on
2020 compensation
report
March AGM
March AGM
March AGM
Compensation Period
Date of vote
In determining the proposed maximum aggregate
EC compensation, the Board takes into consider-
ation the criteria illustrated in Exhibit 23. Given
the variable nature of a major portion of the
compensation components, the proposed
maximum aggregate EC compensation will almost
always be higher than the actual compensation
paid or awarded, as it must cover the potential
maximum value of each component of
compensation.
Exhibit 23: Overview of key factors affecting the determination of maximum aggregate EC compensation
2020
2021
2022(1)
Aggregate EC compensation
in CHF (millions)
55.5
35.4
38.3
39.5
xx
Actual
Target
Maximum
(approved at
2019 AGM)
Maximum
(approved at
2020 AGM)
Maximum
(to be requested
at 2021 AGM)
Assumptions
AIP award percentage
72%(2)
100%
Adjustment of LTIP grant size(3)
Number of EC members
0%
13
0%
13
150%
+12.5%
12
150%
+12.5%
9
150%
+12.5%
9
(1) Numbers will be provided in the AGM invitation.
(2) Outcome without the allocation of former EC members. For full description, see section Compensation elements – 2020 highlights.
(3) This 12.5 percent applied on the entire LTIP for EC members only and is not applicable to the CEO.
84
A B B A N N U A L R E P O R T 2 0 2 0
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Compensation and share ownership tables
Exhibit 24: Board compensation in 2020 and 2019 (audited)
Paid in 2020
Paid in 2019
November
Board term
2020–2021
May
Board term
2019–2020
November
Board term
2019–2020
May
Board term
2018–2019
–
s
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CHF
Name
Peter Voser, Chairman(4)
— 21,831
— 32,642 1,140,000
— 29,156
— 29,943
1,200,000
Jacob Wallenberg(5)
101,250
3,297 112,500
4,928
427,500 112,500
4,397 112,500
Matti Alahuhta(6)
Gunnar Brock(7)
— 4,787
— 4,937
—
—
7,155
304,000
— 6,384
80,000
7,379
313,500
— 6,584
82,500
David Constable(8)
78,750
2,564 87,500
3,833
332,500
87,500
3,420
87,500
Frederico Curado(9)
Lars Förberg(10)
— 4,438
— 5,805
—
—
6,646
304,000
— 5,934
80,000
8,688
304,000
— 7,755
—
Jennifer Xin-Zhe Li(11)
72,000
2,163 80,000
3,239
304,000
80,000
2,892
80,000
Geraldine Matchett(12)
74,250
3,159 82,500
4,722
313,500
82,500
4,213
82,500
David Meline(13)
90,000
2,931 100,000
4,380
380,000 100,000
3,908 100,000
Satish Pai(14)
74,520
2,231 82,500
3,340
313,500
82,500
2,983
82,500
4,515
3,210
3,311
3,511
2,973
7,970
2,973
4,326
4,013
3,066
450,000
320,000
330,000
350,000
320,000
320,000
320,000
330,000
400,000
330,000
Total
490,770 58,143 545,000
86,952 4,436,500 545,000 77,626 787,500
69,811
4,670,000
(1) Represents gross amounts paid, prior to deductions for social security, withholding tax etc.
(2) Number of shares per Board member is calculated based on net amount due after deductions for social security, withholding tax etc.
(3) In addition to the Board remuneration stated in the above table, in 2020 and 2019 the Company paid CHF 272,312 and CHF 270,933,
respectively, in related mandatory social security payments.
(4) Chairman of the ABB Ltd Board for the 2018-2019, 2019-2020 and 2020-2021 board terms and Chairman of the Governance and Nomination
Committee for the 2018-2019 board term; is receiving 100 percent of his compensation in the form of ABB shares.
(5) Vice-Chairman of the ABB Ltd Board for the 2018-2019, 2019-2020 and 2020-2021 board terms; Chairman of the Governance and Nomination
Committee for the 2019-2020 and 2020-2021 board terms and member of that committee for the 2018-2019 board term; is receiving
50 percent of his compensation in the form of ABB shares.
(6) Member of the Governance and Nomination Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; received 50 percent of
his compensation in the form of ABB shares for the 2018-2019 board term and is receiving 100 percent of his compensation in shares for the
2019-2020 and 2020-2021 board terms.
(7) Member of the Finance, Audit and Compliance Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; received 50 percent of
his compensation in shares for the 2018-2019 board term and is receiving 100 percent of his compensation in the form of ABB shares for the
2019-2020 and 2020-2021 board terms.
(8) Chairman of the Compensation Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 50 percent of his
compensation in the form of ABB shares.
(9) Member of the Compensation Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; received 50 percent of his compensa-
tion in the form of ABB shares for the 2018-2019 board term and is receiving 100 percent of his compensation in shares for the 2019-2020
and 2020-2021 board terms.
(10) Member of the Governance and Nomination Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 100 percent
of his compensation in the form of ABB shares.
(11) Member of the Compensation Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 50 percent of her
compensation in the form of ABB shares.
(12) Member of the Finance, Audit and Compliance Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 50 percent
of her compensation in the form of ABB shares.
(13) Chairman of the Finance, Audit and Compliance Committee for 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 50 percent of
his compensation in the form of ABB shares.
(14) Member of the Finance, Audit and Compliance Committee for the 2018-2019, 2019-2020 and 2020-2021 board terms; is receiving 50 percent
of his compensation in the form of ABB shares.
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
85
Exhibit 25: Board compensation for the Board terms 2020-2021 and 2019-2020 (audited)
Name
Specific Board Roles
Peter Voser
Chairman of the Board
Jacob Wallenberg
Vice-Chairman of the Board and Chairman GNC
Matti Alahuhta
Member GNC
Gunnar Brock
Member FACC
David Constable
Chairman CC
Frederico Curado
Member CC
Lars Förberg
Member GNC
Jennifer Xin-Zhe Li
Member CC
Geraldine Matchett
Member FACC
David Meline
Chairman of FACC
Satish Pai
Total
Member FACC
Board term
2020-2021(1)
Board term
2019-2020
CHF
CHF
1,140,000
1,200,000
427,500
450,000
304,000
320,000
313,500
330,000
332,500
350,000
304,000
320,000
304,000
320,000
304,000
320,000
313,500
330,000
380,000
400,000
313,500
330,000
4,436,500
4,670,000
(1) This reflects a 10 percent COVID-19 related voluntary donation in Board fees for the first half of the 2020-2021 Board term.
Key:
CC: Compensation Committee
FACC: Finance, Audit and Compliance Committee
GNC: Governance and Nomination Committee
Exhibit 26: Board ownership of ABB shares (audited as part of the financial statement stand-alone audit)
Name
Peter Voser(1)
Jacob Wallenberg
Matti Alahuhta
Gunnar Brock
David Constable
Frederico Curado
Lars Förberg
Jennifer Xin-Zhe Li
Geraldine Matchett
David Meline(2)
Satish Pai
Total
(1) Includes 2,000 shares held by spouse.
(2) Includes 3,150 shares held by spouse.
Total number of shares held
December 31, 2020
December 31, 2019
314,648
234,246
93,408
26,951
33,978
32,382
49,992
33,721
19,800
33,774
24,618
897,518
260,175
226,021
51,466
14,635
27,581
21,298
35,499
8,319
11,919
25,463
19,047
701,423
86
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
Exhibit 27: EC compensation in 2020 (audited)
Cash Compensation
)
2
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CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
1,504,141
977,685
666,175
688,685 3,836,686
1,970,457 3,308,781 9,115,924
Name
Björn Rosengren
(EC member as of
January 27, 2020, CEO as
of March 1, 2020)
Timo Ihamuotila
902,508
698,535
494,360
646,278
2,741,681
734,103
Sylvia Hill
725,004
547,500
471,925
290,108 2,034,537
564,097
Maria Varsellona
760,008
655,880
471,538
818,288
2,705,714
618,193
Theodor Swedjemark
(EC member as of
August 1, 2020)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total current Executive
Committee members
at December 31, 2020
Peter Voser (EC member
until February 29, 2020)
Ulrich Spiesshofer
(EC member until
April 16, 2019)
Jean-Christophe
Deslarzes (EC member
until May 31, 2019)
Diane de Saint Victor
(EC member until
October 31, 2019)
Total departing
Executive Committee
members
200,002
130,000
118,951
75,259
524,212
92,887
760,008
418,000
465,509
423,787
2,067,304
618,193
848,339
695,115
479,932
390,681 2,414,067
695,462
760,008
387,600
456,374
334,575 1,938,557
618,193
704,171
681,150
413,120
346,080 2,144,521
579,552
7,164,189 5,191,465 4,037,884 4,013,741 20,407,279
6,491,137 3,308,781 30,207,197
280,835
421,250
37,443
48,160
787,688
561,670
749,825
214,588
820,421 2,346,504
156,668
158,939
86,309
169,099
571,015
250,001
260,750
74,561
950,402
1,535,714
1,249,174 1,590,764
412,901 1,988,082 5,240,921
—
—
—
—
—
—
787,688
— 2,346,504
—
571,015
— 1,535,714
— 5,240,921
Total
8,413,363 6,782,229 4,450,785 6,001,823 25,648,200
6,491,137 3,308,781 35,448,118
(1) Base salary as well as the target short-term incentive were adjusted where appropriate for EC members who voluntarily donated 10 percent
of their salary to fight the impacts of the COVID-19 crisis for a six-month period during 2020.
(2) Represents accrued short-term variable compensation for the year 2020, which will be paid in 2021, after the publication of ABB’s financial
results. Short-term variable compensation is linked to the objectives defined in each EC member’s annual incentive plan. Upon full
achievement of these objectives, the short-term variable compensation of the EC members represents 100 percent of their respective base
salary. The short-term variable compensation of the former CEO, Ulrich Spiesshofer, corresponds to the contractually agreed average of the
year 2017 and 2018 short-term variable compensation award. Peter Voser received his short-term variable compensation payment monthly
at target achievement level. Diane de Saint Victor and Jean-Christophe Deslarzes received a pro-rata short-term variable compensation
payment for their period of service as an EC member, in accordance with the contractual obligations of ABB.
(3) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain
other items like compensation for unused vacation balances at the time of departure from ABB.
(4) Prepared on an accrual basis.
(5) The estimated value of the share-based LTIP grants are based on the price of ABB shares on the grant date, adjusted for expected foregone
dividends during the vesting period. On the day of vesting (April 27, 2023), the value of the share-based awards granted under the LTIP may
vary from the above amounts due to changes in ABB’s share price and the outcome of the performance factors.
(6) Payments totaling CHF 161,274 were made in 2020 on behalf of certain other former EC members, representing social security premium
payments.
(7) ABB paid Ulrich Spiesshofer in addition to the compensation related to the termination period, non-compete payments for the period
May 1, 2020, to December 31, 2020, and related social security payments totaling CHF 2,806,111.
— 3,475,784
— 2,598,634
— 3,323,907
—
617,099
— 2,685,497
— 3,109,529
— 2,556,750
— 2,724,073
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
87
Exhibit 28: EC compensation in 2019 (audited)
Cash Compensation
)
1
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CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
Name
Peter Voser (CEO as of
April 17, 2019)
— 3,438,366
— 3,824,929
1,187,167
1,780,739
149,772
320,688 3,438,366
—
Timo Ihamuotila
945,005
960,450
500,830
581,983 2,988,268
836,661
Sylvia Hill (EC member as
of June 1, 2019)
Maria Varsellona
(EC member as of
November 1, 2019)(6)
Frank Duggan(7)
Chunyuan Gu(8)
Sami Atiya
Tarak Mehta
Claudio Facchin
Peter Terwiesch
Morten Wierod
(EC member as of
April 1, 2019)
Total Executive
Committee members
at December 31, 2019
Ulrich Spiesshofer
(EC member until
April 16, 2019)
Jean-Christophe
Deslarzes (EC member
until May 31, 2019)
Diane de Saint Victor
(EC member until
October 31, 2019)
Greg Scheu (EC member
until October 31, 2019)(9)
Total departing
Executive Committee
members
408,334
433,650
268,643
198,236 1,308,863
616,494
— 1,925,357
133,335
133,333
40,619
472,088
779,375
822,328 1,624,386 3,226,089
667,708
707,103
363,173
552,220 2,290,204
704,559
685,847
685,963
263,125
708,252 2,343,187
616,494
786,676
602,400
467,214
528,033 2,384,323
845,459
860,004
747,340
478,990
570,644
2,656,978
757,396
810,006
583,200
469,271
404,865
2,267,342
713,355
795,009
668,800
460,453
389,694
2,313,956
704,559
— 2,994,763
— 2,959,681
— 3,229,782
— 3,414,374
— 2,980,697
— 3,018,515
525,000
516,600
304,632
200,336 1,546,568
616,494
— 2,163,062
7,804,091
7,819,578 3,766,722 4,927,039 24,317,430
7,233,799 1,624,386 33,175,615
1,685,010
2,249,475
639,222
979,554
5,553,261
2,967,911
— 8,521,172
940,007
998,280
513,258
522,119 2,973,664
827,846
— 3,801,510
1,000,001 1,062,000
298,242
246,441 2,606,684
880,685
— 3,487,369
661,604
557,123
228,298
199,474 1,646,499
722,956
— 2,369,455
4,286,622 4,866,878 1,679,020 1,947,588 12,780,108
5,399,398
— 18,179,506
Total
12,090,713 12,686,456 5,445,742 6,874,627 37,097,538 12,633,197 1,624,386 51,355,121
(1) Represents accrued STI for the year 2019, which will be paid in 2020, after the publication of ABB’s financial results. The STI is linked to the
objectives defined in each EC member’s scorecard. Upon full achievement of these objectives, the STI of the EC members represents
100 percent of their respective annual base salary. The STI of the former CEO, Ulrich Spiesshofer, corresponds to the contractually agreed
average of the year 2017 and 2018 STI award. Peter Voser received his STI payment monthly at target achievement level. Greg Scheu received
a pro-rata STI payment for his period of service as an EC member, in accordance with the contractual obligations of ABB.
(2) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain
other items. Other benefits for Peter Voser include mandatory social security payments only.
(3) Prepared on an accrual basis.
(4) On the day of vesting (May 16, 2022), the value of the share-based awards granted under the LTIP may vary from the above amounts due to
changes in ABB’s share price and the outcome of the performance factors. The estimated value of the share-based grants is based on the
price of ABB shares on the grant date, adjusted for expected foregone dividends during the vesting period.
(5) Payments totaling CHF 216,069 were made in 2019 on behalf of certain other former EC members, mainly representing mandatory social
security payments.
(6) In addition to the replacement share grant, Maria Varsellona will receive compensation in the amount of CHF 445,939 for 10 months of
foregone STI payments from her previous employer, which is shown under other benefits.
(7) Frank Duggan received 20 percent of his base salary in AED and 80 percent in EUR. The Company purchased EUR with AED to meet this
obligation. All AED amounts were converted into Swiss francs using a rate of CHF 0.2635992 per AED.
(8) Chunyuan Gu received for the period January to February 2019, 100 percent of his compensation in CNY and for the period March to
December 2019, 100 percent of his base salary in HKD. All CNY amounts were converted into Swiss francs using a rate of CHF 0.1391052 per
CNY and all HKD amounts were converted into Swiss francs using a rate of CHF 0.12434741 per HKD.
(9) Greg Scheu received 100 percent of his base salary in USD. All USD amounts were converted into Swiss francs using a rate of CHF 0.9682
per USD.
88
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
Exhibit 29: LTIP grants in 2020 (audited)
)
3
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CHF
985,221
367,044
282,041
309,089
46,436
309,089
347,731
309,089
289,776
r
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65,857
24,535
18,853
20,661
3,104
20,661
23,244
20,661
19,370
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985,236
367,059
282,056
309,104
46,451
309,104
347,731
309,104
289,776
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65,858
24,536
18,854
20,662
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20,662
23,244
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19,370
r
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CHF
131,715
1,970,457
49,071
37,707
41,323
6,209
41,323
46,488
41,323
38,740
734,103
564,097
618,193
92,887
618,193
695,462
618,193
579,552
216,946
3,245,516
216,953
3,245,621
433,899
6,491,137
Name
Björn Rosengren (EC member
as of January 27, 2020, CEO
as of March 1, 2020)
Timo Ihamuotila(4)
Sylvia Hill
Maria Varsellona
Theodor Swedjemark
(EC member as of
August 1, 2020)(4)
Sami Atiya
Tarak Mehta(4)
Peter Terwiesch(4)
Morten Wierod(4)
Total current Executive
Committee members at
December 31, 2020
(1) Vesting date April 27, 2023.
(2) The reference number of shares of the EPS and TSR performance factors are valued using the fair value of the ABB shares on the grant date
adjusted for expected foregone dividends during the vesting period.
(3) Default settlement of the final LTIP award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to
withholding taxes. The plan foresees a maximum payout of 200 percent of the number of reference shares granted based on the
achievement against the pre-defined average EPS and relative TSR targets.
(4) In addition to the above awards, five members of the EC participated in the 17th launch of the ESAP in 2020, which will allow them to save
over a 12-month period and, in November 2021, use their savings to acquire ABB shares under the ESAP. Each EC member who participated
in ESAP will be entitled to acquire up to 440 ABB shares at an exercise price of CHF 22.87 per share.
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
89
Exhibit 30: LTIP grants in 2019 (audited)
)
3
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s
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s
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r
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b
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c
n
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m
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f
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p
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T
L
e
h
t
f
o
Name
Timo Ihamuotila(4)
24,535
418,322
24,536
418,339
49,071
836,661
Sylvia Hill (EC member as of
June 1, 2019)
Maria Varsellona (EC member
as of November 1, 2019)
Frank Duggan(4)
Chunyuan Gu
Sami Atiya
Tarak Mehta
Claudio Facchin
Peter Terwiesch(4)
Morten Wierod (EC member
as of April 1, 2019)(4)
Total Executive
Committee members at
December 31, 2019
Ulrich Spiesshofer
(EC member until
April 16, 2019)
Jean-Christophe Deslarzes
(EC member until
May 31, 2019)
Diane de Saint Victor
(EC member until
October 31, 2019)
Greg Scheu (EC member until
October 31, 2019)
Total departing Executive
Committee members
18,079
308,247
18,079
308,247
36,158
616,494
20,661
20,661
18,079
24,793
22,211
20,919
20,661
411,154
352,271
308,247
422,721
378,698
356,669
352,271
20,662
20,662
18,079
24,794
22,211
20,920
20,662
411,174
352,288
308,247
422,738
378,698
356,686
352,288
41,323
41,323
36,158
49,587
44,422
41,839
41,323
822,328
704,559
616,494
845,459
757,396
713,355
704,559
18,079
308,247
18,079
308,247
36,158
616,494
208,678
3,616,847
208,684
3,616,952
417,362
7,233,799
87,035
1,483,947
87,036
1,483,964
174,071
2,967,911
24,277
413,923
24,277
413,923
48,554
827,846
25,826
440,334
25,827
440,351
51,653
880,685
21,201
361,478
21,201
361,478
42,402
722,956
158,339
2,699,682
158,341
2,699,716
316,680
5,399,398
Total
367,017
6,316,529
367,025
6,316,668
734,042
12,633,197
(1) Vesting date May 16, 2022.
(2) The valuation method of the share grant has been adjusted to reflect best practice, according to which, it is not recommended to use a
Monte Carlo simulation at the time of grant to determine the fair value of a share grant. In response to that, the reference number of shares
of the EPS and TSR performance factors are valued using the fair value of the ABB shares on the grant date adjusted for expected foregone
dividends during the vesting period.
(3) The LTIP foresees delivering 65 percent of the value of vested performance shares (both performance factors EPS and TSR), if any, in shares
and the remainder in cash. However, upon vesting participants have the possibility to elect to receive 100 percent of the vested award in
shares. The plan foresees a maximum payout of 200 percent of the number of reference shares granted based on the achievement against
the pre-defined average EPS and relative TSR targets.
(4) In addition to the above awards, four members of the EC participated in the 16th launch of the ESAP in 2019, which allowed them to save over
a 12-month period and, in November 2020, use their savings to acquire ABB shares under the ESAP. Each EC member who participated in
ESAP was entitled to acquire up to 480 ABB shares at an exercise price of CHF 20.78 per share.
90
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
Exhibit 31: EC shareholding overview at December 31, 2020 (audited as part of the financial statement
stand-alone audit)
Total
number
of shares
held at
Decem-
ber 31,
2020
Vested
at
Decem-
ber 31,
2020
Unvested at December 31, 2020
s
n
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b
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o
g
e
r
o
f
r
o
f
(vesting
2021/
2022)
(vesting
2021)
(vesting
2022)
(vesting
2023)
(vesting
2021)
(vesting
2022)
(vesting
2023)
Name
Björn Rosengren (EC
member as of
January 27, 2020, CEO
as of March 1, 2020)
Timo Ihamuotila
Theodor Swedjemark
(EC member as of
August 1, 2020)(3)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total Executive
Committee
members at
December 31, 2020
5,000
171,610
—
—
—
—
—
37,217
Sylvia Hill
2,265 796,875 318,750
Maria Varsellona
—
—
—
—
—
—
—
131,715
— 130,150
18,904
49,071
36,158
41,323
49,071
37,707
—
—
—
—
41,323
40,010
40,009
—
6,209
49,587
41,323
44,422
46,488
41,323
36,158
41,323
38,740
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
480 102,000 250,750
42,778
179,636
142,338
1,544
—
—
—
—
—
—
—
—
23,301
34,790
37,379
15,292
545,651 898,875 569,500
147,979
298,042
433,899 40,010 170,159
18,904
(1) The final LTIP 2018 award and LTIP 2019 award will be settled 65 percent in shares and 35 percent in cash. This applies
to both performance factors (EPS and TSR). However, the participants have the possibility to elect to receive
100 percent of the vested award in shares. The final LTIP 2020 award will be settled 100 percent in shares, with an
automatic sell-to-cover in place for employees who are subject to withholding taxes.
(2) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However,
the participants have the possibility to elect to receive 100 percent of the vested award in shares.
(3) In addition, his spouse holds unvested shares and options granted in connection with her role in the company.
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
91
Exhibit 32: EC shareholding overview at December 31, 2019 (audited as part of the financial statement stand-alone audit)
Total
number of
shares held
at Decem-
ber 31, 2019
Vested at
December
31, 2019
s
n
o
i
t
p
o
d
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t
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I
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e
h
t
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d
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d
l
e
h
—
Name
Timo Ihamuotila
64,572
Unvested at December 31, 2019
s
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e
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I
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L
e
h
t
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S
T
d
n
a
t
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e
r
a
h
s
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e
m
e
c
a
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e
R
l
l
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3
(
r
e
y
o
p
m
e
r
e
m
r
o
f
m
o
r
f
s
t
i
f
e
n
e
b
e
n
o
g
e
r
o
f
r
o
f
t
n
a
r
g
e
r
a
h
s
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e
m
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c
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R
l
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4
(
r
e
y
o
p
m
e
r
e
m
r
o
f
m
o
r
f
s
t
i
f
e
n
e
b
e
n
o
g
e
r
o
f
r
o
f
(vesting
2020/2021)
(vesting
2020)
(vesting
2021)
(vesting
2022)
(vesting
2020)
(vesting
2021/2022)
—
41,000
37,217
49,071
76,628
2,265
743,750
584,375
—
269,846
45,577
24,435
212,869
163,219
122,242
—
—
—
—
—
—
—
1,064
398,440
—
—
—
—
—
—
—
—
—
—
34,984
31,196
34,735
34,494
39,076
37,147
—
—
31,756
33,981
23,301
34,790
26,214
37,379
36,158
41,323
41,323
36,158
49,587
44,422
41,839
41,323
—
15,292
36,158
—
—
—
—
—
—
—
—
—
—
—
80,019
—
—
—
—
—
—
—
Sylvia Hill
(EC member as of
June 1, 2019)
Maria Varsellona
(EC member as of
November 1, 2019)
Frank Duggan
Chunyuan Gu
Sami Atiya
Tarak Mehta
Claudio Facchin
Peter Terwiesch
Morten Wierod
(EC member as of
April 1, 2019)
Total Executive
Committee
members at
December 31, 2019(5)
906,089 1,142,190
584,375
252,632
239,930
417,362
76,628
80,019
(1) The LTIP 2017 foresees that 70 percent are settled in shares and 30 percent in cash for the performance components (P1 and P2). However,
participants have the possibility to elect to receive 100 percent of the vested award in shares.
(2) It is expected that the LTIP 2018 and 2019 will be settled 65 percent in shares and 35 percent in cash for the performance factors (EPS and
TSR). However, the participants have the possibility to elect to receive 100 percent of the vested award in shares.
(3) The replacement share grant was settled 100 percent in shares.
(4) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participant has the
possibility to elect to receive 100 percent of the vested award in shares.
(5) Departing Executive Committee members are not included in this table.
92
A B B A N N U A L R E P O R T 2 0 2 0
0 3 C o M P E nS A tI o n r E P o r t
Exhibit 33: Targeted and realized EC Total Compensation in 2020
Target Compensation (in CHF)
Björn Rosengren
(EC member as of January 27,
2020, CEO as of March 1, 2020)
Timo Ihamuotila
Sylvia Hill
Maria Varsellona
Theodor Swedjemark
(EC member as of August 1,
2020)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total
Realized Compensation (in CHF)
Björn Rosengren
(EC member as of January 27,
2020, CEO as of March 1, 2020)
Timo Ihamuotila
Sylvia Hill
Maria Varsellona
Theodor Swedjemark
(EC member as of August 1,
2020)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total
Realized achievement level (in %)
Björn Rosengren
(EC member as of January 27,
2020, CEO as of March 1, 2020)
Timo Ihamuotila
Sylvia Hill
Maria Varsellona
Theodor Swedjemark
(EC member as of August 1,
2020)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total
Base
salary
Pension
benefits
Other
benefits(1)
Target
short-term
incentive(2)
LTIP Grant
Fair Value
2017(3)
Target total
variable
compensation
Target Total
Compensation
1,504,141
666,175
688,685
1,504,131
n.a.
1,504,131
4,363,132
902,508
494,360
646,278
902,500
998,965
1,901,465
3,944,611
725,004
471,925
290,108
730,000
760,008
471,538
818,288
760,000
n.a.
n.a.
730,000
2,217,037
760,000
2,809,834
200,002
118,951
75,259
200,000
n.a.
200,000
594,212
760,008
465,509
423,787
760,000
845,147
1,605,147
3,254,451
848,339
479,932
390,681
855,000
842,145
1,697,145
3,416,097
760,008
456,374
334,575
760,000
903,833
1,663,833
3,214,790
704,171
413,120
346,080
712,500
377,781
1,090,281
2,553,652
7,164,189 4,037,884 4,013,741
7,184,131 3,967,871
11,152,002
26,367,816
Base
salary
Pension
benefits
Other
benefits(1)
Short-term
incentive(4)
Realized
Value LTIP
2017(5)
Total variable
compensation
Total
Compensation
1,504,141
666,175
688,685
977,685
n.a.
977,685
3,836,686
902,508
494,360
646,278
698,535
593,811
1,292,346
3,335,492
725,004
471,925
290,108
547,500
760,008
471,538
818,288
655,880
n.a.
n.a.
547,500
2,034,537
655,880
2,705,714
200,002
118,951
75,259
130,000
n.a.
130,000
524,212
760,008
465,509
423,787
418,000
519,907
937,907
2,587,211
848,339
479,932
390,681
695,115
475,267
1,170,382
2,889,334
760,008
456,374
334,575
387,600
555,996
943,596
2,494,553
704,171
413,120
346,080
681,150
203,618
884,768
2,348,139
7,164,189 4,037,884 4,013,741
5,191,465 2,348,599
7,540,064
22,755,878
Base
salary
Pension
benefits
Other
benefits(1)
Short-term
incentive(4)
Realized
Value LTIP
2017(5)
Total variable
compensation
Total
Compensation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65%
77%
75%
86%
65%
55%
81%
51%
96%
72%
n.a.
59%
n.a.
n.a.
n.a.
62%
56%
62%
54%
59%
65%
68%
75%
86%
65%
58%
69%
57%
81%
68%
88%
85%
92%
96%
88%
79%
85%
78%
92%
86%
(1) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain
other items.
(2) Target short-term incentive corresponds to 100 percent of the latest applicable annual base salary adjusted for the voluntary COVID-19
donation and pro-rated for the EC members who joined the EC during the year 2020.
(3) Represents the LTIP 2017 grant date fair value as per June 13, 2017, as disclosed in our annual report 2017.
(4) Represents accrued STI for the year 2020, which will be paid in 2021, after the publication of ABB’s financial results. STI is linked to the
objectives defined in each EC member’s annual incentive plan.
(5) Valued at CHF 19.84, the closing price of the ABB share on the day of vesting.
93
Report of the Statutory Auditor To theGeneral MeetingofABB Ltd, ZurichWehave audited the accompanyingcompensationreport of ABB Ltd for the year ended December 31, 2020. The audit was limited to the information according to articles 14 – 16 of the Ordinance Against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables labeled “audited” on pages 84to 89of the compensation report. Responsibility of the Board of DirectorsThe Board of Directors is responsible for the preparation and overall fair presentation of the compensationreport in accordance with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the compensationsystem and defining individual compensationpackages.Auditor's ResponsibilityOur responsibility is to express an opinion on the accompanying compensationreport. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the compensationreport complies withSwiss law and articles 14 – 16 of the Ordinance.An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensationreport with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensationreport, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the compensation report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OpinionIn our opinion, the compensationreport for the year ended December 31, 2020of ABBLtd complies with Swiss law and articles 14 – 16 of the Ordinance. KPMG AGHans-Dieter KraussMohammad NafeieLicensed Audit ExpertAuditor in ChargeZurich,February 25,2021KPMG AG, Räffelstrasse 28, PO Box, CH-8036 Zurich© 2021 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 04
2020 Financial
review of
ABB Group
—
94 – 227
96
144
2020 Operating and financial review
and prospects
Consolidated Financial Statements
of ABB Group
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—
About ABB
ABB is a leading global technology company that
energizes the transformation of society and
industry to achieve a more productive, sustain-
able future. By connecting software to its
electrification, robotics, automation and motion
product portfolio, ABB pushes the boundaries of
technology to drive performance to new levels.
With a history of excellence stretching back more
than 130 years, ABB’s success is driven by about
106,000 employees.
—
History of the ABB Group
The ABB Group was formed in 1988
through a merger between Asea AB and BBC
Brown Boveri AG. Initially founded in 1883,
Asea AB was a major participant in the introduc-
tion of electricity into Swedish homes and
businesses and in the development of Sweden’s
railway network. In the 1940s and 1950s, Asea AB
expanded into the power, mining and steel indus-
tries. Brown Boveri and Cie. (later renamed BBC
Brown Boveri AG) was formed in Switzerland in
1891 and initially specialized in power generation
and turbines. In the early to mid-1900s, it
expanded its operations throughout Europe and
broadened its business operations to
include a wide range of electrical engineering
activities.
In January 1988, Asea AB and BBC Brown Boveri
AG each contributed almost all of their businesses
to the newly formed ABB Asea Brown Boveri Ltd,
of which they each owned 50 percent. In 1996,
Asea AB was renamed ABB AB and BBC Brown
Boveri AG was renamed ABB AG. In February 1999,
the ABB Group announced a group reconfigura-
tion designed to establish a single parent holding
company and a single class of shares. ABB Ltd was
incorporated on March 5, 1999, under the laws of
Switzerland. In June 1999, ABB Ltd became the
holding company for the entire ABB Group. This
was accomplished by having ABB Ltd issue shares
to the shareholders of ABB AG and ABB AB, the
two companies that formerly owned the ABB
Group. The ABB Ltd shares were exchanged for
the shares of those two companies, which, as a
result of the share exchange and certain related
transactions, became wholly-owned subsidiaries
of ABB Ltd.
As described above, on July 1, 2020, we divested
80.1 percent of our ownership in the Power Grids
business to Hitachi Ltd (Hitachi).
ABB Ltd shares are currently listed on the SIX
Swiss Exchange, the NASDAQ OMX Stockholm
Exchange and the New York Stock Exchange (in
the form of American Depositary Shares).
—
Organizational structure
Our business is international in scope and we
generate revenues in numerous currencies. We
operate in over 100 countries across three re-
gions: Europe, the Americas, and Asia, Middle
East and Africa. We are headquartered in Zurich,
Switzerland.
We manage our company through our four Busi-
ness Areas: Electrification, Industrial Automation,
Motion and Robotics & Discrete Automation. For a
breakdown of our consolidated revenues (i) by
Business Area, (ii) by geographic region, and
(iii) by product type, see “Analysis of results of
operations—Revenues” and “Note 23 - Operating
segment and geographic data” to our Consoli-
dated Financial Statements. Until June 30, 2020,
we also operated the Power Grids business, which
is reported as discontinued operations in the
Consolidated Financial Statements (see “Discon-
tinued operations” section below). On
July 1, 2020, ABB we completed the divestment of
80.1 percent of the Power Grids business to
Hitachi. We retain a 19.9 percent ownership
interest through our investment in Hitachi ABB
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Power Grids Ltd (Hitachi ABB Power Grids) which
beneficially owns or controls all the subsidiaries
of the Power Grids business.
Our principal corporate offices are located at
Affolternstrasse 44, CH 8050 Zurich, Switzerland,
telephone number +41 43 317 7111. Our agent for
U.S. federal securities law purposes is ABB
Holdings Inc., located at 305 Gregson Drive, Cary,
North Carolina 27511. Our internet address is
https://www.abb.com. The United States Securi-
ties and Exchange Commission (SEC)
maintains a website at https://www.sec.gov
which contains in electronic form each of the
reports and other information that we have filed
electronically with the SEC.
—
Employees
A breakdown of our employees by geographic
region is as follows:
December 31,
Europe
The Americas
2020
2019
2018
49,200
68,400 68,300
27,600
35,200 35,600
Asia, Middle East and Africa
28,800
40,800 42,700
Total
105,600 144,400 146,600
—
Our markets
ABB is a leading global technology company
with a comprehensive and increasingly digitalized
offering of electrification, motion and automa-
tion solutions. ABB’s exposure to customers is
geographically balanced while catering to multi-
ple end-markets and segments. Through a full
business cycle, we estimate that our end-markets
combined grow at around two percent per annum.
We believe that our portfolio is well positioned to
benefit from secular growth drivers, including
urbanization, labor shortage, shift to electrifica-
tion, automation and robotization, as well as
other data and digitalization
trends.
The majority of our businesses are market leaders
within their respective segments with approxi-
mately two-thirds of revenues coming from our
Divisions where we hold a number one or two
position in the relevant market. We believe market
leadership is critical, as it provides an opportunity
for us to be a cost leader in our markets and to
also have the ability to invest more than competi-
tors in research and development to sustain our
technological leadership. For a discussion of the
geographic distribution of our total revenues, see
“Analysis of results of operations—Revenues.”
The proportion of our employees that are repre-
sented by labor unions or are subject to collective
bargaining agreements varies based on the labor
practices of each country in which we operate.
Industry Market
Approximately half of our customers are indus-
trial customers. We serve production facilities
and factories all around the world from process
industries such as oil and gas, pulp and paper as
well as mining, to discrete industries including
automotive, food and beverage and consumer
electronics. Automation, software and digital
services that help customers achieve improved
safety, uptime, energy efficiency and productivity
are key to the success of our offerings in this
market. The COVID-19 pandemic has served as a
prominent reminder for companies of the impor-
tance of simplicity and flexibility in automated
production and has accelerated customer
demand for the digital services and solutions
we offer.
Industrial end-markets were materially impacted
by the COVID-19 pandemic resulting in lower
demand for our products and services worldwide.
Global travel restrictions hindered our capability
to execute our project and service businesses
even while customer acceptance of remote digital
services and solutions increased. In process
industries, oil and gas customers, faced with a
substantial decrease in commodity prices,
reduced planned capital expenditures, which
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customers for EV charging infrastructure, includ-
ing for our high-voltage direct-current (DC)
fast-charging station, the Terra HP. As of Decem-
ber 31, 2020, we have sold more than
17,000 ABB DC fast-chargers across 80 countries.
Utilities Market
ABB delivers solutions mainly for distribution
utilities and renewables customers, while continu-
ing to service conventional power generation
customers with our control and automation
solutions. Following the divestment of our Power
Grids business to Hitachi on July 1, 2020, our
exposure to the utilities market has decreased
significantly.
During 2020, business levels in the conventional
power generation and renewables markets were
challenged by global travel restrictions during the
COVID-19 pandemic as well as a lower general
demand environment, particularly for fossil fuels.
Demand from electrical distribution utilities was
resilient, with ongoing investments to increase
grid reliability and resilience with integrating
increased renewables.
We serve industry, transport & infrastructure and
utilities through our operating Divisions which
are included in our Business Areas. Developments
in these Business Areas are discussed in more
detail below. Revenue figures presented in the
Businesses section below are before
intersegment eliminations.
impacted our order levels. Other process indus-
tries, such as pulp and paper or mining were
resilient in 2020.
In discrete industries, end-markets such as food
and beverage, and logistics were robust. Con-
versely, investments in robotics by the automotive
industry continued to be challenged by weak
customer demand as well as uncertainty around
the timing and pace of transition from traditional
to electric vehicles.
Transport & Infrastructure Market
Approximately one-third of our customers oper-
ate in the transport & infrastructure market. Our
expertise provides efficient, reliable and sustain-
able solutions for these customers, with a focus
on energy efficiency and reduced operating costs.
Transport & infrastructure markets were resilient
in 2020. Demand in rail for electrification and
traction solutions was strong over the year. Data
center markets continued to expand with ABB
successful in offering bundled solutions to hyper-
scale and co-location customers in particular.
Buildings activity was impacted by COVID-19
lockdowns. In the marine sector, we saw contin-
ued strong order demand for our market-leading
electric propulsion systems, while the services
business particularly suffered after the shutdown
of the global cruise industry due to the COVID-19
pandemic.
EV charging markets continued to expand during
the period. We received multiple orders from
—
Businesses
Electrification Business Area
Overview
The products of the Electrification Business Area
portfolio are designed to enable safe, smart, and
sustainable electrification, with a full range of
low- and medium-voltage products and solutions,
along with pre-engineered packaged services and
tailored solutions for intelligent protection and
connection.
approximately a quarter is derived from direct
sales to end-users. The remaining revenues are
generated from original equipment
manufacturers (OEMs), engineering, procure-
ment, construction (EPC) contracting companies,
system integrators, utilities and panel builders.
The proportion of direct compared to channel
partner sales varies by segment, product
technology and geographic markets.
The Electrification Business Area delivers prod-
ucts through a global network of channel partners
and end customers. Most of the Business Area’s
revenue is derived from distributors and
The Electrification Business Area had approxi-
mately 50,500 employees on December 31, 2020,
and generated $11.9 billion of revenues in 2020.
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Customers
The Electrification Business Area serves a wide
range of customer segments, including residen-
tial, commercial, and industrial buildings, electric
utilities, oil and gas, chemicals, data centers,
e-mobility, renewables, food and beverage, and
other industries and infrastructure.
Products and Services
The Electrification Business Area’s products and
services are delivered through five operating
Divisions.
The Distribution Solutions Division helps utility,
industry and transport & infrastructure custom-
ers improve power quality and control, reduce
outage time and enhance operational reliability
and efficiency. The Division offers products,
solutions and services that largely serve the
power distribution sector, often providing the
requisite medium-voltage link between high-
voltage transmission systems and low-voltage
users. With ABB Ability™ enabled digital solutions
at its core, the offering includes low-voltage
switchgear (up to 1 kilovolt) and medium-voltage
equipment (1 to 66 kilovolts), indoor and outdoor
circuit breakers, reclosers, fuses, contactors,
relays, instrument transformers, sensors, motor
control centers, as well as a wide range of air- and
gas-insulated switchgear. The Division also
produces indoor and outdoor modular systems
and other segment-specific solutions to facilitate
efficient and reliable distribution, protection and
control of power, adding value through design,
engineering, project management and service.
The service offering spans the entire value chain,
from the moment a customer makes the first
inquiry to disposal and recycling of the product,
enriched by advanced digital services for asset
management. Throughout the value chain, the
Division provides training, technical support and
customized contracts.
The Smart Power Division helps protect, control,
and connect people, plants, and systems
with a portfolio of low-voltage products and
systems. The product offering includes electric
vehicle charging infrastructure from AC wall boxes
to DC fast charging, molded-case and air-circuit
breakers, safety products including sensors,
switches, contactors, relays, and power protec-
tion solutions such as uninterruptible power
supply (UPS) solutions, status transfer switches
and power distribution units.
The Smart Buildings Division helps optimize
efficiency, safety, security, and comfort in homes
and other buildings. The Division offers digitally
enabled controls for HVAC, lighting, shutters, and
security in addition to low-voltage products
including conventional wiring accessories, indus-
trial plugs and sockets, emergency lighting,
DIN-rail products, and enclosures ideal for single
family homes, multiple dwellings, commercial
buildings, infrastructure and industrial
applications.
The Installation Products Division helps manage
the connection, protection and distribution of
electrical power. The Division’s products are
engineered to provide ease of installation and
perform in demanding and harsh conditions,
helping to ensure safety and continuous opera-
tion for our customers and people around the
world. The commercial essentials product seg-
ment includes electrical junction boxes,
commercial fittings, strut and cable tray metal
framing systems for commercial and residential
construction. The premier industrial product
segment includes multiple product lines, such as
Ty-Rap®, T&B Liquidtight Systems®, PVC coated
and nylon conduit systems, power connection and
grounding systems, cable protection systems of
conduits and fittings for harsh and industrial
applications. The Division also produces cable
accessories and apparatus solutions for
medium-voltage applications including reclosers,
switchgear, capacitor switches, current limiting
fuses, faulted current indicators and distribution
connectors, with products for overhead and
underground distribution.
The Power Conversion Division supplies innova-
tive critical power solutions to infrastructure
customers and manufacturers of a wide range of
equipment. The Division supports its customers
in telecom/5G, networking, data centers, and
industrial applications (such as oil and gas, utility,
power generation, and robotics) in rapidly chang-
ing, disruptive environments where information,
access and response times are redefining the
markets. The Power Conversion Division also
provides customers with reliable and efficient
power that supports increasing infrastructure
requirement, ensuring that data flows 24/7, while
optimizing footprint, energy costs and opera-
tions. The Division supports customers by
providing the latest industry insights and technol-
ogy, partnering to co-develop solutions to tackle
evolving challenges.
Sales and Marketing
The Electrification Business Area’s global markets
common sales and marketing organization
creates demand across all channels and products,
with a range of promotional activities and
support services including account, channel, and
segment sales management, commercial opera-
tions, and digital expertise.
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Competition
Customers
The Electrification Business Area’s principal
competitors vary by product group and include
Chint, Eaton, Hubbell, Legrand, LS Electric, Pana-
sonic, Rittal, Schneider Electric and Siemens.
Capital Expenditures
The Electrification Business Area’s capital expen-
ditures for property, plant and equipment totaled
$276 million in 2020, compared to $279 million in
2019. Investments in 2020 were primarily related
to footprint changes, equipment replacement and
upgrades. Geographically, in 2020, Europe repre-
sented 48 percent of the capital expenditures,
followed by the Americas (41 percent) and Asia,
Middle East and Africa (11 percent).
Industrial Automation Business
Area
Overview
The Industrial Automation Business Area offers
customers in process and maritime industries,
a broad range of industry-specific integrated
automation, electrification and digital solutions
that are designed to optimize the productivity,
energy efficiency and safety of industrial pro-
cesses and operations, based on the Business
Area’s deep domain knowledge and expertise of
each end market. The solutions include turnkey
engineering, control technologies, software and
lifecycle services, measurement and analytics
products, marine and turbocharging offerings,
Human Machine Interfaces (HMI) and integrated
safety technology. The systems can link various
process and information flows allowing custom-
ers to manage and control their entire business
process based on real-time information. Addition-
ally, the systems and solutions enable customers
to increase production efficiency, optimize assets
and reduce environmental impact.
The Industrial Automation Business Area’s offer-
ings are available as separately sold products or
as part of an automation, electrification and/or
instrumentation solution. For overall solutions,
Industrial Automation integrates products and
solutions from the Electrification, Motion and
Robotics & Discrete Automation Business Areas.
The Business Area’s offerings are sold primarily
through its direct sales force as well as
third-party channels.
The Business Area had approximately 21,500 em-
ployees as of December 31, 2020, and generated
revenues of $5.8 billion in 2020.
The Industrial Automation Business Area’s end
customers include companies in the oil and gas,
minerals and mining, metals, pulp and paper,
chemicals, plastics, pharmaceuticals, food and
beverage, power generation and maritime indus-
tries. These customers are looking for
automation, electrification, instrumentation and
digitalization offerings that deliver value mainly
through lower capital costs, increased plant
availability, lower life-cycle costs and lower proj-
ect risks.
Products and Services
Industrial Automation offers an extensive portfo-
lio of products, solutions, digital applications and
services. These offerings can be standalone basic
control to integrated collaborative systems for
complex or critical processes. Solutions, such as
Distributed Control System (DCS) 800Xa, pro-
vide a scalable extended automation system for
process and production control, safety and pro-
duction monitoring. Freelance, another solution,
is a full-fledged, easy-to-use DCS for small to
medium-size applications. Components for basic
automation solutions, process and safety control-
lers, field interfaces, panels, process recorders
and HMI are available through our Compact
Product Suite offering. The product portfolio is
complemented by services such as Automation
Sentinel, a subscription-based life cycle manage-
ment program that provides services to maintain
and continually advance and enhance
ABB Ability™control systems (e.g. cyber security
patches) and thus allows it to manage a custom-
er’s life-cycle costs. The ABB Ability™ Advanced
Services offering portfolio provides individual
software-based services to continuously improve
automation and processes. ABB Ability™ Genix
supports industries to unlock value by contextual-
izing and integrating data from a variety of
systems, further utilizing artificial intelligence
and analytics to provide deep meaningful action-
able insights. In addition, ABB Ability™
Edgenius, a cloud-managed edge platform, makes
real time operations data from a large number of
systems and devices at the point of production
available for visualization, analysis and action.
The Industrial Automation Business Area has five
operating Divisions selling their offerings into the
energy, process and maritime industries.
The Energy Industries Division serves the energy
market with leading automation solutions for oil,
gas, chemicals, pharmaceuticals, and all types of
power generation. Oil, gas and chemicals solu-
tions cover the entire hydrocarbon value chain,
from exploration and production to supply,
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101
transport and distribution, as well as refining,
chemicals and petrochemicals. The Division
brings deep industry domain expertise coupled
with the ability to integrate both automation and
electrical, resulting in faster start-up times,
increased facility productivity and reduced overall
capital and operating costs for customers. ABB
specializes in mastering the control loop and
transforming client operations through action-
able insights that optimize performance in real
time. From the well head to the refinery,
ABB Ability™ solutions aim to connect people
with data to optimize performance, improve
reliability, enhance efficiency and minimize envi-
ronmental impact from project start-up
throughout the entire plant life cycle. For the
power generation market, the offering includes
instrumentation, excitation and control systems.
Its technologies are designed to help optimize
performance, improve reliability, enhance effi-
ciency and minimize environmental impact
throughout the plant life cycle. In the pharmaceu-
ticals and fine chemicals areas, the Division offers
applications to support manufacturing, packag-
ing, quality control and compliance with
regulatory agencies. The Division also serves the
water industry, including applications such as
pumping stations and desalination plants.
The Process Industries Division serves the mining,
minerals processing, metals, aluminum, cement,
pulp and paper, and food and beverage, as well as
their associated service industries. The Division
brings deep industry domain expertise coupled
with the ability to integrate both automation and
electrical increased productivity and reduced
overall capital and operating costs for customers.
For mining, metals and cement customers, solu-
tions include specialized products and services,
as well as total production systems. The Division
designs, plans, engineers, supplies, erects and
commissions integrated electric equipment,
drives, motors, high power rectifiers and equip-
ment for automation and supervisory control
within a variety of areas including mineral han-
dling, mining operations, aluminum smelting, hot
and cold steel applications and cement produc-
tion. The offering for the pulp and paper
industries includes control systems, quality
control systems, drive systems, on-line sensors,
actuators and field instruments. Digitalization
solutions, including collaborative operations and
augmented reality, help improve plant and enter-
prise productivity, and reduce maintenance and
energy costs.
The Marine & Ports Division serves the marine and
ports industry through its leading solutions for
specialty vessels, as well as container and bulk
cargo handling. For the shipping industry, the
Division offers an extensive portfolio of
integrated marine systems and solutions that
improve the flexibility, reliability and energy
efficiency of vessels. By coupling power, automa-
tion and marine software, proven fuel-efficient
technologies and services that ensure maximum
vessel uptime, ABB is well positioned to help
improve the profitability of a customer’s business
throughout the entire life cycle of a fleet. The
Division designs, engineers, builds, supplies and
commissions automation and electrical systems
for marine power generation, power distribution
and electric propulsion, as well as turbochargers
to improve efficiency. With ABB Ability™ Collabo-
rative Operations Centers around the world and
marine software solutions, owners and operators
can run their fleets at lower fuel and maintenance
cost, while improving crew, passenger, and cargo
safety and overall productivity of their opera-
tions. In addition, the Division delivers
automation and electrical systems for container
and bulk cargo handling, from ship to gate. These
systems and services help terminal operators
meet the challenge of larger ships, taller cranes
and bigger volumes per call, and make terminal
operations safer, greener and more productive.
The Turbocharging Division manufactures and
maintains turbochargers for diesel and gas
engines having power levels ranging from
500 kilowatts to over 80 megawatts. The Division
provides engine builders and application opera-
tors with advanced turbocharging solutions and
services for efficient and flexible application
operations and in compliance with the most
stringent environmental requirements.
The Measurement & Analytics Division portfolio is
designed to measure product properties, such as
weight, thickness, color, brightness, moisture
content and additive content, and includes a full
line of instrumentation and analytical products to
analyze, measure and record industrial and power
processes. Actuators allow the customer to make
automatic adjustments during the production
process to improve the quality and consistency of
the product. Field instruments measure proper-
ties of the process, such as flow rate, chemical
content and temperature.
Sales and Marketing
The Industrial Automation Business Area’s sales
are primarily made through its direct sales force
as well as third-party channel partners, such as
distributors, system integrators and OEMs. The
majority of revenues are derived through the
Business Area’s own direct sales channels.
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Competition
The Industrial Automation Business Area’s princi-
pal competitors vary by industry or product
group. Competitors include: Emerson, Honeywell,
Schneider Electric, Siemens, Yokogawa, General
Electric, Endress + Hauser, Kongsberg, Valmet and
Garrett.
Capital Expenditures
The Industrial Automation Business Area’s capital
expenditures for property, plant and equipment
totaled $56 million in 2020, compared to $64 mil-
lion in 2019. Principal investments in 2020 were in
Turbocharging and the Measurement & Analytics
Divisions. Geographically, in 2020, Europe repre-
sented 70 percent of the capital expenditures,
followed by Asia, Middle East and Africa (19 per-
cent) and the Americas (11 percent).
Motion Business Area
Overview
The Motion Business Area provides pioneering
technology, products, solutions and related
services to industrial customers to increase
energy efficiency, improve safety and reliability,
and maintain precise control over processes. The
portfolio includes motors, generators and drives
for a wide range of applications in all industrial
sectors.
The Motion Business Area had approximately
20,900 employees as of December 31, 2020, and
generated around $6.4 billion of revenues in 2020.
Products and Services
Motion manufactures and sells drives, motors,
generators, traction converters and mechanical
power transmission products. Building on
long-standing experience in electric powertrains,
the Business Area combines domain expertise
and technology to deliver the optimum solution
for a wide range of applications for a comprehen-
sive range of industrial segments. In addition, the
Business Area, along with its channel partners,
has an industry-leading global service presence.
The Motion Business Area’s products and services
are delivered through six operating Divisions.
The Motors & Generators Division offers a com-
prehensive product portfolio of large AC motors
and generators, and IEC low-voltage (LV) and
NEMA motors. The Division provides a large range
of motors, from general purpose, to highly cus-
tomized designs, large AC synchronous motors
and high-voltage induction motors to support
high efficiency, reliability and availability across
all major industries and applications. The Division
offers a full range of energy efficient low-voltage
IEC motors, including SynRM (synchronous reluc-
tance) motors to support customers to reduce
power bills and cut emissions. The Division also
provides IEC LV motor solutions that are designed
to improve reliability and productivity in severe
applications. Baldor-Reliance® NEMA industrial
electric motors offer customers quality, reliability
and efficiency. Our investments in technology,
tools and processes aim to ensure the broad
NEMA offering of general purpose and
application-specific solutions perform as ex-
pected, every time. The Division designs and
builds generators for a wide range of industries,
including power generation, marine, oil and gas,
mining, and data centers.
The Drive Products Division serves industries,
infrastructure and machine builders with
state-of-the-art drives and softstarters. With
products, global scale and local presence, the
Division helps customers to improve energy
efficiency, productivity and safety.
The System Drives Division provides global sup-
plies of high-power, high-performance drives,
drive systems and packages for industrial process
and large infrastructure applications. In addition,
the Division offers global support to help custom-
ers, partners and equipment manufacturers with
asset reliability, performance improvement and
energy efficiency in mission critical applications.
The Service Division serves customers worldwide
and aims to help customers by maximizing
uptime, extending life cycle and enhancing the
performance and energy efficiency of their elec-
trical motion solutions. The Division is leading the
way in digitalization by securely connecting
motors and drives to help customers prevent
expensive downtime while also optimizing opera-
tions’ profitably, safety and reliably.
The Traction Division is a recognized leader in
traction technologies that drive innovation in rail
and e-mobility. A comprehensive range of high
performance propulsion, auxiliary and energy
storage solutions help improve energy efficiency
and contributes to making transportation more
sustainable.
The Mechanical Power Transmission Division
offers the Dodge® brand of mounted bearings,
enclosed gearing and power transmission compo-
nents to help customers in robust industries
increase the safety, productivity and profitability
of their operations. The Division offers custom-
ized innovative solutions and advanced
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technologies that improve output, increase
uptime, and enhance system value.
Products and Services
Customers
The Motion Business Area serves a wide range of
customers in different industrial segments such
as pulp and paper, oil and gas, metals and mining,
food and beverage, transportation, power gener-
ation, marine and offshore.
Sales and Marketing
Sales are made both through direct sales forces
and through channel partners, such as distribu-
tors and wholesalers, as well as installers, OEMs
and system integrators. The proportion of direct
sales to end users compared to channel partner
sales varies among the different industries,
products and geographic markets.
Competition
The principal competitors of the Motion Business
Area include Schneider, Siemens, Toshiba, WEG
Industries, SEW EURODRIVE and Danfoss.
Capital Expenditures
Capital expenditures in the Motion Business Area
for property, plant and equipment totaled
$93 million in 2020, compared to $110 million in
2019. Principal investments in 2020 were primarily
related to equipment replacement, footprint
adjustments and automation upgrades. Geo-
graphically, in 2020, Europe represented
45 percent of the capital expenditures, followed
by the Americas (40 percent) and Asia, Middle
East and Africa (15 percent).
Robotics & Discrete Automation
Business Area
Overview
The Robotics & Discrete Automation Business
Area provides robotics, and machine and factory
automation including products, software, solu-
tions and services. Revenues are generated both
from direct sales to end users as well as from
indirect sales mainly through system integrators
and machine builders.
The Robotics & Discrete Automation Business
Area had approximately 10,300 employees as of
December 31, 2020 and generated $2.9 billion of
revenues in 2020.
The Robotics & Discrete Automation Business
Area’s products and services are delivered
through two operating Divisions.
The Robotics Division offers a wide range of
products, solutions and services such as robots,
robotics application cells and smart systems,
field services, spare parts, digital services, engi-
neering and operations software. This offering
provides productivity, quality, flexibility and
simplicity for operations, e.g. to meet the chal-
lenge of making smaller lots of a larger number of
specific products in shorter cycles for today’s
dynamic global markets and coping with increas-
ing uncertainty. Robots are also used in activities
or environments which may be hazardous to
employee health and safety, such as repetitive or
strenuous lifting, dusty, hot or cold rooms, or
painting booths and can help customers over-
come labor shortages. Robotics solutions are
used in a wide range of segments from automo-
tive OEMs, automotive suppliers, electronics,
general industry, consumer goods, food and
beverage, and warehouse/logistics center auto-
mation. They are increasingly deployed in service
applications for health care, restaurants and
retail. Typical robotic applications include weld-
ing, material handling, machine tending,
machining, painting, picking, packing, palletizing
and assembly.
The Machine Automation Division offers inte-
grated automation solutions based on
programmable logical controllers, industrial PCs,
servo motion, industrial transport systems and
machine vision. It also provides software for
engineering and optimization. The range of
solutions are mainly used by machine builders for
various types of series machines, e.g. for plastics,
metals, printing and packaging.
Customers
Robotics & Discrete Automation serves a wide
range of customers. The main customers are
active in industries such as automotive, machine
building, metalworking, electronics, food and
beverage and logistics. They include end-users
such as manufacturers, system integrators and
machine builders.
Sales and Marketing
Sales are made both through direct sales forces
as well as through third-party channel partners,
such as system integrators and machine builders.
The proportion of direct sales compared to
channel partner sales varies among the different
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industries, product technologies and geographic
markets.
Competition
Competitors of the Robotics & Discrete Automa-
tion Business Area vary by offering. They include
companies such as Fanuc, Kuka, Yaskawa, Epson,
Dürr, Stäubli, Universal Robots, Rockwell Automa-
tion, Siemens Digital Factory, Mitsubishi Electric
and Beckhoff.
Capital Expenditures
The Robotics & Discrete Automation Business
Area’s capital expenditures for property, plant
and equipment totaled $64 million in 2020, com-
pared to $59 million in 2019. Principal investments
in 2020 were primarily related to production
capacity, upgrades and equipment replacement.
Geographically, in 2020, Europe represented
81 percent of the capital expenditures, followed
by Asia, Middle East and Africa (16 percent) and
the Americas (3 percent).
Corporate headquarters and stewardship activi-
ties include the operations of our corporate
headquarters in Zurich, Switzerland, as well as
limited corporate-related activities in some
countries. These activities cover staff functions
with group-wide responsibilities, such as ac-
counting and financial reporting, corporate
finance and corporate treasury, taxes, financial
planning and analysis, internal audit, legal and
integrity, compliance, risk management and
insurance, corporate communications, informa-
tion systems and investor relations.
GBS operates shared service centers globally
through a network of five hubs and consists of
both expert and transactional services in the
areas of human resources, finance, information
services, legal, real estate, procurement and
logistics, customer contact centers, global travel
services and other ancillary activities. GBS also
staffs and maintains front offices in most coun-
tries. The costs in GBS are incurred primarily for
the benefit of the Business Areas, who are
charged for their use of the services.
Corporate and Other
Corporate and Other includes headquarters,
central research and development, real estate
activities, Corporate Treasury Operations, Global
Business Services (GBS), the investment in Hitachi
ABB Power Grids and other minor business activi-
ties. The remaining activities of certain
EPC projects which we are completing and are
in a wind-down phase are also reported in Corpo-
rate and Other. In addition, the historical business
activities of certain divested businesses are
presented in Corporate and Other. These include
the high-voltage cables business, steel structures
and certain EPC contracts relating to the oil and
gas industry.
A significant portion of the costs for GBS and
other shared corporate overhead costs are
charged to the operating businesses. Up until the
divestment of the Power Grids business on
July 1, 2020, overhead and other management
costs, including GBS costs, which would have
been allocated or charged to our Power Grids
business, and which were not directly attributable
to this business, have not been allocated to the
discontinued operation and are included in Cor-
porate and Other as “stranded costs”.
Corporate and Other had approximately
1,600 employees at December 31, 2020.
—
Discontinued operations
In July 2020, we divested 80.1 percent of our
Power Grids business to Hitachi Ltd. As a result,
the Power Grids business is reported as discon-
tinued operations in the Consolidated Financial
Statements for all years presented. See “Note 3
- Discontinued operations” to our Consolidated
Financial Statements.
Power Grids business
The former Power Grids business of ABB delivered
products, systems, software and service solu-
tions across the power value chain for utility,
industry and transport & infrastructure
customers.
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The Power Grids business operated worldwide
with a globally diversified manufacturing, engi-
neering, and research and development footprint.
Direct sales accounted for the majority of total
revenues generated by the business while exter-
nal channel partners such as EPCs, wholesalers,
distributors and OEMs accounted for the rest.
substations and associated lifecycle services.
These substations are used in utility and
non-utility applications including rail, data
centers and various industries. Battery energy
storage solutions and shore-to-ship power supply
were also part of the customer offering.
Products and Services
The Grid Automation operation supplied substa-
tion automation products, systems and services.
It also provided Supervisory Control and Data
Acquisition (SCADA) systems for transmission
and distribution networks as well as a range of
wireless, fiber optic and powerline carrier-based
telecommunication technologies for
mission-critical applications and also offered
grid-edge and microgrid solutions. Its enterprise
software portfolio provided solutions for manag-
ing and optimizing assets, operations, logistics,
financials and HR, reducing operating costs and
improving productivity for customers.
The Grid Integration operation was a leading
provider of integration and transmission solu-
tions such as High Voltage Direct Current (HVDC).
Another key part of the portfolio was the Flexible
Alternating Current Transmission Systems
(FACTS) business, which comprises Static Var
Compensation (SVC) and static compensator
(STATCOM) technologies to address stability and
power quality issues. The Grid Integration opera-
tion’s portfolio also included a range of
high-power semiconductors, a core technology
for power electronics deployed in HVDC, FACTS
and rail applications. The Grid Integration opera-
tion also provided transmission and distribution
The High Voltage products operation was a
provider of high voltage switchgear up to
1200 kV AC and 1100 kV DC with a portfolio span-
ning air-insulated, gas-insulated and hybrid
technologies. It also manufactured generator
circuit breakers, a key product for integrating
large power plants into the grid. The portfolio
also included a broad range of capacitors and
filters that facilitate power quality, instrument
transformers and other substation components.
The Transformers operation supplied transform-
ers that are an integral component found across
the power value chain, enabling the reliable,
efficient and safe conversion of voltage levels.
The product range included dry- and
liquid-distribution transformers, traction trans-
formers for rail applications and special
application transformers plus related compo-
nents, for example, insulation kits, bushings and
other transformer accessories.
The Power Grids business also had an extensive
portfolio of service offerings across the value
chain. The portfolio included spare parts, condi-
tion monitoring and maintenance services,
on- and off-site repairs as well as retrofits and
upgrades. Advanced software-based monitoring
and advisory services further enhanced the
portfolio.
—
Capital expenditures
Total capital expenditures for property, plant and
equipment and intangible assets (excluding
intangibles acquired through business combina-
tions) amounted to $694 million, $762 million and
$772 million in 2020, 2019 and 2018, respectively.
In 2020 and 2019, capital expenditures were
24 percent and 21 percent lower, respectively, than
depreciation and amortization. Excluding
acquisition-related amortization, capital expendi-
tures were 6 percent higher in 2020 and 9 percent
higher in 2019, respectively, than depreciation and
amortization.
Capital expenditures in 2020 remained primarily
focused in mature markets, reflecting the
geographic distribution of our existing produc-
tion facilities. Capital expenditures in Europe and
North America in 2020 were driven primarily by
upgrades and maintenance of existing production
facilities, mainly in the U.S., Switzerland, Germany,
Italy, Finland, Sweden and Austria. Capital expen-
diture in the U.S. was primarily driven by
GEIS-related footprint changes and product
conversions in the Electrification Business Area
and upgrades of existing production facilities in
the Motion Business Area. Expenditures in Austria
included continued investment in the
state-of-the-art innovation and training campus,
which is planned to become one of our largest
research and development centers for new
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automation technologies. Additionally, we started
the construction of an upgraded facility in Swit-
zerland for our Motion Business Area. This
investment aims to expand our existing global
center of excellence for power electronics and
also expand related innovation capabilities.
Capital expenditures in emerging markets contin-
ued to remain primarily concentrated in China,
India and Poland, and focus on increasing existing
production capacity. The construction of an
advanced, automated and flexible robotics fac-
tory in China continued and is expected to be
completed in 2021. This factory is designed to
combine our connected digital technologies,
state-of-the-art collaborative robotics and inno-
vative artificial intelligence research. The share of
emerging markets capital expenditures as a
percentage of total capital expenditures in 2020
and 2019 was 22 percent and 27 percent,
respectively.
At December 31, 2020, construction in progress
for property, plant and equipment was $505 mil-
lion, mainly in the U.S., Switzerland, Austria,
Germany and China while at December 31, 2019,
construction in progress for property, plant and
equipment was $500 million, mainly in the U.S.,
Switzerland, Finland, Germany, Austria
and Sweden.
Our capital expenditures relate primarily to
property, plant and equipment. For 2021, we
estimate the expenditures for property, plant and
equipment will be lower than our annual deprecia-
tion and amortization charge, excluding
acquisition-related amortization.
—
Supplies and raw materials
We purchase a variety of supplies and products
which contain raw materials for use in our produc-
tion and project execution processes. The primary
materials used in our products, by weight, are
copper, aluminum, steel, mineral oil and various
plastics. We also purchase a wide variety of
fabricated products, electronic components and
systems. We operate a worldwide supply chain
management network with employees dedicated
to this function in our Business Areas, Divisions
and in key countries. Our supply chain operations
consists of a number of teams, each focusing on
different product categories. These category
teams take advantage of opportunities to lever-
age the scale of ABB on a global, Business Area
and/or Division level, as appropriate, to optimize
the efficiency of our supply networks in a sustain-
able manner.
Our supply chain management organization’s
activities and objectives include:
• pool and leverage procurement of materials
and services,
• provide transparency of ABB’s global spending
through a comprehensive performance and
reporting system linked to our enterprise
resource planning (ERP) systems,
• strengthen ABB’s supply chain network by
implementing an effective product category
management structure and extensive
competency-based training, and
• monitor and develop our supply base to ensure
sustainability, both in terms of materials and
processes used.
We buy many categories of products which con-
tain steel, copper, aluminum, crude oil and other
commodities. Continuing global economic growth
in many emerging economies, coupled with the
volatility in foreign currency exchange rates, has
led to significant fluctuations in these raw mate-
rial costs over the last few years. While we expect
global commodity prices to remain highly volatile,
we expect to offset some market volatility
through the use of long-term contracts and global
sourcing.
We seek to mitigate the majority of our exposure
to commodity price risk by entering into deriva-
tive contracts. For example, we manage copper,
silver and aluminum price risk using principally
swap contracts based on prices for these com-
modities quoted on leading exchanges. ABB’s
hedging policy is designed to safeguard margins
by minimizing price volatility and providing
a stable cost base during order execution.
In addition to using derivatives to reduce our
exposure to fluctuations in raw materials prices,
in some cases we can reduce this risk by incorpo-
rating changes in raw materials prices into the
prices of our end products (through price escala-
tion clauses).
Overall, during 2020, supply chain management
personnel in our businesses, and in the countries
in which we operate, along with the category
teams, continued to focus on value chain optimi-
zation efforts in all areas, while maintaining and
improving quality and delivery performance. Each
Business Area quickly implemented a COVID-19
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task force both in operations and supply chain
management. The Business Areas experienced
some delays and shortages with suppliers due to
the global pandemic, however we responded to
these shortages and took mitigating actions such
as building up larger buffer stocks, approving
new suppliers, changing supplier splits, combined
with daily, weekly and monthly task force project
follow up. We have been able to operate without
significant disruption and support business
growth while maintaining delivery schedules to
our customers.
In August 2012, the SEC issued its final rules
regarding “Conflict Minerals”, as required by
section 1502 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act. We initi-
ated conflict minerals processes in 2013 and have
continuously aimed at improving and tailoring the
processes to our value chain. We continue to work
with our suppliers and customers, to enable us to
comply with the rules and disclosure obligations.
Further information on ABB’s Conflict Minerals
policy and supplier requirements can be found
under “Material Compliance” at global.abb/
group/en/about.supplying.
—
Patents and trademarks
While we are not materially dependent on any one
of our intellectual properties, as a technology-
driven company, we believe that intellectual
property rights are crucial to protect the assets
of our business. Over the past ten years, we have
continued to substantially add new applications
to our existing first patent filings, and we intend
to continue our aggressive approach to seeking
patent protection. As of December 31, 2020, we
have approximately 23,900 patent applications
and registrations, of which approximately 5,300
are pending applications. These patents include
more than 3,100 utility model and design applica-
tions and registrations, of which approximately
250 are pending applications. In 2020, we filed
more than 1,600 patents, utility model and design
applications for more than 600 new inventions.
Based on our existing intellectual property strat-
egy, we believe that we have adequate control
over our core technologies. The “ABB” trademarks
and logo are protected in all of the countries in
which we operate. We aggressively defend our
intellectual property rights to safeguard the
reputation associated with the ABB technology
and brand. While these intellectual property
rights are fundamental to all of our businesses,
there is no dependency of the business on any
single patent, utility model or design application.
—
Management overview
The year 2020 was unprecedented due to the
COVID 19 pandemic. ABB prioritized the health
and safety of its employees while ensuring busi-
ness continuity where possible. ABB responded to
the challenges, adapting its operations to keep
the vast majority running during various levels of
government restrictions. This response allowed
ABB to stay close to customers and to keep, where
possible, to order delivery deadlines, particularly
for critical infrastructure applications. Going
forward we look to retain some portion of the
more beneficial learnings from COVID-19, for
example, by enhancing flexible working arrange-
ments and encouraging more virtual meetings
with customers.
During 2020, additional steps were taken to
sustainably improve ABB’s future operating
performance. Some of the key actions include the
launch of the ABB Purpose, implementing the
operating model the ABB Way, which increases
accountability, transparency and speed by
transferring operating decisions closer to cus-
tomers, a review of the business portfolio as well
as a review of the digital strategy.
The ABB Purpose
The ABB Purpose was launched mid-year in 2020
and captures what we stand for today and what
we aspire to be in the future. We believe that
ABB’s technologies and products are well aligned
to key market trends and customer needs such as
the electrification of transport, automated
manufacturing, digital solutions and increased
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sustainable productivity. The Group is trusted by
customers, holding number 1 or number 2 market
share positions in most of the segments in which
we operate. With our Purpose at the core, ABB
strives to create superior value for customers,
employees and shareholders. The ABB Purpose is
summarized as:
• We succeed by creating superior value.
• We push the boundaries of technology to drive
performance to new levels.
• We energize the transformation of society and
industry to achieve a more productive,
sustainable future.
The ABB Way
Under the ABB Way, we further evolve our decen-
tralized business model in order that the mandate
and accountability lie in our Divisions, strengthen-
ing performance management, consistently
putting stability and profitability before growth,
and driving active portfolio management.
The ABB Way comprises of a select number of
common processes covering our business model,
our people and culture, the ABB brand and our
governance framework. It sets the stage for
accountability, transparency and speed at ABB.
Closeness to customers and domain expertise sit
in the Divisions, hence under the ABB Way the
Divisions have been made the highest level at
which operating decisions are made, prioritizing
stability and profitability before growth.
A Division should not focus fully on growth before
having achieved a structurally stable business
platform and a profitability level contributing to
the Group’s targeted financial framework.
Each Division within the four Business Areas of
Electrification, Industrial Automation, Motion and
Robotics & Discrete Automation, now has full
accountability for its results of operations and
operating balance sheet. Each Division carries the
responsibility for business development and
research and development for leading technology
to secure a number 1 or 2 market position.
The Divisions are free to collaborate where it adds
efficiency, for example by sharing select business
services or administrative functions. In line with
this accountability, commencing in 2021 there will
no longer be any shared services or functions
operated centrally at a corporate level requiring
cost allocations to the Business Areas. The corpo-
rate area will focus on necessary financial,
strategic and governance activities, with a re-
duced headcount of less than 1,300 employees.
Over the past two years, simplification efforts
have delivered meaningful cost benefits to the
Group such that by the end of 2020, we achieved
net annual run rate cost savings exceeding
$500 million.
Strong performance management is key in a
decentralized business model. In the middle of
2020, a new scorecard system for the Divisions
and Business Areas was introduced, based
on a standardized set of Key Performance Indica-
tors. The system aids continuous improvement by
increasing transparency and accountability. It is
accompanied by a mandatory target to make
annual productivity improvements of at least
3 percent each year.
Starting in 2021, the Annual Incentive Plans (AIPs)
will be aligned to Business Area and Divisional
mandates for stability and profitability before
growth. For example, AIP targets in a growth
Division will have a higher weighting toward the
delivery of targeted orders or revenues growth, as
well as the mandatory 3 percent productivity
improvement.
Business portfolio review
We have further strengthened our portfolio
review process to ascertain whether ultimately
ABB is the best owner of businesses. Our
systematic approach is based on multiple factors
within the three evaluation categories: strategic
attractiveness, value creation potential and fit
within ABB. During 2020, the Group’s continuous
portfolio review process resulted in a decision to
sell the businesses operated by three Divisions:
Turbocharging in Industrial Automation,
Mechanical Power Transmission in Motion, and
Power Conversion in Electrification. Combined,
these Divisions generated approximately
$1.6 billion revenues in 2020, or about 6 percent of
total revenues. The divestment process will focus
on seeking the best value-accretive solution for
ABB and those businesses with time being a
critical factor.
In addition, ABB’s active portfolio management
process will drive decisions within the Divisions
to improve or exit areas of underperformance,
supporting improved performance ambitions.
Further, the Group intends to pursue strategic
partnerships as well as bolt-on acquisitions, and
plans to complete five or more such transactions
each year, mainly in our Divisions with growth
mandates.
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Digital strategy
In line with our Purpose, the Group’s digital strat-
egy is focused on creating superior customer
value. Our digital offering is comprised of
software-enabled products and systems, as well
as software and digital services, and is differenti-
ated through our domain expertise. Our deep
understanding of customers’ needs and opera-
tions is based on decades-long history
in a sector-focused approach, our large installed
base and the global leadership position we have in
many sectors.
We intend to accelerate the expansion of our
digital offering that is tailored to specific sectors
or applications. In line with the ABB Way this will
be led by our businesses that have already suc-
cessfully developed a comprehensive digital
offering.
Our digital strategy drives new revenues in soft-
ware and digital services that generally
have a higher gross margin and additionally
pull-through some of our traditional offering.
Overall, this results in higher quality of revenues
for the Group with improved margins and supe-
rior returns.
We continue to right-size our investments in
technology according to the need of each Divi-
sion. In 2020, we spent 4.3 percent of our
revenues on non-order related research and
development. Within our research and develop-
ment spend, we expect the focus on digitalization
will grow. Already, out of approximately 7,000
employees in research and development, more
than 60 percent are focused on software and
digitalization. Our ambition is to grow revenues
derived from software and digital services
at a double-digit rate going forward.
Business progress
During 2020, our financial performance was
impacted by challenging general market condi-
tions, influenced by the effects of the COVID-19
pandemic. At the same time, we focused on
accelerating cost mitigation efforts, which aided
profitability and cash flow generation during
a tough period. Throughout the COVID-19 pan-
demic, our top priority has been the health and
safety of our people. Substantially all of our
production facilities have remained fully or partly
operational and operations have been adapted as
necessary for the new environment.
Orders and revenues declined in all Business
Areas driven by pandemic induced headwinds and
the steep drop in the oil price. Demand decreased
year-on-year in all regions with the Americas
seeing the largest declines, while AMEA was
almost flat due to strength in China particularly
towards the end of the year. While short-cycle
product demand recovered relatively quickly from
the sharp downturn seen at the onset of the
pandemic, project and service activities contin-
ued through the year to be impacted by various
travel restrictions implemented by countries
around the world. As a result, the Electrification
and Motion Business Areas, which are both more
product-focused, showed a relatively resilient
performance with annual orders in 2020 declining
9 and 3 percent respectively. Portfolio changes
adversely affected Electrification by about 3
percent. Industrial Automation and Robotics &
Discrete Automation faced greater challenges in
end-markets such as oil and gas, conventional
power generation, marine and automotive.
As a result, annual orders in Robotics & Discrete
Automation declined 12 percent, while Industrial
Automation, benefiting from a few significant
large orders in Marine, declined 4 percent in 2020.
Despite the market challenges faced by the Group
during 2020, our order backlog increased 7
percent.
Group profitability showed good resilience,
reflecting cost reductions in all Business Areas,
strong progress in Electrification with the inte-
gration of the GEIS business and turnaround of
the Installation Products Division, and cost sav-
ings achieved through the ABB OS program,
particularly corporate costs declining, as well as
the elimination of stranded costs. A significant
amount of our cost reductions were due to
COVID-19 restrictions, especially for discretionary
travel and certain marketing costs. The Motion
Business Area maintained its track record of solid
performance benefitting from a change in
product mix as well as cost savings efforts.
Conversely, in the Industrial Automation Business
Area, the segment profit was negatively impacted
by the amount recorded relating to the settlement
in South Africa with Eskom in relation to the
Kusile power generation project, as well as by an
adverse change in product mix due to reduced
service revenues. Profitability in the Robotics &
Discrete Automation Business Area was impacted
by lower volumes and an adverse change in
product mix stemming from the continued down-
turn in its key end-markets such as automotive.
Within the Electrification Business Area, the
integration of GEIS progressed well. Since the
acquisition in 2018, we aim to deliver approxi-
mately $200 million of cumulative annual cost
synergies by 2022, of which approximately
80 percent is anticipated to come from product
and technology portfolio harmonization and
footprint optimization. To support this
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transformation, we plan to expend approximately
$410 million for the GEIS business from the acqui-
sition date through 2022 and have, to date, spent
approximately $300 million. By the end of 2020,
more than $140 million of cost synergies have
been achieved including the effects from a closure
of 18 sites, primarily production plants as well as
certain service facilities. Product substitutions
were on track with 52 new products introduced to
the market in 2020.
launched a share buyback program on
July 23, 2020. As part of our plan to return cash
proceeds of $7.6 – 7.8 billion from the sale of the
Power Grids business we initially intend to buy up
to 10 percent of our issued share capital. This
initial program is planned to continue until our
AGM on March 25, 2021. At the AGM, we intend to
request shareholder approval to cancel the shares
purchased through this initial program and to
announce the next steps.
Several acquisitions and divestments were com-
pleted in 2020, strengthening our portfolio. In
March 2020, the Electrification Business Area
acquired a majority stake in Shanghai Chargedot
New Energy Technology Co., Ltd, a leading
Chinese e-mobility solution provider, and
acquired Cylon Controls Ltd, enhancing its Smart
Buildings portfolio in the commercial buildings
segment. In October 2020, the Robotics & Dis-
crete Automation Business Area acquired Codian
Robotics B.V., a leading provider of delta robots,
which are used primarily for high-precision pick
and place applications. Codian Robotics’ offering
includes
a hygienic design line, ideal for hygiene-sensitive
industries including food and beverage and
pharmaceuticals. Additionally, we completed the
previously announced divestment of the solar
inverters business to FIMER S.p.A (Italy) in
February 2020.
We continued to make organic growth invest-
ments in a disciplined manner, prioritizing
research and development while reducing admin-
istrative costs. Total non-order related research
and development was $1.1 billion in 2020, or
4.3 percent of revenues.
Capital allocation
The Board of Directors is proposing a dividend of
0.80 Swiss francs per share at the 2021 Annual
General Meeting (AGM).
Our sustained 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.
Following the completion of the divestment of
our Power Grids business to Hitachi on
July 1, 2020, and consistent with our overall
capital structure optimization program, we
As part of a capital structure optimization pro-
gram, we have also been reviewing our
outstanding debt and defined benefit pension
structures during 2020. As a result, we executed
public tenders on two outstanding bonds and
redeemed and repaid outstanding amounts on
two other debt obligations. During 2020, we
reduced our total debt by approximately
$2.9 billion and completed the transfer of certain
of the Group’s defined benefit pension plan
obligations to third parties, which contributed
to a reduction in pension underfunding by ap-
proximately $1.1 billion. In connection with these
transactions we recorded losses on extinguish-
ment of debt of $162 million and non-operational
pension costs of $520 million. These transactions
are an efficient way to deleverage, significantly
reducing the underfunding of our pension liabili-
ties while reducing potential negative future cash
flow and income statement impacts, and improve
our financial flexibility.
Short-term outlook
Market uncertainty due to COVID-19 increased
through the fourth quarter of 2020. The outlook
remains muted for segments such as oil and gas,
conventional power generation and marine, while
raw materials costs are rising. That said, there are
signs of positive development in general industry
and machine builders’ segments, while
end-markets including buildings, distribution
utilities, data centers, consumer electronics and
food and beverage are expected to grow robustly.
Financial framework mirrors
ambition for improved
performance
During 2020, we have taken resourceful action to
sustainably improve the performance of ABB. We
look to improve the quality of revenues, investing
to expand the Group’s exposure to high-growth
segments and the distributor channel, as well as
to expand our digital offering, while continuing to
exit high-risk EPC activities. We have increased
accountability, transparency and speed in
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decision making by transferring responsibilities
to our Divisions. This is reflected in the targets
within our financial framework, which guides to:
growth, and approximately one-third from
acquired growth,
• Operational EBITA margin of 13 to 16 percent,
• Return on Capital Employed (ROCE) of 15 to
• 3 to 5 percent annual average revenues growth
20 percent,
through economic cycle, of which approximately
two-thirds is anticipated to come from organic
• Cash conversion to net income of approximately
100 percent, and
• Basic EPS growth above revenue growth.
—
Application of critical accounting
policies
General
We prepare our Consolidated Financial State-
ments 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 as-
sumptions 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.
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 Consoli-
dated Financial Statements. We also deem an
accounting policy to be critical when the applica-
tion 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 Finan-
cial 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 ser-
vices. 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 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 circum-
stances 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:
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• 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
remaining lifetime of the inactive plan partici-
pants 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.
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 con-
tracts are recognized in the period when they are
identified and are based upon the anticipated
excess of contract costs over the related contract
revenues.
Pension and other
postretirement benefits
As more fully described in “Note 17 - Employee
benefits” to our Consolidated Financial State-
ments, 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 deter-
mine 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 assump-
tions 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
We use actuarial valuations to determine our
pension and postretirement benefit 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 in-
crease in the PBO and in pension costs.
Conversely, an increase in the discount rates
results in a decrease in the PBO and in pension
costs. The mortality assumptions are reviewed
annually by management. Decreases in mortality
rates result in an increase in the PBO and in pen-
sion 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 $300 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
$289 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 2020 by $24 million.
The funded status, which can increase or decrease
based on the performance of the financial mar-
kets or changes in our assumptions, does not
represent a mandatory short-term cash obliga-
tion. Instead, the funded status of a defined
benefit pension plan is the difference between
the PBO and the fair value of the plan assets. At
December 31, 2020, our defined benefit pension
plans were $656 million underfunded compared
to an underfunding of $1,751 million at December
31, 2019. Our other postretirement plans were
underfunded by $98 million and $110 million at
December 31, 2020 and 2019, respectively.
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We have multiple non-pension postretirement
benefit plans. Our health care plans are generally
contributory with participants’ contributions
adjusted annually. For purposes of estimating our
health care costs, we have assumed health care
cost increases to be 5.9 percent per annum for
2021, gradually declining to 4.9 percent per
annum by 2028 and to remain at that level
thereafter.
Income taxes
In preparing our Consolidated Financial State-
ments, we are required to estimate income taxes
in each of the jurisdictions in which we operate.
Tax expense from continuing operations is recon-
ciled 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 juris-
dictions”) and has already been subject to
corporate income tax in those foreign jurisdic-
tions 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 subsidiar-
ies. 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 predomi-
nantly earned outside of Switzerland, corporate
income tax in foreign jurisdictions largely deter-
mines 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 recog-
nize a deferred tax asset when it is more likely
than not that the asset will be realized. We regu-
larly 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 allow-
ance within “Income tax expense” in the
Consolidated Income Statements unless the
change relates to discontinued operations, in
which case the change is recorded in “Income
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 distribut-
ing them. No deferred tax liability is set up, if
retained earnings are considered as indefinitely
reinvested, and used for financing current opera-
tions 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. 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 pro-
cesses, 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
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ultimate settlement. The required amount of
provisions for contingencies of any type may
change in the future due to new developments.
Business combinations
The amount of goodwill initially recognized
in a business combination is based on the excess
of the purchase price of the acquired company
over the fair value of the assets acquired and
liabilities assumed. The determination of these
fair values requires us to make significant esti-
mates and assumptions. For instance, when
assumptions with respect to the timing and
amount of future revenues and expenses associ-
ated with an asset are used to determine its fair
value, but the actual timing and amount differ
materially, the asset could become impaired. In
some cases, particularly for large acquisitions, we
may engage independent third-party appraisal
firms to assist in determining the fair values.
Critical estimates in valuing certain intangible
assets include but are not limited to: future
expected cash flows of the acquired business,
brand awareness, customer retention, technology
obsolescence and discount rates.
In addition, uncertain tax positions and
tax-related valuation allowances assumed in
connection with a business combination are
initially estimated at the acquisition date. We
re-evaluate these items quarterly, based upon
facts and circumstances that existed at the
acquisition date with any adjustments to our
preliminary estimates being recorded to goodwill
provided that we are within the twelve-month
measurement period. Subsequent to the mea-
surement period or our final determination of the
tax allowance’s or contingency’s estimated value,
whichever comes first, changes to these uncertain
tax positions and tax-related valuation allow-
ances will affect our income tax expense in our
Consolidated Income Statements and could
have a material impact on our results of opera-
tions and financial position. The fair values
assigned to the intangible assets acquired are
described in “Note 4 - Acquisitions, divestments
and equity-accounted companies” as well as
“Note 11 - Goodwill and intangible assets”, to our
Consolidated Financial Statements.
Investments in equity-
accounted companies
We account for investments where we have the
ability to exercise significant influence, but not
control, under the equity method of accounting.
Income from equity-accounted companies rep-
resents our proportionate share of net income
generated by the equity-accounted investees.
Differences in the basis of the investments and
the separate net asset value of the investees, if
any, are amortized into net income over the
remaining useful lives of the underlying assets.
Similar to the “Business combinations” section
above, in determining the fair value of these
investments, judgements and assumptions are
inherent in our estimates of (i) future revenues,
expenses and cash flows, (ii) discount rates, and
(iii) the valuation of certain intangible assets, etc.
Investments in equity-accounted companies are
assessed for impairment whenever changes in the
facts and circumstances indicate a loss in value
has occurred, if the loss is deemed to be other
than temporary. When the loss is deemed to be
other than temporary, the carrying value of the
equity method investment is written down to fair
value. See “Note 4 - Acquisitions, divestments and
equity-accounted companies”, to our Consoli-
dated Financial Statements for details of our
investments in equity-accounted companies.
Goodwill and intangible assets
We review goodwill for impairment annually as of
October 1, or more frequently if events or circum-
stances indicate the carrying value may not be
recoverable. We use either a qualitative or quanti-
tative assessment method for each reporting
unit.
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, the reporting unit’s
weighted-average cost of capital, the income tax
rate and the terminal growth rate.
We adopted ABB’s new operating model, the ABB
Way, on July 1 2020, which resulted in a change to
the composition of reporting units. Previously,
the reporting units were the same as the operat-
ing segments for Electrification, Motion and
Robotics & Discrete Automation, while for the
Industrial Automation operating segment the
reporting units were determined to be at the
Division level, which is one level below the operat-
ing segment. The ABB Way provides the Divisions
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115
with full ownership and accountability for their
respective strategies, performance and resources
and as a result we concluded that our reporting
units would then be the 18 Divisions. This change
resulted only in an allocation of goodwill within
the operating segments and thus there was no
change to segment level goodwill.
As a result of the new composition of the report-
ing units and reallocation of goodwill, an interim
quantitative impairment test was conducted
before and after the change as of July 1, 2020. In
the “before” test, it was concluded that the fair
value of our reporting units exceeded the carrying
value under the historical reporting unit
structure.
We then performed the impairment test immedi-
ately after the change in reporting units and the
fair value of each was determined using a dis-
counted cash flow fair value estimate based on
objective information at the measurement date.
The significant assumptions used to develop the
estimates of fair value for each reporting unit
included our best estimates of the expected
future results and discount rates specific to the
reporting unit. Determining the projected future
cash flows required significant judgments and
estimates involving variables such as future sales
volumes, sales prices, production and other
operating costs, capital expenditures, net work-
ing capital requirements and other economic
factors such as the continued impact of the
COVID-19 pandemic. The fair value estimates were
based on assumptions that we believed to be
reasonable, but which were inherently uncertain
and thus, actual results may differ from those
estimates. Sensitivity analyses were performed
around certain of these assumptions in order to
assess the reasonableness of the assumptions
and the resulting estimated fair values.
The interim quantitative impairment test indi-
cated that, with the exception of the Machine
Automation reporting unit within the Robotics &
Discrete Automation operating segment, the
estimated fair values of our reporting units were
substantially in excess of their carrying value. The
contraction of the global economy in 2020,
particularly in end-customer industries and
considerable uncertainty around the continued
pace of macroeconomic recovery generally led
to a reduction in the fair values of the reporting
units, thus also affecting the Machine Automation
reporting unit. At the Division level, this reporting
unit does not benefit from shared cash flows
generated within an entire operating segment. In
addition, the book value of the Machine Automa-
tion Division includes a significant amount of
intangible assets recognized in past acquisitions,
resulting in a proportionately higher book value
than the other reporting unit within the Robotics
& Discrete Automation Business Area. These
factors led to the carrying value of the Machine
Automation reporting unit exceeding its fair
value. During 2020, a goodwill impairment charge
of $290 million was recorded to reduce the carry-
ing value of this reporting unit to its implied fair
value. The remaining goodwill for the Machine
Automation reporting unit was $554 million as of
December 31, 2020. Since the carrying value of
this reporting unit was reduced to its fair value as
of July 1, 2020, any material adverse changes such
as market deterioration or changes in the com-
petitive landscape could result in future
impairment charges.
At October 1, 2020 and 2019, respectively, we
performed qualitative assessments and deter-
mined that it was not more likely than not that the
fair value for each of these reporting units was
below the carrying value. As a result, we con-
cluded that it was not necessary to perform the
quantitative impairment test.
Intangible assets are reviewed for recoverability
upon the occurrence of certain triggering events
(such as a decision to divest a business or pro-
jected losses of an entity) or whenever events or
changes in circumstances indicate that the carry-
ing 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 “Income from discon-
tinued 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.
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—
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 2020, we invested $1,127 million,
or approximately 4.3 percent of our 2020 consoli-
dated revenues, on research and development
activities in our continuing operations. We also
had expenditures of $46 million, or approximately
0.2 percent of our 2020 consolidated revenues, 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,
such as our ABB Ability™ platform. 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 hold-
ing 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, elec-
trodynamics or 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 in
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 collabo-
rate 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 collaborations in
several continents, including long-term, strategic
relationships with a number of leading institu-
tions in the U.S., the United Kingdom, Sweden,
Germany, Switzerland, Poland, India and China.
We are also leveraging our ecosystem to enhance
our innovation efforts and gain speed with strate-
gic 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. Technology has been
deeply embedded in our DNA since our founding
and has carried us through our century-long
history. It is one of the main reasons why custom-
ers and partners turn to us for help on their
biggest challenges. Together with them, we
continuously push technology frontiers to make
things possible that were not possible before. We
are committed to stay ahead to help our custom-
ers address the world’s energy challenges,
transform industries to reach new levels of per-
formance and embed sustainability, all to leave
behind a world for future generations that is at
least as healthy and prosperous as the one we
inherited.
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—
Acquisitions and divestments
Acquisitions
There were no significant acquisitions in 2020 or
2019.
Divestments
Divestment of Power Grids
On July 1, 2020, ABB completed the divestment of
80.1 percent of its former Power Grids business to
Hitachi. As this divestment represented a strate-
gic shift that had a major effect on the Company’s
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.
no consideration. Under the agreement, which
was reached in July 2019, ABB was obligated to
transfer $143 million of cash to the buyer on the
closing date. In addition, further payments total-
ing EUR 132 million ($145 million at the divestment
date) are required to be transferred to the buyer
from 2020 through 2025. In connection with this
divestment, in 2019, we recorded a loss of
$421 million, representing the excess of the
carrying value over the estimated fair value of this
business. In 2020, a further $33 million was
recorded for additional changes in fair value
occurring prior to the date of sale. Both amounts,
in the respective years are reported in “Other
income (expense), net”. The assets and liabilities
of this business are included within assets and
liabilities held for sale in our Consolidated Balance
Sheet as at December 31, 2019. For more informa-
tion on assets held for sale, see “Note 4 -
Acquisitions, divestments and equity-accounted
companies” to our Consolidated Financial
Statements.
Divestment of solar inverters
Other
In February 2020, ABB completed the sale of its
solar inverters business to FIMER S.p.A. (Italy) for
In 2019, we recorded net gains (including transac-
tion costs) of $55 million, primarily due to the
divestment of two businesses in China.
—
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 conse-
quence, 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 cur-
rency exchange rates. Income statement and cash
flow items are translated to USD using the rele-
vant 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 signifi-
cantly 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 be-
tween 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
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CNY at December 31, 2020, 2019 and 2018, were as
follows:
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 inclu-
sion 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 exclu-
sively 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. In-
stead, 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 fac-
tors 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 mea-
sures that have the same or a similar title. We
encourage investors to review our financial state-
ments and publicly filed reports in their entirety
and not to rely on any single financial measure.
Exchange rates into $
2020
2019
2018
EUR 1.00
CHF 1.00
CNY 1.00
1.23
1.14
0.15
1.12
1.03
0.14
1.15
1.02
0.15
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, 2020,
2019 and 2018, were as follows:
Exchange rates into $
2020
2019
2018
EUR 1.00
CHF 1.00
CNY 1.00
1.14
1.07
0.14
1.12
1.01
0.14
1.18
1.02
0.15
When we incur expenses that are not denomi-
nated 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 2020, approximately 76 percent of our consoli-
dated revenues were reported in currencies other
than the USD. The following percentages of
consolidated revenues were reported in the
following currencies:
• Euro, approximately 23 percent, and
• Chinese renminbi, approximately 15 percent.
In 2020, approximately 74 percent of our cost of
sales and selling, general and administrative
expenses were reported in currencies other than
the USD. The following percentages of consoli-
dated cost of sales and selling, general and
administrative expenses were reported in the
following currencies:
• Euro, approximately 22 percent, and
• Chinese renminbi, approximately 13 percent.
—
Orders
Our policy is to book and report an order
when a binding contractual agreement has been
concluded with a customer covering, at a mini-
mum, 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
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119
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 modi-
fied by the customer. These actions can reduce or
delay any future revenues from the order or may
result in the elimination of the order.
—
Transactions with affiliates and
associates
In the normal course of our business, we purchase
products from, sell products to and engage in
other transactions with entities in which we hold
an equity interest. The amounts involved in these
transactions are not material to ABB Ltd. Also, in
the normal course of our business, we engage in
transactions with businesses that we have di-
vested. We believe that the terms of the
transactions we conduct with these companies
are negotiated on an arm’s length basis.
—
Performance measures
We evaluate the performance of our operating
segments based on orders received, revenues and
Operational EBITA.
Operational EBITA represents income from opera-
tions 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),
• changes in estimates relating to opening
balance sheets of acquired businesses (changes
in pre-acquisition estimates),
• 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,
• other income/expense relating to the Power
Grids joint venture,
• 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
(including impairment of goodwill) and certain
other fair value changes, 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.
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—
Analysis of results of operations
The discussion in the following sections below
provides a comparative analysis between 2020
and 2019. See the sections under “Operating and
financial review and prospects” in our 2019 Annual
Report for a comparative discussion and analysis
between 2019 and 2018.
Our consolidated results from operations were as
follows:
A more detailed discussion of the orders, reve-
nues, income from operations and Operational
EBITA for our Business Areas follows in the sec-
tions of “Business analysis” below for
Electrification, Industrial Automation, Motion,
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.
2020
2019
2018
26,134
27,978 27,662
Orders
(18,256) (19,072) (19,118)
7,878
8,906
8,544
(4,895)
(5,447)
(5,295)
Electrification
11,884
13,050 11,867
(9)%
($ in millions)
2020
2019
2018
2020
Income statement data:
($ in millions, except
per share data in $)
Revenues
Cost of sales
Gross profit
Selling, general and
administrative expenses
Non-order related research and
development expenses
(1,127)
(1,198)
(1,147)
Impairment of goodwill
(311)
—
Other income (expense), net
48
(323)
—
124
Income from operations
1,593
1,938
2,226
Interest and dividend income
51
67
72
Interest and other finance
expense
Losses from extinguishment of
debt
Non-operational pension (cost)
credit
Income tax expense
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
Net income attributable to
noncontrolling interests
(240)
(215)
(262)
(162)
(401)
(496)
—
72
—
83
(772)
(544)
345
1,090
1,575
4,860
438
723
5,205
1,528
2,298
(59)
(89)
(125)
Net income attributable to ABB
5,146
1,439
2,173
Amounts attributable
to ABB shareholders:
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
294
1,043
1,514
4,852
396
659
5,146
1,439
2,173
Basic earnings per share attributable
to ABB shareholders:
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
0.14
0.49
0.71
2.30
2.44
0.19
0.67
0.31
1.02
Diluted earnings per share attributable
to ABB shareholders:
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
0.14
0.49
0.71
2.29
2.43
0.19
0.67
0.31
1.02
% Change
2019
10%
(4)%
1%
Industrial
Automation
6,144
6,432
6,697
Motion
6,574
6,782
6,725
(4)%
(3)%
Robotics &
Discrete
Automation
Total Business
Areas
2,868
3,260
3,808
(12)% (14)%
27,470
29,524 29,097
(7)%
1%
Corporate and Other
(31)
(91)
364
n.a.
n.a.
Non-core and
divested
businesses
Intersegment
eliminations
and other
(927)
(845)
(871)
n.a.
Total
26,512 28,588 28,590
(7)%
n.a.
0%
In 2020, total orders decreased 7 percent com-
pared to 2019 (7 percent in local currencies). Total
orders reflect the decline across all Business
Areas as the COVID-19 pandemic affected most of
our businesses across all regions. Measures taken
by governments worldwide to contain the virus
severely restrained investments, travel and con-
sumption. The decrease was most significant in
the Robotics & Discrete Automation Business
Area, recording a significant decrease in orders
due to COVID-19 disruptions and strong head-
winds in discrete markets. The order decrease in
the Electrification, Industrial Automation and
Motion Business Areas was moderate. The decline
in orders was most significant in the second
quarter of the year, with variable recovery levels
during the second half of 2020. In particular, in the
Asia, Middle East and Africa region, order levels
showed signs of a full recovery by the end of 2020
in most businesses. For additional information
about individual Business Area order perfor-
mance, refer to the relevant sections of “Business
analysis” below.
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121
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:
($ in millions)
2020
2019
2018
2020
Europe
9,618
10,509 10,725
(8)%
The Americas
7,956
9,057
8,243 (12)%
2019
(2)%
10%
5,971
6,804
6,135
(12)%
11%
8,938
9,022
9,622
(1)%
(6)%
of which:
United States
Asia, Middle
East and Africa
of which:
China
4,121
4,118
4,201
0%
Total
26,512 28,588 28,590
(7)%
In 2020, orders declined in all regions, reflecting
the global impact of the COVID-19 pandemic. In
the Americas orders declined 12 percent (11 per-
cent in local currencies) and declined in all
Business Areas. Orders declined in the U.S.,
Canada, Brazil, Mexico, Argentina and Peru, while
they remained flat in Chile, driven by large orders
in the Industrial Automation Business Area. In
Europe, orders decreased 8 percent (9 percent in
local currencies) with all Business Areas reporting
order declines. Orders decreased in Germany,
Switzerland, Italy, Finland and Norway while they
increased in most Business Areas in Sweden,
reflecting lighter local COVID-19 restrictions. In
Asia, Middle East and Africa orders declined
1 percent (1 percent in local currencies) and were
lower in the Robotics & Discrete Automation and
Electrification Business Areas, while in the Indus-
trial Automation and Motion Business Areas
orders increased, driven by the growth in China.
Total orders decreased in India, Singapore and
Japan while they increased in South Korea and
Australia driven by large orders in the Motion and
Industrial Automation Business Areas. Orders
from China remained flat.
% Change
Motion
3,320
2,967
2,740
Order backlog
($ in millions)
2020
2019
2018
2020
2019
December 31,
% Change
Electrification
4,358
4,488
4,113
(3)%
Industrial
Automation
5,805
5,077
4,986
9%
2%
8%
14%
12%
Robotics &
Discrete
Automation
Total Business
Areas
1,403
1,356
1,438
3%
(6)%
14,886
13,888 13,277
7%
5%
Corporate and Other
Non-core and
divested
businesses
Intersegment
eliminations
(2)%
0%
139
192
555
(28)% (65)%
(722)
(756)
(748)
Total
14,303
13,324 13,084
n.a.
7%
n.a.
2%
At December 31, 2020, consolidated order backlog
was 7 percent higher (3 percent in local curren-
cies) compared to December 31, 2019. Order
backlog increased significantly in the Industrial
Automation and Motion Business Areas, increased
moderately in Robotics & Discrete Automation
Business Area, while it decreased slightly in the
Electrification Business Area. The increase in the
Motion Business Area was driven by strong order
growth in long-cycle businesses. Order backlog
also increased in the Industrial Automation Busi-
ness Area due to orders relating to specialty
marine vessels. The order backlog in the Robotics
& Discrete Automation Business Area increased
slightly, benefiting from order intake in the 3C
and automotive and automotive-related sectors.
Revenues
% Change
($ in millions)
2020
2019
2018
2020
2019
Electrification
11,924
12,728 11,686
(6)%
9%
Industrial
Automation
5,792
6,273
6,500
Motion
6,409
6,533
6,463
(8)%
(2)%
(3)%
1%
Robotics &
Discrete
Automation
Total Business
Areas
2,907
3,314
3,611
(12)%
(8)%
27,032 28,848 28,260
(6)%
2%
Corporate and Other
(6)
37
273
n.a.
(86)%
Non-core and
divested
businesses
Intersegment
eliminations
and other
(892)
(907)
(871)
n.a.
Total
26,134
27,978 27,662
(7)%
n.a.
1%
In 2020, revenues decreased 7 percent (6 percent
in local currencies). Revenues decreased across all
Business Areas with the impacts of the COVID-19
122
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pandemic resulting in a reduction in business
activity and a substantial drop in book-and-bill
activities. Despite these challenges, revenues in
the Electrification and Motion Business Areas
reflected good execution of the order backlog as
well as resilience in the short-cycle businesses,
particularly in the second half of the year. For
additional analysis of revenues for each of the
Business Areas, refer to the relevant sections of
"Business analysis" below.
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)
2020
2019
2018
2020
2019
Europe
9,764
10,097 10,129
(3)%
The Americas
7,949
8,955
8,042
(11)%
0%
11%
of which:
United States
Asia, Middle
East and Africa
of which:
China
6,027
6,753
6,005
(11)%
12%
8,421
8,926
9,491
(6)%
(6)%
4,098
4,047
4,910
1% (18)%
Total
26,134
27,978 27,662
(7)%
1%
In 2020, revenues decreased across all regions,
reflecting the impact of the COVID-19 pandemic.
In the Americas revenues decreased 11 percent
(9 percent in local currencies) and were lower
across all Business Areas. Revenues declined in
the U.S., Canada, Brazil, Mexico, Argentina, Chile
and Peru. In Europe revenues decreased 3 percent
(4 percent in local currencies), partly due to the
sale of the solar inverters business in 2020. In
Europe, revenues decreased across all Business
Areas except in the Motion Business Area, reflect-
ing lower sales volumes in Germany, Switzerland,
Italy, Norway and the United Kingdom while
revenues grew in Sweden and Finland with robust
execution of orders, especially in short-cycle
businesses and due to lighter COVID-19 restric-
tions in Sweden. In Asia, Middle East and Africa
revenues decreased 6 percent (5 percent in local
currencies) and decreased across all Business
Areas except the Motion Business Area which
remained flat. Revenues decreased in Saudi
Arabia, India, Australia, South Korea and Singa-
pore while they increased in China and in Japan
due to a strong execution of the order backlog
and generally lower lockdown restrictions over
the year, benefiting the Robotics & Discrete
Automation Business Area.
Cost of sales
Cost of sales consists primarily of labor, raw
materials and component costs but also includes
indirect production costs, expenses for warran-
ties, contract and project charges, as well as
order-related development expenses incurred in
connection with projects for which corresponding
revenues have been recognized.
In 2020, cost of sales decreased 4 percent (4 per-
cent in local currencies) to $18,256 million and
cost of sales as a percentage of revenues in-
creased from 68.2 percent to 69.9 percent in
2020, a reduction in the gross margin percentage
of 1.7 percent, partially due to the impact on sales
volumes of the COVID-19 pandemic. The decrease
in gross margin percentage also reflects addi-
tional losses for projects in non-core businesses
and warranty charges relating to a divested
business. In the Business Areas, the gross margin
percentage was steady in the Electrification
Business Area, benefiting from favorable changes
in commodity prices in 2020. Gross margin per-
centages in the Robotics & Discrete Automation
Business Area and the Industrial Automation
Business Area were lower in 2020 compared to
2019, while in the Motion Business Area they were
steady. For ABB, the gross margin did benefit
partially from the results of savings from supply
chain, operational excellence and the results of OS
initiatives.
Selling, general and
administrative expenses
The components of selling, general and adminis-
trative expenses were as follows:
($ in millions)
Selling expenses
General and administrative
expenses
Total
2020
2019
2018
3,087
3,383
3,228
1,808
2,064
2,067
4,895
5,447
5,295
In 2020, general and administrative expenses
decreased by 12 percent compared to 2019
(12 percent in local currencies). As a percentage of
revenues, general and administrative expenses
decreased to 6.9% from 7.4% in 2019. General and
administrative expenses were impacted by
$152 million of restructuring and implementation
expenses for the OS program and administrative
expenses from the integration of the acquired
GEIS business compared to $240 million in 2019.
General and administrative expenses in 2020 did
benefit from a $185 million reduction of stranded
corporate costs compared to 2019 but continues
to include those ongoing costs required to deliver
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services to Hitachi ABB Power Grids under transi-
tion service agreements, for which we are
compensated and recorded $91 million in Other
income and expense, net, during 2020. Stranded
costs were overhead and other management
costs which could previously be allocated to the
Power Grids business and were lower in 2020
as a large portion of the central costs supporting
that business were transferred directly to the
business. We had a decrease of general corporate
function costs, including the impact of a signifi-
cant reduction in travel expenses.
In 2020, selling expenses decreased 9 percent
compared to 2019 (9 percent in local currencies)
mainly driven by significantly reduced sales
activities and related travel expenses as virtual
sales meetings have been introduced to substi-
tute face-to-face customer visits, due to the
COVID-19 pandemic. This resulted in lower selling
expenses across all Business Areas. These factors
resulted in decreasing selling expenses as a
percentage of orders received from 11.8 percent
to 11.6 percent.
Non-order related research and
development expenses
In 2020, non-order related research and develop-
ment expenses decreased 6 percent (7 percent in
local currencies) compared to 2019. Non-order
related research and development expenses
decreased mainly as a result of a reduction in the
number of research and development employees,
due to both restructuring efforts and transfer of
employees to Hitachi ABB Power Grids.
In 2020, non-order related research and develop-
ment expenses as a percentage of revenues
remained unchanged at 4.3 percent compared to
the previous year.
Impairment of goodwill
In 2020, as a result of the new composition of the
reporting units and reallocation of goodwill, we
recorded an impairment charge of $311 million,
the majority of which related to our Machine
Automation Division within the Robotics & Dis-
crete Automation Business Area. See “Note 11
- Goodwill and intangible assets” to our Consoli-
dated Financial Statements.
Other income (expense), net
($ in millions)
2020
2019
2018
Income (loss) from equity-
accounted companies
Income from provision of
services under transition
services agreement
Brand income from Hitachi ABB
Power Grids
Net gain from sale of property,
plant and equipment
Gain (loss) from change in fair
value of investments in equity
securities
Favorable resolution of an
uncertain purchase price
adjustment
Net gain (loss) from sale of
businesses
Gain on liquidation of foreign
subsidiary
Restructuring and
restructuring-related expenses(1)
Fair value adjustment on
assets and liabilities
held for sale
Asset impairments
Other income (expense)
Total
(1) Excluding asset impairments
(66)
8
6
91
60
37
—
—
51
—
—
57
71
(5)
(6)
36
(2)
—
92
55
—
—
57
31
(87)
(69)
(37)
(33)
(35)
(24)
(421)
(56)
22
48
(323)
—
(30)
46
124
In 2020, Other income (expense), net, was a gain
of $48 million while it was a loss of $323 million in
2019. In 2020, the amount includes the brand
income from Hitachi ABB Power Grids and an
income of $91 million related to services provided
to Hitachi ABB Power Grids as part of transitional
service agreements. The amount also includes fair
value adjustments of investments in our
ABB Technology Ventures portfolio of $73 million.
Partially offsetting this were costs for restructur-
ing and restructuring-related expenses, asset
impairments and net losses of $66 million from
equity-accounted companies. The net loss from
equity-accounted companies primarily reflects
the loss from the Hitachi ABB Power Grids joint
venture (see “Note 4 - Acquisitions, divestments
and equity-accounted companies” to our Consoli-
dated Financial Statements for additional
information).
Other income (expense), net in 2019 in-
cluded a loss of $421 million for the fair value
adjustment to the net assets of the solar inverters
business. This was partially offset by a gain of
$92 million resulting from a favorable resolution
of an uncertain purchase price adjustment related
to the acquisition of GEIS.
124
A B B A N N U A L R E P O R T 2 0 2 0
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Income from operations
resulted in losses on extinguishment of debt
totaling $162 million (see “Note 12 - Debt” to our
Consolidated Financial Statements).
% Change
($ in millions)
2020
2019 2018
2020
2019
Electrification
1,335
1,049 1,290
27% (19)%
Industrial
Automation
Motion
Robotics & Discrete
Automation
Total Business
Areas
Corporate
and Other
Intersegment
elimination
344
989
700
853 (51)% (18)%
1,009
924
(2)%
9%
(163)
298
456
n.a.
(35)%
2,505
3,056 3,523 (18)% (13)%
(927)
(1,113) (1,302)
n.a.
n.a.
15
(5)
5
n.a.
n.a.
Total
1,593
1,938 2,226 (18)% (13)%
Non-operational pension (cost)
credit
A non-operational pension cost of $401 million
was incurred in 2020 compared to a $72 million
credit in 2019. In 2020, we incurred charges of
$520 million for certain settlements of interna-
tional pension plans (see "Note 17 - Employee
benefits” to our Consolidated Financial
Statements).
In 2020 and 2019, changes in income from opera-
tions were a result of the factors discussed above
and in "Business analysis" below.
Income tax expense
Financial income and expenses
Financial income and expenses include “Interest
and dividend income”, “Interest and other finance
expense” and “Losses from extinguishment
of debt”.
“Interest and other finance expense” includes
interest expense on our debt, the amortization of
upfront transaction costs associated with
long-term debt and committed credit facilities,
commitment fees on credit facilities, foreign
exchange gains and losses on financial items and
gains and losses on marketable securities. In
addition, interest accrued relating to uncertain
tax positions is included within interest expense.
“Interest and other finance expense” excludes
interest expense which has been allocated to
discontinued operations.
($ in millions)
2020
2019
2018
Interest and dividend income
51
67
72
Interest and other finance
expense
Losses from extinguishment
of debt
(240)
(215)
(262)
(162)
—
—
In 2020, “Interest and other finance expense”
increased compared to 2019. Although we in-
curred lower interest charges on outstanding
debt due to lower interest rates and a reduction
of debt outstanding, this was offset by higher
foreign currency exchange losses.
In 2020, we redeemed the full amount outstand-
ing for two bonds according to the terms of the
instruments and executed public tenders for two
additional bonds resulting in a partial reduction
of the principal outstanding. These transactions
($ in millions)
2020
2019
2018
Income from continuing
operations before taxes
841
1,862
2,119
Income tax expense
(496)
(772)
(544)
Effective tax rate for the year
59.0% 41.5% 25.7%
In 2020, the effective tax rate increased from
41.5 percent to 59.0 percent due to several fac-
tors. First, in 2020, the distribution of income
within the Group resulted in a 5 percent higher
weighted-average global tax rate. Additionally,
the tax rate was negatively impacted by 9 percent
due to the impairment of non-deductible goodwill
and 10 percent due to non-deductible charges
relating to the settlement of certain defined
benefit pension plans in 2020. The rate was also
negatively impacted by 5 percent due to losses
from extinguishment of debt which were incurred
in jurisdictions with a full valuation allowance.
These negative impacts were partially offset by
the favorable resolution of an uncertain tax
position in Asia which reduced the tax rate by
10 percent and the positive impact due to the
reorganization of a business of 2 percent.
In 2019 there were impacts on the effective tax
rate from recording a loss for the planned sale of
the solar inverters business which reduced the
weighted-average global tax rate by approxi-
mately 2 percent and an increase in the effective
tax rate by 6 percent due to a change in a valua-
tion allowance. During 2019, the effective tax rate
also was negatively impacted due to amounts for
the planned divestment of the Power Grids busi-
ness, primarily non-deductible expenses, taxes
payable due to the reorganization of the business
in connection with the planned sale, changes to
valuation allowances and additional taxes for
unremitted earnings. Additionally, the effective
tax rate was also higher due to changes in valua-
tion allowances and changes in taxes due to
A B B A N N U A L R E P O R T 2 0 2 0
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125
entire Power Grids business which is included in
Income from discontinued operations, net of tax.
Included in the net gain was a cumulative transla-
tion loss relating to the Power Grids business of
$420 million which was reclassified from
accumulated other comprehensive loss (see
“Note 21 - Other comprehensive income” to our
Consolidated Financial Statements). Certain
amounts included in the net gain are estimated or
otherwise subject to change in value and,
as a result, we may record additional adjustments
to the gain in future periods which are not
expected to have a material impact on the
Consolidated Financial Statements.
Until the date of the divestment, Income from
discontinued operations excluded certain costs
which were previously able to be allocated to the
former Power Grids business. As a result, $40 mil-
lion and $225 million for 2020 and 2019,
respectively, of allocated overhead and other
management costs (stranded corporate costs),
which were previously able to be included in the
measure of segment profit for the Power Grids
business were reported as part of Corporate
and Other.
The amounts shown in the table above for the
full-year 2020 primarily represent the operations
of the Power Grids business for six months,
compared to a full year of operations for 2019 and
2018. Income from discontinued operations for
2020 and 2019 included income from operations,
before tax, of $5,182 million and $605 million,
respectively. The results in 2020 reflect the unfa-
vorable impact of COVID-19 on the Power Grids
business in the first half of the year, higher ex-
penses when compared to the first half of 2019
and the non-operational pension cost related to
the settlement of a defined benefit pension plan
in 2020. In addition, in 2020 and 2019 we recorded
$322 million and $167 million, respectively, as
income tax expense within discontinued opera-
tions. In 2020, this included $262 million in Income
tax expense within discontinued operations in
connection with the reorganization of the legal
entity structure of the Power Grids business
required to facilitate its sale.
For additional information on the divestment and
discontinued operations see, “Note 3 - Discontin-
ued operations” to our Consolidated Financial
Statements.
interpretation of tax law and double tax treaty
agreements by competent tax authorities. 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, income
from continuing operations, net of tax, in 2020
decreased by $745 million compared to 2019 to
$345 million.
Income from discontinued
operations, net of tax
Income from discontinued operations, net of tax,
in 2020, 2019 and 2018 was as follows:
($ millions)
Total revenues
2020
2019
2018
4,008
9,037
9,698
Total cost of sales
(3,058)
(6,983)
(7,378)
Gross profit
Expenses
Net gain recognized on sale of
the Power Grids business
Income from operations
Net interest and other finance
expense
Non-operational pension (cost)
credit
Income from discontinued
operations before taxes
950
2,054
2,320
(808)
(1,394)
(1,326)
5,141
5,282
—
660
—
994
(5)
(61)
(55)
(94)
5
12
5,182
605
951
Income tax expense
(322)
(167)
(228)
Income from discontinued
operations, net of tax
4,860
438
723
On July 1, 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 have been presented
as discontinued operations for all periods pre-
sented. In addition, consistent with the
presentation of the business as discontinued
operations, during 2019 and up to the sale in
2020, we did not record depreciation or amortiza-
tion on the property, plant and equipment, and
intangible assets reported as discontinued
operations.
In 2020, as a result of the sale of the Power Grids
business, we recognized a net gain of $5,141 mil-
lion, net of transaction costs, for the sale of the
126
A B B A N N U A L R E P O R T 2 0 2 0
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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 exer-
cised, 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.
Net income attributable to ABB
As a result of the factors discussed above, net
income attributable to ABB in 2020 increased by
$3,707 million compared to 2019 to $5,146 million.
Earnings per share attributable
to ABB shareholders
(in $)
2020
2019
2018
Basic earnings per share attribut-
able to ABB shareholders:
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
Diluted earnings per share at-
tributable to ABB shareholders:
Income from continuing
operations, net of tax
Income from discontinued
operations, net of tax
Net income
0.14
0.49
0.71
2.30
2.44
0.19
0.67
0.31
1.02
0.14
0.49
0.71
2.29
2.43
0.19
0.67
0.31
1.02
—
Business analysis
Electrification Business Area
The financial results of our Electrification Busi-
ness Area, including the operations of GEIS which
was acquired in June 2018, were as follows:
customer market data is based partially on man-
agement estimates.
% Change
($ in millions)
2020
2019 2018
2020
2019
Orders
11,884 13,050 11,867
(9)%
10%
Order backlog at
December 31,
Revenues
Income from
operations
4,358
4,488 4,113
(3)%
11,924 12,728 11,686
(6)%
9%
9%
1,335
1,049 1,290
27% (19)%
Operational EBITA
1,681
1,688 1,626
0%
4%
Orders
Approximately two-thirds of the Business Area’s
orders are for products with short delivery times;
orders are usually recorded and delivered within a
three-month period and thus are generally con-
sidered as short-cycle. The remainder of orders is
comprised of smaller projects 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
In 2020, orders decreased 9 percent (9 percent in
local currencies) as the global COVID-19 pandemic
negatively impacted demand across all Divisions.
Measures taken by governments worldwide to
contain the virus severely restrained private
consumption, investment, trade and travel.
Orders decreased 3 percent due to the impact of
the divestment of the solar inverters business in
the first quarter of 2020, as well as the divest-
ment of two joint ventures in China in the end of
2019. Investment in oil and gas related projects
decreased significantly, reflecting the current
economic uncertainty. Demand in the building
segment was significantly impacted by global
lockdowns and COVID-19 related restrictions
across various markets, while residential activi-
ties showed signs of recovery during the fourth
quarter. Commercial and industrial buildings
suffered from weaker market conditions, which
contributed to the overall order decrease. A lower
level of large orders from the utility sector nega-
tively impacted orders in the Distribution
Solutions Division in 2020. The demand for data
A B B A N N U A L R E P O R T 2 0 2 0
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127
centers benefited from a positive momentum
with strong contribution from colocation,
cloud-based customers and hyperscale invest-
ments. Demand for electric vehicle infrastructure
and urban mobility (E-bus, AC-DC chargers, Metro
trains) was strong, with investment in all regions.
Rail investments continued to be robust through-
out the year.
The geographic distribution of orders for our
Electrification Business Area was as follows:
($ in millions)
Europe
The Americas
2020
2019
2018
4,149
4,281
4,225
4,033
4,653
3,771
of which: United States
3,065
3,501
2,746
Asia, Middle East and Africa
3,702
4,116
3,871
of which: China
Total
1,819
1,885
1,776
11,884 13,050 11,867
In 2020, orders decreased in all regions. Orders in
Europe decreased 3 percent (3 percent in local
currencies) as robust order intake in Germany and
Sweden partially compensated lower order vol-
umes in Italy, France and Spain due to the current
market contraction. Demand in Asia, Middle East
and Africa decreased 10 percent (10 percent in
local currencies) despite a recovery in China
during the second half of the year which substan-
tially offset the COVID-19 related order drop in the
first half of the year. The COVID-19 pandemic
impacted total orders in the Americas signifi-
cantly, decreasing 13 percent (12 percent in local
currencies). Orders in the U.S., Brazil and Mexico
decreased substantially. Orders in Canada were
also lower but showed signs of recovery in the
fourth quarter.
Order backlog
In 2020, the order backlog decreased 3 percent
(5 percent in local currencies). The order backlog
decreased 2 percent due to the impact of the
divestment of the solar inverters business in the
first quarter of 2020. The remaining order backlog
decreased by 1 percent, partly due to strong
backlog execution in the Distribution Solutions
Division, but also reflecting the weaker order
intake in most Divisions during the year.
Revenues
In 2020, revenues decreased 6 percent (6 percent
in local currencies). Revenues declined across all
Divisions reflecting the challenging market condi-
tion and operational environment caused by the
COVID-19 pandemic. Revenues decreased 3 per-
cent due to the impact of the divestment of the
solar inverters business in the first quarter of
2020, as well as the divestment of two joint
ventures in China in the end of 2019. Revenues
from long-cycle businesses were impacted by
COVID-19 related execution challenges such as
restrictions to access customer sites, as well as
customer driven delays in receiving finished
goods. Revenues from data centers, e-mobility,
power distribution and mining were more robust
than oil and gas, and conventional power genera-
tion. Revenues from short-cycle product
businesses were negatively affected by COVID-19
and decreased across most end-user segments,
including residential and commercial buildings.
Revenues for the Installation Products and Power
Conversion Divisions, which have a high depen-
dence on the North American market, were
particularly challenged.
The geographic distribution of revenues for our
Electrification Business Area was as follows:
($ in millions)
Europe
The Americas
2020
2019
2018
4,190
4,251
4,136
4,093
4,635
3,715
of which: United States
3,115
3,555
2,724
Asia, Middle East and Africa
3,641
3,842
3,835
of which: China
Total
1,858
1,749
1,752
11,924
12,728 11,686
In 2020, revenues in the Americas were strongly
impacted by the COVID-19 pandemic and de-
creased 12 percent (11 percent in local currencies)
with significant declines in the U.S., Brazil and
Mexico. Revenues in Europe were robust, decreas-
ing 1 percent (2 percent in local currencies). Lower
revenues in Switzerland, Italy and Spain were
partially offset by growth in Germany, Sweden,
Finland and Netherlands. Revenues decreased 5
percent (5 percent in local currencies) in Asia,
Middle East and Africa, as the recovery in China
during the second half of the year could not fully
compensate revenue declines within the region,
such as in India, caused by lower demand and
COVID-19 pandemic driven lockdowns.
Income from operations
In 2020, income from operations increased 27 per-
cent, mainly due to both the comparative loss of
$421 million recognized in 2019 to record the solar
inverters business at fair value net of the higher
gain in 2019 of $92 million relating the receipt of
cash from General Electric for a favorable resolu-
tion of an uncertainty with respect to the price
paid to acquire GEIS. The COVID-19 pandemic
negatively affected the Business Area with lower
revenues, higher costs of underutilized manufac-
turing facilities as well as higher costs for various
necessary safety measures and protective equip-
ment. This was partly offset by government
grants, furlough measures and a significant
reduction of travel and other discretionary ex-
penses. Income from operations in 2020
128
A B B A N N U A L R E P O R T 2 0 2 0
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benefited from a reduction in acquisition-related
expenses and integration costs compared to
2019, mainly relating to GEIS. The Business Area
also benefited from lower commodity prices in
2020, although commodity headwinds gradually
increased during the year. Product pricing actions
across the product businesses and the benefits of
savings realized from ongoing restructuring and
cost savings programs also had a positive impact
on operating margins. However, the Distribution
Solutions Division experienced negative impacts
from pricing pressure, and OS related implemen-
tation costs were higher in 2020 compared to
2019. Restructuring related expenses in our
operating Divisions were steady, and changes in
foreign currencies, including the impacts from
FX/commodity timing differences, had no signifi-
cant impact on 2020 compared to 2019.
Operational EBITA
The reconciliation of Income from operations to
Operational EBITA for the Electrification Business
Area was as follows:
($ in millions)
2020
2019
2018
Income from operations
1,335
1,049
1,290
Acquisition-related amortization
115
115
106
Restructuring, related and
implementation costs
Changes in obligations related to
divested businesses
Changes in pre-acquisition
estimates
Gains and losses from sale of
businesses
145
112
15
11
—
22
98
—
19
4
(42)
(81)
Fair value adjustment on assets
and liabilities held for sale
33
421
Favorable resolution of an
uncertain purchase price
adjustment
Acquisition- and divestment-
related expenses and integration
costs
Certain other non-operational
items
FX/commodity timing
differences in income from
operations
—
—
(36)
(92)
71
119
168
9
3
(2)
(21)
(19)
28
Operational EBITA
1,681
1,688
1,626
In 2020, Operational EBITA remained flat (1 per-
cent lower excluding the impacts from changes in
foreign currencies) compared to 2019, primarily
due to the reasons described under “Income from
operations”, excluding the explanations related to
the reconciling items in the table above.
Industrial Automation Business
Area
The financial results of our Industrial Automation
Business Area were as follows:
($ in millions)
2020
2019 2018
2020
2019
Orders
6,144
6,432 6,697
(4)%
(4)%
% Change
Order backlog at
December 31,
Revenues
Income from
operations
Operational EBITA
Orders
5,805
5,077 4,986
14%
2%
5,792
6,273 6,500
(8)%
(3)%
344
451
700
732
853 (51)% (18)%
914 (38)% (20)%
In 2020, orders decreased 4 percent (4 percent in
local currencies) compared to 2019 reflecting the
combined effects of the COVID-19 pandemic
and a lower oil price. Those effects negatively
impacted orders in the Measurement & Analytics,
Turbocharging, Energy Industries and Process
Industries Divisions while orders in Marine &
Ports Division were up primarily due to large
capital investment orders, specifically for the
liquefied natural gas (LNG) sector. This increase
could not offset the significant decline in orders,
in particular in the ongoing service business
which was driven by mobility constraints caused
by extensive lockdown restrictions as well as
lower demand from customers to invest in the
current uncertain environment. Customer invest-
ment decreased significantly in cruise,
conventional power generation, oil and petro-
chemical, and mining sectors.
The geographic distribution of orders for our
Industrial Automation Business Area was as
follows:
($ in millions)
Europe
The Americas
2020
2019
2018
2,365
2,599
2,867
1,360
1,627
1,564
of which: United States
770
995
990
Asia, Middle East and Africa
2,419
2,206
2,266
of which: China
Total
559
631
564
6,144
6,432
6,697
Orders in Europe decreased 9 percent (9 percent
in local currencies) driven by lower orders in the
Energy Industries Division due to the effect
of a depressed oil price and mobility constraints,
and in the Marine & Ports Division due to lower
cruise orders. Orders in Asia, Middle East and
Africa increased 10 percent (10 percent in local
currencies) due to larger orders related to capital
investments in LNG in the Marine & Ports Division.
The remaining end-markets in Asia, Middle East
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129
and Africa were subdued. China orders were down
in the Energy Industries, Marine & Ports and
Process Industries Divisions. Orders in the Ameri-
cas decreased by 16 percent (14 percent in local
currencies) and decreased in all Divisions except
the Marine & Ports Division. Orders in the U.S.
were down in all Divisions except for the Marine &
Ports Division due to a large specialty marine
vessel order.
impacted by project-related challenges in the
Kusile power generation project in South Africa. In
Europe, revenues decreased across all Divisions
except in the Process Industries Division. In the
Americas, revenues were negatively impacted
across all Divisions. Revenues in the U.S. declined
significantly, reflecting the downturn in the oil
and gas and cruise market segments.
Order backlog
The order backlog at the end of 2020 was 14 per-
cent higher (9 percent in local currencies) than at
the end of 2019. All Divisions registered an in-
crease in backlog except the Turbocharging
Division which was impacted by the marine and
conventional onshore oil and gas markets. The
Marine & Ports Division benefited from orders for
specialty marine vessels which are executed over
multiple years. The Energy Industries Division’s
backlog increase reflected select orders for LNG
solutions and the Process Industries Division’s
backlog benefited from the receipt of a large
order in the mining market.
Revenues
In 2020, revenues decreased 8 percent (7 percent
in local currencies). Revenues were lower across all
Divisions compared to 2019, reflecting subdued
level of book-and-bill activities. Revenues in
shorter cycle businesses were particularly im-
pacted due to the COVID-19 pandemic and service
was significantly down, due to mobility con-
straints and difficulties in executing services
described above.
The geographic distribution of revenues for our
Industrial Automation Business Area was as
follows:
($ in millions)
Europe
The Americas
2020
2019
2018
2,395
2,494
2,534
1,329
1,595
1,479
of which: United States
808
950
944
Asia, Middle East and Africa
2,068
2,184
2,487
of which: China
629
612
616
Income from operations
In 2020, income from operations decreased
51 percent compared to 2019 on weaker sales
volumes in all Divisions, project-related chal-
lenges in the Kusile power generation project in
South Africa and legacy projects in India, and
higher restructuring charges of approximately
$100 million. Income from operations was also
impacted by legal costs relating to challenges in
certain projects, unfavorable pricing and product
mix. The Business Area benefited from the posi-
tive results of ongoing business rationalization
efforts and other cost saving measures especially
lower sales expenses. The changes in foreign
currencies, including the effect from changes in
the FX/commodity timing differences summa-
rized in the table below, increased income from
operations by 4 percent compared to 2019.
Operational EBITA
The reconciliation of Income from operations to
Operational EBITA for the Industrial Automation
Business Area was as follows:
($ in millions)
2020
2019
2018
Income from operations
Acquisition-related amortization
Restructuring, related and
implementation costs
Gains and losses from sale of
businesses
Acquisition- and divestment-
related expenses and integration
costs
Certain other non-operational
items
FX/commodity timing
differences in income from
operations
344
4
125
—
2
1
(25)
451
700
853
4
21
—
—
2
5
732
6
35
3
4
3
10
914
Total
5,792
6,273
6,500
Operational EBITA
In 2020, revenues were 4 percent lower (4 percent
in local currencies) in Asia, Middle East and Africa,
17 percent lower (15 percent in local currencies) in
the Americas and 5 percent weaker (5 percent in
local currencies) in Europe compared to 2019. In
Asia, Middle East and Africa, the Process Indus-
tries, Marine & Ports and Turbocharging Divisions
registered strong growth in 2020. The Process
Industries, Marine & Ports and Turbocharging
Divisions grew strongly in China while revenues in
the Energy Industries Division were negatively
In 2020, Operational EBITA decreased 38 percent
(39 percent excluding the impacts from changes
in foreign currencies) compared to 2019. The
change is due to the reasons described under
“Income from operations”, excluding the explana-
tions related to the reconciling items in the
table above.
130
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Motion Business Area
Revenues
The financial results of our Motion Business Area
were as follows:
% Change
($ in millions)
2020
2019 2018
2020
2019
Orders
6,574
6,782 6,725
(3)%
1%
Order backlog at
December 31,
Revenues
Income from
operations
3,320
2,967 2,740
12%
6,409
6,533 6,463
(2)%
989
1,009
924
(2)%
Operational EBITA
1,075
1,082 1,023
(1)%
8%
1%
9%
6%
In 2020, revenues declined 2 percent (2 percent in
local currencies) compared to 2019, and were
lower across most Divisions, resulting from the
impacts of the COVID-19 pandemic. However,
revenues reflected strong execution from the
order backlog especially in the System Drives
Division as well as resilience in the short-cycle
business, particularly in the second half of
the year.
The geographic distribution of revenues for our
Motion Business Area was as follows:
Orders
In 2020, orders declined 3 percent (2 percent in
local currencies) compared to 2019, reflecting the
impact of the COVID-19 pandemic. Orders devel-
opment had a mixed performance across the
market segments. The Business Area benefited
from rising demand in the rail sector, mainly in the
Traction Division and an increase in demand in the
water and waste water sector in the System
Drives and Drive Products Divisions, with stable
demand from traditional heavy industries such as
mining and minerals and pulp and paper as well as
slower demand from oil, gas and chemicals.
The geographic distribution of orders for our
Motion Business Area was as follows:
($ in millions)
Europe
The Americas
2020
2019
2018
2,219
2,355
2,260
2,276
2,437
2,490
($ in millions)
Europe
The Americas
2020
2019
2018
2,196
2,162
2,169
2,225
2,378
2,436
of which: United States
1,867
2,009
2,044
Asia, Middle East and Africa
1,988
1,993
1,858
of which: China
Total
1,040
955
940
6,409
6,533
6,463
In 2020, revenues in Europe increased 2 percent
(1 percent in local currencies) driven by increases
in Poland, Spain and Sweden while sales volumes
declined in Germany and Norway. In Asia, Middle
East and Africa revenues remained stable as
revenue growth was strong in China, partially
offset by decreases in India and Saudi Arabia. In
the Americas, revenues decreased 6 percent
(5 percent in local currencies) mainly as a result of
lower revenues in the U.S., especially in the
book-and-bill business in the Motors & Generators
and Mechanical Power Transmission Divisions.
of which: United States
1,898
2,048
2,105
Income from operations
Asia, Middle East and Africa
2,079
1,990
1,975
of which: China
Total
1,077
987
929
6,574
6,782
6,725
In 2020, in Europe orders decreased 6 percent
(6 percent in local currencies) as orders declined
in Finland, Russia, France, Italy and Spain. In Asia,
Middle East and Africa, orders increased 4 per-
cent (6 percent in local currencies) driven by
growth in China, especially in the Drive Products
Division and was partly offset by other markets.
In the Americas, orders declined 7 percent (6 per-
cent in local currencies) mainly as a result of
decreased orders in the U.S., reflecting the impact
of the COVID-19 pandemic.
In 2020, income from operations decreased
2 percent compared to 2019 driven primarily by
lower revenues. The lower business volumes
reflect the impacts of the COVID-19 pandemic on
customer demand and product deliveries. These
impacts were mitigated partially by continued
cost discipline, lower travel expenses and a focus
on operational performance. In 2020, the Motion
Business Area was also impacted by higher re-
structuring and restructuring-related expenses.
Changes in foreign currencies, including the
impacts from FX/commodity timing differences
summarized in the table below, positively im-
pacted income from operations by 3 percent.
Order backlog
The order backlog in 2020 increased 12 percent (6
percent in local currencies) compared to 2019. The
order backlog increased driven by strong
long-cycle order growth.
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Operational EBITA
The reconciliation of Income from operations to
Operational EBITA for the Motion Business Area
was as follows:
($ in millions)
2020
2019
2018
automotive sectors, mostly in China, food and
beverage, and logistics markets.
The geographic distribution of orders for our
Robotics & Discrete Automation Business Area
was as follows:
Income from operations
989
1,009
Acquisition-related amortization
Restructuring, related and
implementation costs
Gains and losses from sale of
businesses
Acquisition- and divestment-
related expenses and integration
costs
Certain other non-operational
items
FX/commodity timing
differences in income from
operations
52
44
—
—
17
53
12
—
—
14
924
61
17
4
2
10
(27)
(6)
5
Operational EBITA
1,075
1,082
1,023
In 2020, Operational EBITA decreased 1 percent
(1 percent excluding the impact from changes in
foreign currency exchange rates) primarily due to
the reasons described under “Income from opera-
tions”, excluding the explanations related to the
reconciling items in the table above.
Robotics & Discrete Automation
Business Area
The financial results of our Robotics & Discrete
Automation Business Area were as follows:
% Change
($ in millions)
Europe
The Americas
of which: United States
2020
2019
2018
1,424
1,717
1,870
388
277
457
310
493
311
Asia, Middle East and Africa
1,056
1,086
1,445
of which: China
Total
781
729
1,019
2,868
3,260
3,808
In 2020, order intake for Asia, Middle East and
Africa decreased 3 percent (2 percent in local
currencies) compared to 2019. Strong demand in
China was partially offset by order decreases in
India and Japan. Demand in Europe declined
17 percent (18 percent in local currencies) as a
result of the impacts from the COVID-19 pan-
demic, with a strong decline in orders in Germany,
Italy and France. The orders in the Americas
declined 15 percent (12 percent in local currencies)
as a result of the large decrease of orders in the
U.S. in both Divisions.
Order backlog
In 2020, the order backlog increased 3 percent
(2 percent lower in local currencies) compared to
2019. In local currencies, the backlog decreased
despite a recovery in order levels in both Divisions
in the second half of the year, impacted by the
positive momentum in 3C and automotive and
automotive-related sectors.
($ in millions)
2020
2019 2018
2020
2019
Orders
2,868
3,260 3,808 (12)% (14)%
Revenues
Order backlog at
December 31,
1,403
1,356 1,438
3%
Revenues
2,907
3,314 3,611 (12)%
(6)%
(8)%
Income (loss) from
operations
Operational EBITA
(163)
237
298
393
456
n.a.
(35)%
528 (40)% (26)%
Orders
In 2020, orders decreased 12 percent (12 percent
in local currencies). Demand levels in the Robotics
and Machine Automation Divisions were nega-
tively impacted by the COVID-19 pandemic.
During the second quarter, both Divisions suf-
fered a significant decrease in demand when
activity levels declined across key end-markets,
including traditional automotive and
automotive-related sectors, machine builders and
electronics markets. Orders showed signs of
recovery in the second half of the year benefiting
from select robotics investments in the 3C and
In 2020, revenues decreased 12 percent
(13 percent in local currencies) compared to 2019.
Revenues decreased in both Divisions due to
lower volumes from book-and-bill business,
impacted by the COVID-19 pandemic. Service
revenues also decreased, driven by weak demand
from automotive and automotive-related sectors
partially offset by an increase in consumer
segments.
The geographic distribution of revenues for our
Robotics & Discrete Automation Business Area
was as follows:
($ in millions)
Europe
The Americas
of which: United States
2020
2019
2018
1,481
1,680
1,777
389
273
464
293
482
313
Asia, Middle East and Africa
1,037
1,170
1,352
of which: China
Total
719
829
991
2,907
3,314
3,611
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In 2020, revenues decreased in all regions. The
revenues from Asia, Middle East and Africa de-
creased 11 percent (12 percent in local currencies)
compared to 2019 due to lower book-and-bill
revenues and lower execution of orders in China.
Revenues in Europe decreased 12 percent (13 per-
cent in local currencies) with Italy and Germany
performing poorly while revenues grew slightly in
the United Kingdom and France. In the Americas,
revenues declined 16 percent (13 percent in local
currencies) due to a slight decrease in revenues in
the U.S. in both Divisions, negatively impacted by
the COVID-19 pandemic.
Income (loss) from operations
In 2020, the Business Area recorded a loss from
operations of $163 million compared to an income
of $298 million in 2019, reflecting both the impact
of an impairment of goodwill in 2020 in the Ma-
chine Automation Division of $290 million
and a decrease in underlying operating perfor-
mance. The operational performance was
affected by lower sales volumes, an adverse
change in the revenue mix, partially offset by
benefits of cost reduction measures (especially
selling costs) and lower travel expenses. Changes
in foreign currencies, including the impacts from
FX/commodity timing differences summarized in
the table below, negatively impacted the loss
from operations by approximately 7 percent.
Operational EBITA
The reconciliation of Income (loss) from opera-
tions to Operational EBITA for the Robotics &
Discrete Automation Business Area was as
follows:
($ in millions)
Income (loss) from operations
Acquisition-related amortization
Restructuring, related and
implementation costs
Changes in pre-acquisition
estimates
Acquisition- and divestment-
related expenses and integration
costs
Impairment of goodwill
Certain other non-operational
items
FX/commodity timing
differences in income from
operations
2020
(163)
78
26
—
—
290
5
1
2019
2018
298
77
456
82
12
4
—
(11)
1
—
4
1
—
—
1
(4)
528
Operational EBITA
237
393
In 2020, Operational EBITA decreased 40 percent
(40 percent excluding the impact from changes in
foreign currency exchange rates) compared to
2019, primarily due to the reasons described
under “Income (loss) 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)
2020
2019
2018
Corporate headquarters and
stewardship
Costs for divestment of Power
Grids
Income (loss) from equity-
accounted companies
Corporate research and
development
Restructuring
Digital
OS implementation costs
Net gain (loss) from sale of
businesses
Fair value adjustment on equity
securities
Corporate brand income from
Hitachi ABB Power Grids
Corporate real estate
Other corporate costs
Stranded corporate costs
Divested businesses and other
non-core activities
(334)
(334)
(391)
(86)
(141)
—
—
1
(68)
(49)
(46)
(45)
(24)
(2)
71
60
54
(61)
(40)
(185)
(183)
(60)
(33)
(83)
(18)
(46)
(11)
13
(17)
(5)
(6)
—
60
43
—
75
—
(225)
(297)
(342)
(164)
(408)
Total Corporate and Other
(912)
(1,113) (1,302)
In 2020, the net loss from operations within
Corporate and Other decreased by $201 million to
$912 million compared to 2019. This reflected a
reduction in stranded corporate costs and other
costs eliminated due to the divestment of the
Power Grids business. In 2020, we incurred signifi-
cantly lower restructuring and implementation
costs for the OS program and also lower costs
relating to the divestment of the Power Grids
business. Additionally, costs also declined for
corporate research and development expenses.
This was partially offset by higher losses in the
non-core businesses compared to 2019 as well as
the impact of recording the equity-method loss
relating to the Hitachi ABB Power Grids joint
venture in the second half of the year. In 2020,
Corporate brand income of $60 million was
recorded relating to the use of the ABB brand by
the Hitachi ABB Power Grids joint venture.
Corporate
In 2020, corporate headquarters and stewardship
costs remained flat, benefiting from savings
generated from results of the OS restructuring
program efforts, offset by costs for current
strategic projects. Costs were lower in corporate
functions including: communications, finance,
human resources, tax, treasury and information
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133
technology. Lower costs reflect the benefits of
the reduction in country-level general manage-
ment costs, spending controls adopted due to the
impact of the COVID-19 pandemic and the impact
of lower travel expenses and certain market-
ing costs.
Our investment in the Hitachi ABB Power Grids
joint venture is accounted for using the equity
method. Income (loss) from equity-accounted
companies in 2020 primarily reflects the loss
recorded from this joint venture commencing in
July 2020. The equity-method loss from the joint
venture reflects the amortization of the notional
purchase price accounting adjustments (net of
tax) which were recorded due to the fair value
accounting applied on initial investment in the
joint venture (see “Note 4 - Acquisitions, divest-
ments and equity-accounted companies” to our
Consolidated Financial Statements for informa-
tion on the accounting for the investment in
Hitachi ABB Power Grids).
Corporate research and development costs
declined significantly compared to 2019. This was
primarily due to the transfer of resources to the
Power Grids business as well as headcount reduc-
tions resulting from restructuring initiatives
under the OS program.
For further information on the OS Program see
“Restructuring and other cost savings initiatives”
below as well as “Note 22 – Restructuring and
related expenses” to our Consolidated Financial
Statements.
During 2020, we recorded net revaluation gains
totaling $71 million on investments in equity
securities in our equity ventures investment
portfolio
Corporate brand income results from the granting
of the use of the ABB brand to Hitachi ABB Power
Grids, the fair value of which was initially deter-
mined on the date of the divestment. A portion of
the proceeds received for the sale of the Power
Grids business was allocated to the fair value of
the granting of the use of the brand and is being
amortized over the expected period of use by
Hitachi ABB Power Grids.
Corporate real estate primarily includes income
from property rentals and gains from the sale of
real estate properties. In 2020, income from
operations in Corporate real estate included gains
from the sale of real estate properties of $27 mil-
lion compared to $48 million in 2019.
Other corporate costs consists of operational
costs of our Corporate Treasury Operations and
certain other charges such as costs and penalties
associated with legal cases and environmental
expenses.
Stranded corporate costs includes the amount of
allocated general and administrative and other
overhead costs previously included in the mea-
sure of segment profit (Operational EBITA) for the
Power Grids business which is presented as
discontinued operations. These allocated costs
do not qualify for being reported as costs within
the discontinued operation. During 2020,
stranded costs were recorded until the sale of the
Power Grids business and the lower relative costs
reflect the effects of transferring centralized
functions directly to the Power Grids business.
The remaining underlying cost base which we
continue to maintain for the benefit of Hitachi
ABB Power Grids is subject to transition services
agreements.
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 busi-
ness, steel structures business as well as the oil &
gas EPC business. Other continuing non-core
activities include the execution and wind-down of
certain legacy EPC and other contracts.
In both 2020 and 2019, the amounts represent
charges and losses relating to divested busi-
nesses and the winding down of the remaining
EPC projects. In 2020, we recorded $143 million
for certain retained warranty obligations relating
to the steel structures business and also recorded
charges for certain retained commitments and
guarantees in connection with the oil & gas EPC
business. The loss in 2020 also reflects further
operational challenges and customer obligations
relating to several legacy projects including the
full train retrofit business, substations and off-
shore wind. In 2019, we recorded additional losses
for legacy substations, plant electrification EPC
contracts and the full train retrofit business,
which were driven by additional project cost
overruns.
At December 31, 2020, our remaining non-core
activities primarily include the completion of the
remaining EPC contracts for substations and oil &
gas as well as the completion of the remaining
obligations for the full train retrofit business.
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Restructuring and other cost
savings initiatives
OS program
In December 2018, ABB announced a two-year
restructuring program with the objective of
simplifying its business model and structure
through the implementation of a new organiza-
tional structure driven by its businesses. The
program resulted in the elimination of the country
and regional structures within the previous matrix
organization, including the elimination of the
three regional Executive Committee roles. The
operating businesses are now responsible for
both their customer-facing activities and busi-
ness support functions, while the remaining
Group-level corporate activities primarily focus
on Group strategy, portfolio and performance
management and capital allocation. As of Decem-
ber 31, 2020, we have incurred substantially all
restructuring and related expenses related to the
OS program.
During the course of the program, we imple-
mented and executed various restructuring
initiatives across all business support functions
and all operating segments. The cumulative
restructuring and related expenses under this
program, originally estimated to be $350 million,
were reduced by $41 million to $309 million,
mainly due to the reductions in both estimated
costs and number of projects planned.
The following table outlines the costs incurred in
2020, 2019, 2018 and the cumulative costs in-
curred under the program per operating segment
and Corporate and Other as of December 31,
2020:
($ in millions)
2020
2019
2018
Costs incurred in
Electrification
Industrial
Automation
Motion
Robotics &
Discrete
Automation
Corporate and
Other
Total
35
37
18
10
49
149
18
3
6
8
54
89
32
21
1
—
11
65
Cumulative
costs incurred
up to December
31, 2020
85
61
25
18
114
303
ABB completed and has incurred substantially all
costs related to the OS program as of Decem-
ber 31, 2020. The restructuring program resulted
in run-rate cost savings of approximately
$590 million, impacting all Business Areas and
Corporate and Other. These cost savings were
realized mainly as reductions in cost of sales,
selling, general and administrative expenses, and
non-order related research and development
expenses.
The majority of the remaining cash outlays as of
December 31, 2020, primarily for employee sever-
ance benefits, are expected to occur in 2021.
—
Liquidity and capital resources
Principal sources of funding
We meet our liquidity needs principally using cash
from operations, proceeds from the issuance of
debt instruments (bonds and commercial paper),
and short-term bank borrowings. In 2020, we also
received significant funds from the sale of the
Power Grids business, which was completed on
July 1, 2020.
Our net debt is shown in the table below:
($ in millions)
Short-term debt and current maturities of
long-term debt
Long-term debt
Cash and equivalents
Restricted cash - current
Marketable securities and short-term
investments
Restricted cash - non-current
Net debt (defined as the sum
of the above lines)
December 31,
2020
2019
1,293
2,287
4,828
6,772
(3,278)
(3,508)
(323)
(36)
(2,108)
(566)
(300)
—
112
4,949
During 2020, we significantly deleveraged the
Company, driven by the receipt of $9,241 million
initial net proceeds from the sale of the Power
Grids business. As a result, we reduced net debt
to $112 million at December 31, 2020, from
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135
$4,949 million at December 31, 2019. This change
was also supported by cash flows from operating
activities during 2020 of $1,693 million and by the
sale of treasury stock in relation to our employee
share plans for $412 million. Partially offsetting
these items were amounts for purchases of
treasury shares of $3,048 million including
$2,702 million relating to the announced buyback
of our shares as well as $1,736 million for the
payment of the dividend to our shareholders. We
made net purchases of property, plant and equip-
ment and intangible assets of $580 million (for
both continuing and discontinued operations)
and made payments of dividends to noncon-
trolling shareholders totaling $82 million. In
addition, net debt increased by $269 million due
to movements in foreign exchange rates. See
“Financial position”, “Investing activities” and
“Financing activities” for further details.
During March 2020, as a result of the reaction of
global financial markets to the COVID-19 pan-
demic, access to commercial paper markets was
limited. However, the bond and bank credit mar-
kets continued to be accessible at temporarily
increased credit spreads. To support our
short-term liquidity needs at that time, we en-
tered into a bank-funded short-term EUR 2 billion
Revolving Credit Agreement and received the
proceeds on March 31, 2020, amounting to
$2,183 million, net of issuance costs. We repaid
this borrowing after the completion of the sale of
the Power Grids business at which time the
agreement was terminated. Financial markets
quickly stabilized and we were again able to
access the commercial paper markets with costs
commensurate to our credit rating. Through the
rest of the year, we did not require access to the
commercial paper markets for funding.
Our Corporate Treasury Operations is responsible
for providing a range of treasury management
services to our group companies, including in-
vesting cash in excess of current business
requirements. At December 31, 2020 and 2019, the
proportion of our aggregate “Cash and equiva-
lents” and “Marketable securities and short-term
investments” managed by our Corporate Treasury
Operations amounted to approximately 53 per-
cent and 34 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
primarily invested the proceeds received from the
sale of the Power Grids business in money market
funds and reduced these funds over the rest of
2020 to execute our share buyback activities and
to pay back maturing debt and retire other debts
in advance. We actively monitor credit risk in our
investment portfolio and derivative portfolio.
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 develop-
ments 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 spe-
cific 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 31 percent of our cash and
cash equivalents held at December 31, 2020, was
in U.S. dollars, while other significant amounts
were held in Chinese renminbi (23 percent) and
euro (21 percent).
We believe the ongoing cash flows generated
from our business, supplemented, when neces-
sary, through access to the capital markets
(including short-term commercial paper) and our
credit facilities are sufficient to support business
operations, capital expenditures, business acqui-
sitions, 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 commit-
ments for the next 12 months. See “Disclosures
about contractual obligations and commitments”.
Due to the nature of our operations, including the
timing of annual incentive payments to employ-
ees, 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:
($ in millions)
December 31,
2020
2019
Short-term debt and current maturities of
long-term debt
1,293
2,287
Long-term debt:
Bonds
Other long-term debt
Total debt
4,580
6,587
248
185
6,121
9,059
136
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The decrease in short-term debt in 2020 was due
to the repayment at maturity of both the USD
300 million 2.8% Notes and the EUR 1,000 million
floating rate Notes as well as a net reduction of
outstanding commercial paper of $676 million.
This was partially offset by the reclassification to
short-term of the USD 650 million 4.0% Notes and
the CHF 350 million 2.250% Bonds.
At December 31, 2020, Long-term debt decreased
$1,944 million compared to the end of 2019 due
partly to the reclassifications to short-term
described above. We also reduced through public
tenders or otherwise redeemed debt
having a combined outstanding principal of
$1,208 million. This included partial public tenders
of both our USD 750 million 3.8% Notes due 2028
and our USD 750 million 4.375% Notes due 2042
and as well as full redemptions of our
USD 250 million 5.625% Notes due 2021 and our
USD 450 million 3.375% Notes due 2023.
Our debt has been obtained in a range of curren-
cies 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
to effectively convert fixed rate debt into floating
rate liabilities. After considering the effects of
interest rate swaps, at December 31, 2020, the
effective average interest rate on our floating rate
long-term debt (including current maturities) of
$3,330 million and our fixed rate long-term debt
(including current maturities) of $2,638 million
was 0.2 percent and 3.3 percent, respectively. This
compares with an effective rate of 1.1 percent for
floating rate long-term debt of $2,221 million and
2.4 percent for fixed rate long-term debt of
$6,000 million at December 31, 2019.
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 2020, we exercised our
option to extend the maturity to 2025 and retain
an option which we can exercise in 2021 to further
extend the maturity to 2026. No amount was
drawn under the facility at December 31, 2020 and
2019. 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.
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, 2020, 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, 2020, $32 million was outstand-
ing under the $2 billion program in the United
States, compared to $708 million outstanding at
December 31, 2019.
At December 31, 2020 and 2019, no amount was
outstanding under the $2 billion Euro-commercial
paper program.
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 deter-
mined with respect to, and as of the date of
issuance of, each debt instrument. At Decem-
ber 31, 2020, two bonds (principal amount of EUR
700 million, due in 2023 and principal amount of
EUR 750 million, due in 2024) having a combined
carrying amount of $1,821 million were outstand-
ing under the program. At December 31, 2019, the
carrying amount of these bonds was
$1,658 million.
In January 2021, we issued one additional bond
under this program having a principle amount of
EUR 800 million at zero interest, and a term of
9 years.
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
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137
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, 2020, our long-term debt was
rated A3 with a Stable outlook by Moody’s com-
pared to A2 at the end of 2019. At December 31,
2020, our long term-debt was rated A-
with a Stable outlook by Standard & Poor’s
compared to A at the end of 2019.
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, including: China,
Egypt, India, Indonesia, Kazakhstan, Malaysia,
South Korea, Taiwan (Chinese Taipei), Thailand,
Turkey and Viet Nam. 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. As a consequence, these funds are not
available within our Corporate Treasury Opera-
tions 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, 2020 and 2019, the balance of “Cash
and equivalents” and “Marketable securities and
other short-term investments” under such limita-
tions (either regulatory or sub-optimal from a tax
perspective) totaled approximately $1,751 million
and $1,843 million, respectively.
During 2020, we continued to direct our subsid-
iaries in countries with restrictions to place such
cash with our core banks or investment grade
banks, in order to minimize credit risk on such
cash positions. We continue to closely monitor
the situation to ensure bank counterparty risks
are minimized.
—
Financial position
Balance sheets
December 31,
($ in millions)
2020
2019
% Change
Current assets
Cash and equivalents
3,278
3,508
Restricted cash
323
36
(7)%
n.a.
Marketable securities and
short-term investments
2,108
566
272%
Receivables, net
Contract assets
Inventories, net
Prepaid expenses
Other current assets
Assets held for sale and in
discontinued operations
6,820
6,434
985
1,025
4,469
4,184
201
760
191
674
282
9,840
Total current assets
19,226 26,458
6%
(4)%
7%
5%
13%
(97)%
(27)%
For a discussion on Cash and equivalents, see
sections “Liquidity and Capital Resources—Prin-
cipal sources of funding” and “Cash flows” for
further details.
The increase in restricted cash relates to certain
amounts received on the sale of the Power Grids
business which are being held in escrow pending
the finalization of legal transfer of certain entities
of that business to Hitachi ABB Power Grids. See
“Note 3 - Discontinued operations” to our Consoli-
dated Financial Statements.
Marketable securities and short-term investments
increased as a significant portion of the proceeds
received for the sale of the Power Grids business
are invested in money market funds (see “Note 5
- Cash and equivalents, marketable securities and
short-term investments” to our Consolidated
Financial Statements).
Receivables, net, increased 6 percent primarily
due to currency exchange movements. In local
currency, Receivables, net, increased 2 percent.
Contract assets decreased 4 percent (9 percent in
local currencies). The decrease reflects lower
amounts in the non-core businesses and the
Motion Business Area. This was partially offset by
138
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higher levels in the Industrial Automation and
Robotics & Discrete Automation Business Areas.
Inventories, net, increased 7 percent primarily due
to movements in exchange rates. In local curren-
cies, inventory decreased 1 percent.
Current assets held for sale and in discontinued
operations decreased to $282 million from
$9,840 million due to the sale in 2020 of both the
solar inverters and Power Grids businesses. The
balance at December 31, 2020, relates primarily to
working capital balances of certain contracts in
the Power Grids business which ABB is executing
for the benefit of Hitachi ABB Power Grids. For the
details of the assets of the Power Grids business
see “Note 3 - Discontinued operations” to our
Consolidated Financial Statements.
($ in millions)
2020
2019
% Change
December 31,
Current liabilities
Accounts payable, trade
4,571
4,353
Contract liabilities
1,903
1,719
Short-term debt and current
maturities of long-term debt
Current operating leases
Provisions for warranties
Other provisions
1,293
2,287
270
1,035
305
816
1,519
1,375
Other current liabilities
4,181
3,761
Liabilities held for sale and
in discontinued operations
644
5,650
Total current liabilities
15,416 20,266
5%
11%
(43)%
(11)%
27%
10%
11%
(89)%
(24)%
Accounts payable, trade, increased 5 percent due
primarily to currency exchange rate movements.
Excluding movements in exchange rates, the
balance was steady.
The decrease in Short-term debt and current
maturities of long-term debt was primarily due to
repayment at maturity of both the USD 300 mil-
lion 2.8% Notes and the EUR 1,000 million floating
rate Notes. In addition, we reduced the amount
outstanding on the U.S. commercial paper pro-
gram by $676 million. This was partially offset
by a reclassification to Short-term debt and
current maturities of long-term debt of the
USD 650 million Notes and the CHF 350 mil-
lion Bonds.
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 27 percent
(20 percent in local currencies). The increase is
mainly due to an increase of $143 million in the
warranty provision related to a divested business.
For details on the change in the Provision for
warranties, see “Note 15 - Commitments and
contingencies” to our Consolidated Financial
Statements.
Current liabilities held for sale and in discontinued
operations decreased to $644 million from
$5,650 million due to the sale in 2020 of both the
solar inverters and Power Grids businesses. The
amount at December 31, 2020, relates to certain
working capital balances of the Power Grids
business as described above. For the details of
the liabilities of the Power Grids business see
“Note 3 - Discontinued operations” to our Consoli-
dated Financial Statements.
($ in millions)
2020
2019
% Change
December 31,
Non-current assets
Restricted cash, non-current
300
—
Property, plant and
equipment, net
Operating lease right-of-use
assets
Goodwill
4,174
3,972
969
994
10,850
10,825
Intangible assets, net
2,078
2,252
n.a.
5%
(3)%
0%
(8)%
Prepaid pension and other
employee benefits
Investments in equity-
accounted companies
Deferred taxes
Other non-current assets
360
133
171%
1,784
843
504
33
910
531
n.a.
(7)%
(5)%
11%
Total non-current assets
21,862
19,650
Restricted cash at December 31, 2020, represents
certain amounts received on the sale of the Power
Grids business which have been placed in escrow,
pending resolution of certain of our contractual
obligations to Hitachi Ltd. See “Note 3 - Discontin-
ued operations” to our Consolidated Financial
Statements.
In 2020, Property, plant and equipment, net,
increased 5 percent (flat in local currencies) as net
capital expenditures (purchases net of disposals
for property, plant and equipment) were at a
similar level to the annual depreciation recorded
in 2020.
In 2020, Goodwill was flat (decreased 2 percent in
local currencies). The decrease in local currencies
includes the impact of recording goodwill impair-
ments of $311 million in 2020.
Intangible assets, net, decreased 8 percent (11
percent in local currencies) due to the amortiza-
tion recorded during the year. For additional
information on goodwill and intangible assets see
“Note 11 - Goodwill and intangible assets” to our
Consolidated Financial Statements.
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139
Pension and employee benefits decreased 31 per-
cent (37 percent in local currencies). The decrease
in 2020 primarily reflects the settlement of cer-
tain defined benefit pension obligations during
2020. For additional information on Pension and
employee benefits see “Note 17 - Employee bene-
fits” to our Consolidated Financial Statements.
For a breakdown of Other non-current liabilities,
see “Note 13 - Other provisions, other current
liabilities and other non-current liabilities” to our
Consolidated Financial Statements.
Non-current liabilities held for sale and in discon-
tinued operations relate to the sale in 2020 of the
Power Grids business. The amount at December
31, 2020, relates to certain amounts which are
expected to be payable in more than one year. For
the details of the liabilities of the Power Grids
business see “Note 3 - Discontinued operations”
to our Consolidated Financial Statements.
Cash flows
The Consolidated Statements of Cash Flows are
shown on a continuing operations basis, with the
effects of discontinued operations shown in
aggregate for each major cash flow activity and
also include the impact from changes in re-
stricted cash.
The Consolidated Statements of Cash Flows can
be summarized as follows:
($ in millions)
2020
2019
2018
Net cash provided by operating
activities
Net cash provided by (used in)
investing activities
Net cash used in financing
activities
Effects of exchange rate changes
on cash and equivalents
Net change in cash and
equivalents and restricted cash
1,693
2,325
2,924
6,760
(815)
(3,085)
(8,175)
(1,383)
(789)
79
(28)
(131)
357
99 (1,081)
The balance for Investment in equity-accounted
companies at December 31, 2020, primarily rep-
resents our remaining 19.9 percent interest in the
Hitachi ABB Power Grids joint venture. For addi-
tional information on investment in
equity-accounted companies see “Note 4 - Acqui-
sitions, divestments and equity-accounted
companies” to our Consolidated Financial
Statements.
Prepaid pension and other employee benefits
increased 171 percent reflecting changes in the
funding status for pension plans primarily in
Switzerland due to discretionary contributions
made in 2020. For additional information on
Pension and employee benefits see “Note 17
- Employee benefits” to our Consolidated Finan-
cial Statements.
In 2020, Deferred taxes, decreased 7 percent
(18 percent in local currencies). For details on
deferred tax assets see “Note 16 - Income taxes”
to our Consolidated Financial Statements.
December 31,
($ in millions)
2020
2019
% Change
Non-current liabilities
Long-term debt
4,828
6,772
(29)%
731
717
2%
Non-current operating
leases
Pension and other employee
benefits
Deferred taxes
1,231
1,793
661
911
Other non-current liabilities
2,025
1,669
Liabilities held for sale and
in discontinued operations
197
—
Total non-current liabilities
9,673
11,862
(31)%
(27)%
21%
n.a.
(18)%
Long-term debt decreased 29 percent. The de-
crease in 2020 reflects the reclassifications to
short-term of the bonds and notes described
above. In addition, we reduced our outstanding
debt by $508 million in connection with cash
tender offers to the noteholders of our USD
750 million Notes, due 2028, and our USD 750 mil-
lion Notes, due 2042. We also exercised our early
redemption options on the full amounts out-
standing of our USD 250 million Notes due 2021
and our USD 450 million Notes due 2023 under the
original terms of these instruments. During 2020,
Long-term debt increased 4 percent due to move-
ments in foreign exchange rates. For additional
information on Long-term debt, see “Liquidity
and Capital Resources—Debt and interest rates”
as well as “Note 12 - Debt” to our Consolidated
Financial Statements.
Non-current operating leases includes the portion
of the operating lease liabilities that are due to be
paid in more than 12 months.
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Operating activities
Investing activities
($ in millions)
Net income
2020
2019
2018
($ in millions)
2020
2019
2018
5,205
1,528
2,298
Purchases of investments
(5,933)
(748)
(322)
Less: Income from discontinued
operations, net of tax
(4,860)
(438)
(723)
Depreciation and amortization
915
961
916
Total adjustments to reconcile
net income to net cash provided
by operating activities
(excluding depreciation and
amortization)
Total changes in operating
assets and liabilities
Net cash provided by
operating activities —
continuing operations
Net cash provided by (used
in) operating activities —
discontinued operations
263
220
(189)
352
(372)
50
1,875
1,899
2,352
(182)
426
572
Cash flows from operating activities of continu-
ing operations in 2020 provided net cash of
$1,875 million, a decrease of 1 percent from 2019.
In 2020, lower cash effective net income (i.e. net
income from continuing operations adjusted for
depreciation, amortization and other non-cash
items) which included the impacts of the cash
payments made to settle certain international
pension plans in 2020 as well as payments for
certain project and legal settlements was offset
by higher cash generated from a reduction in
working capital during the year. In 2020, net cash
provided by operating activities benefited
from a reduction of inventory levels (in local
currencies) and a more favorable timing of cash
flows on long-term projects.
Cash flows from operating activities of discontin-
ued operations in 2020 decreased to a net
outflow of $182 million compared to an inflow of
$426 million in 2019. This primarily reflects the
timing of the divestment of the Power Grids
business in July 2020, with 2020 primarily reflect-
ing the cash flows in the first half of the year. This
business typically generated most of its operat-
ing cash flows in the second half of the year and
thus the two years are not comparable.
Purchases of property, plant and
equipment and intangible assets
Acquisition of businesses (net of
cash acquired) and increases in
cost- and equity-accounted
companies
Proceeds from sales of
investments
Proceeds from maturity of
investments
Proceeds from sales of property,
plant and equipment
Proceeds from sales of
businesses (net of transaction
costs and cash disposed) and
cost- and equity-accounted
companies
Net cash from settlement of
foreign currency derivatives
Other investing activities
Net cash used in investing
activities — continuing
operations
Net cash provided by (used
in) investing activities —
discontinued operations
(694)
(762)
(772)
(121)
(22)
(2,664)
4,341
749
567
11
114
80
82
160
72
(136)
69
113
138
8
(76)
(23)
(30)
(32)
(2,272)
(651) (2,908)
9,032
(164)
(177)
Net cash used in investing activities for continu-
ing operations in 2020 was $2,272 million
compared to $651 million in 2019. The amount in
2020 reflects primarily the net investment in
money market funds of amounts received from
the sale of the Power Grids business as well as
cash payments for purchases of property, plant
and equipment. In 2020, we also recorded net
investing cash flows of $138 million for settle-
ments of derivatives compared to net outflows of
$76 million in 2019.
The following presents purchases of property,
plant and equipment and intangible assets by
significant asset category:
($ in millions)
2020
2019
2018
Construction in progress
493
536
523
Purchase of machinery and
equipment
Purchase of land and buildings
Purchase of intangible assets
Purchases of property,
plant and equipment and
intangible assets
134
156
152
17
50
26
44
28
69
694
762
772
In 2020 there were no significant business acqui-
sitions. The divestment of the solar inverters
business resulted in a net cash outflow of
$143 million in 2020.
In 2020, we divested the Power Grids business
and recorded net proceeds of $9,168 million (net
of transaction costs and purchase price related
repayments) which are included in cash provided
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141
by investing activities from discontinued
operations.
Financing activities
($ in millions)
2020
2019
2018
Net changes in debt with
maturities of 90 days or less
Increase in debt
Repayment of debt
Delivery of shares
(587)
164
221
343
2,406
1,914
(3,459)
(2,156)
(830)
412
10
42
Purchase of treasury stock
(3,048)
— (250)
Dividends paid
(1,736)
(1,675)
(1,717)
Dividends paid to noncontrolling
shareholders
Other financing activities
Net cash used in financing
activities — continuing
operations
Net cash provided by (used
in) financing activities —
discontinued operations
(82)
(49)
(90)
13
(86)
(35)
(8,206)
(1,328)
(741)
31
(55)
(48)
Our financing cash flow activities primarily in-
clude debt transactions (both from the issuance
of debt securities and borrowings directly from
banks), share transactions and payments of
distributions to controlling and noncontrolling
shareholders. Net cash from financing activities
for discontinued operations represents primarily
distributions paid to noncontrolling shareholders
of certain subsidiaries classified in discontinued
operations and in 2020, also includes net borrow-
ings of the discontinued operation.
In 2020, the net outflow for debt with maturities
of 90 days or less related to net repayments of
amounts outstanding under the U.S. commercial
paper program.
In 2020, “Repayment of debt” includes the repay-
ment at maturity of the USD 300 million 2.8%
Notes and the EUR 1,000 million floating rate
Notes. We also made payments of $1,376 million in
connection with early retirement of bonds includ-
ing partial public tenders of both our USD
750 million 3.8% Notes due 2028 and our
USD 750 million 4.375% Notes due 2042 as well as
full redemptions of our USD 250 million 5.625%
Notes due 2021 and our USD 450 million 3.375%
Notes due 2023.
“Delivery of shares” in 2020 reflects cash received
primarily from the exercise of options in connec-
tion with our Management Incentive Plan
(resulting in a delivery of 16.5 million shares) and
in connection with our Employee Share Acquisi-
tion Plan (resulting in a delivery of 1.4 million
shares). All shares were delivered out of Trea-
sury stock.
In 2020, “Purchase of treasury stock” reflects
$2,702 million of cash payments to purchase
109 million of our own shares in connection with
the announced share buyback program. It also
reflects $346 million paid to purchase 13 million
shares on the open market during 2020.
Disclosures about contractual
obligations and commitments
The contractual obligations presented in the table
below represent our estimates of future pay-
ments under fixed contractual obligations and
commitments. These amounts may differ from
those reported in our Consolidated Balance Sheet
at December 31, 2020. Changes in our business
needs, cancellation provisions and changes in
interest rates, as well as actions by third parties
and other factors, may cause these estimates to
change. Therefore, our actual payments in future
periods may vary from those presented below.
The following table summarizes certain of our
contractual obligations and principal and interest
payments under our debt instruments, leases and
purchase obligations at December 31, 2020:
Less
than
1 year
1–3
years
3–5
years
More
than
5 years
($ in millions)
Total
Payments due by period
Long-term
debt
obligations
Interest
payments
related to long-
term debt
obligations
Operating
lease
obligations(1)
Finance lease
obligations(1)
Purchase
obligations
5,730
1,108
2,115
1,321
1,186
842
128
148
94
472
1,083
282
371
210
220
230
38
63
3,264
2,701
458
49
80
80
25
Total
11,149
4,257
3,155
1,754
1,983
(1) Lease obligations represent total cash payments to be made in
the future, and include an implied interest expense, being the
difference between undiscounted cash flows and discounted
cash flows, of $82 million and $43 million, for operating and
finance leases, respectively. See “Note 14 - Leases” to our
Consolidated Financial Statements.
In the table above, the "Long-term debt obliga-
tions" 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. In addition, finance lease obligations
are shown separately in the table above while they
are combined with long-term debt amounts in our
Consolidated Balance Sheets.
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as part of fulfilling our guarantee obligations. In
respect of the above guarantees, the carrying
amounts of liabilities at December 31, 2020,
amounted to $135 million, which was included in
discontinued operations, while at Decem-
ber 31, 2019, balances 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 “perfor-
mance 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, 2020 and 2019, the total outstanding perfor-
mance bonds aggregated to $4.3 billion and
$6.8 billion, respectively, of which $0.3 billion and
$3.7 billion, respectively, relate to discontinued
operations. There have been no significant
amounts reimbursed to financial institutions
under these types of arrangements in 2020, 2019
and 2018.
For additional descriptions of our performance,
financial and indemnification guarantees see
“Note 15 - Commitments and contingencies” to
our Consolidated Financial Statements.
We have determined the interest payments re-
lated 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 be to 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.
Of the total of $1,455 million unrecognized tax
benefits (net of deferred tax assets) at December
31, 2020, it is expected that $32 million will be
paid within less than a year. However, we cannot
make a reasonably reliable estimate as to the
related future payments for the remain-
ing amount.
Off-balance sheet arrangements
Commercial commitments
We disclose the maximum potential exposure of
certain guarantees, as well as possible recourse
provisions that may allow us to recover from third
parties amounts paid out under such guarantees.
The maximum potential exposure does not allow
any discounting of our assessment of actual
exposure under the guarantees. The information
below reflects our maximum potential exposure
under the guarantees, which is higher than our
assessment of the expected exposure.
Guarantees
The following table provides quantitative data
regarding our third-party guarantees. The maxi-
mum potential payments represent a worst-case
scenario, and do not reflect our expected
outcomes.
December 31, ($ in millions)
Performance guarantees
Financial guarantees
Indemnification guarantees(2)
Total
Maximum
potential
payments(1)
2020
2019
6,726
1,860
339
177
10
64
7,242
1,934
(1) Maximum potential payments include amounts in both continu-
ing and discontinued operations.
(2) Certain indemnifications provided to Hitachi in connection with
the divestment of Power Grids are without limit.
The carrying amount of liabilities recorded in the
Consolidated Balance Sheets reflects our best
estimate of future payments, which we may incur
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—
E M P T Y PAG E A D D E D I N T E N T I O N A L LY
144
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—
Consolidated
Financial
Statements
of ABB Group
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—
Report of management on internal
control over financial reporting
The Board of Directors and Management of ABB
Ltd and its consolidated subsidiaries (“ABB”) are
responsible for establishing and maintaining
adequate internal control over financial reporting.
ABB’s internal control over financial reporting is
designed to provide reasonable assurance
regarding the reliability of financial reporting and
the preparation and fair presentation of the
published Consolidated Financial Statements in
accordance with U.S. generally accepted
accounting principles.
Because of its inherent limitations, internal
control over financial reporting may not prevent
or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are
subject to the risk that controls may become
inadequate because of changes in conditions, or
that the degree of compliance with ABB’s policies
and procedures may deteriorate.
Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework).
Based on this assessment, management has
concluded that ABB’s internal control over
financial reporting was effective as of December
31, 2020.
KPMG AG, the independent registered public
accounting firm who audited the Company’s
consolidated financial statements, has issued an
opinion on the effectiveness of ABB’s internal
control over financial reporting as of December
31, 2020, which is included on page 151-152 of this
Annual Report.
Björn Rosengren
Timo Ihamuotila
Chief Executive Officer
Chief Financial Officer
Management conducted an assessment of the
effectiveness of internal control over financial
reporting based on the criteria established in
Zurich, February 25, 2021
146
Report of the Statutory Auditor To the General Meeting of ABB Ltd, Zurich Report of the Statutory Auditor on the Consolidated Financial Statements Opinion As statutory auditor, we have audited the accompanying consolidated financial statements of ABB Ltd and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated income statements, statements of comprehensive income, cash flows and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements on pages 153 to 227). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in accordance with U.S. Generally Accepted Accounting Principles, and comply with Swiss law. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Group has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Accounting Standard Codification (ASC), 842 Leases. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm and are required to be independent with respect to the Group. We conducted our audits in accordance with Swiss law, Swiss Auditing Standards and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to fraud or error. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 147
Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue recognition for long-term fixed price contracts using the percentage-of-completion method Valuation of unrecognized tax benefits related to transfer pricing Valuation of goodwill for the Machine Automation reporting unit Valuation of the retained noncontrolling interest in the Power Grids business Revenue recognition for long-term fixed price contracts using the percentage-of-completion method Critical Audit Matter Our response As discussed in Note 2 to the consolidated financial statements, revenues from the sale of customized products, including long-term fixed price contracts for integrated automation and electrification systems and solutions are generally recognized on an over time basis using the percentage of completion method of accounting. For the year ended December 31, 2020, the Group reported $21,214 million of revenue from sales of products, a portion of which related to long-term fixed price contracts. We identified the evaluation of estimated costs to complete related to revenue recognition of long-term fixed price contracts using the percentage of-completion method of accounting as a critical audit matter. In particular, a high degree of subjective auditor judgment was required to evaluate the Group’s estimates regarding the amount of future direct materials, labor and subcontract costs, and indirect costs to complete the contracts. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s revenue process including controls over the development of estimates regarding the amount of future direct materials, labor and subcontract costs, and indirect costs. We assessed the Group’s historical ability to accurately estimate costs to complete by comparing historical estimates to actual results for a selection of contracts. We evaluated the estimate of remaining costs to be incurred for a selection of contracts by assessing progress to date and the nature and complexity of work to be performed through interviewing project managers and inspecting correspondence, if any, between the Group and the customer and/or subcontractors. For further information on revenue recognition on long-term projects refer to the following: — Note 2 “Significant accounting policies” 148
Valuation of unrecognized tax benefits related to transfer pricing Critical Audit Matter Our response As discussed in Note 2 to the consolidated financial statements, the Group operates across multiple tax jurisdictions, is exposed to numerous tax laws and is regularly subject to tax audits by local tax authorities. As discussed in Note 16, the Group reported total unrecognized tax benefits of $1,298 million, a portion of which related to unrecognized tax benefits related to transfer pricing. We identified the valuation of unrecognized tax benefits related to transfer pricing as a critical audit matter. A high degree of subjective auditor judgment and specialized skills and knowledge was required in assessing the Group’s interpretation of international tax practice and developments in relation to intragroup charges and intragroup sales of goods and services and the Group’s ability to estimate the ultimate resolution of the tax positions. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s tax process including controls related to the Group’s interpretation of international tax practice and developments in relation to intragroup charges and intragroup sale of goods and services and the estimate of the related unrecognized tax benefits. We tested the identified costs that have a higher likelihood of being challenged by tax authorities associated with intragroup arrangements and potential price adjustments for intragroup sales of goods and services. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating (1) the Group’s historical ability to accurately estimate the unrecognized tax benefits related to transfer pricing by comparing historical tax positions to subsequent settlements (2) the Group’s transfer pricing documentation and methodology for compliance with applicable laws and regulations by assessing the documentation and relevant agreements, (3) the impact of new information or changes in international tax practice and developments on historical tax positions, and (4) developing an independent expectation of the unrecognized tax benefits estimate relating to the Group’s intragroup sales of goods and services and comparing the results to the Group’s assessment. For further information on unrecognized tax benefits refer to the following: — Note 2 “Significant accounting policies” — Note 16 “Income taxes” Valuation of goodwill for the Machine Automation reporting unit Critical Audit Matter Our response As discussed in Note 2 to the consolidated financial statements, goodwill is evaluated for impairment annually as of October 1, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. As discussed in Note 11, effective July 1, 2020, the Group implemented a new operating model resulting in the identification of new goodwill reporting units and a revised allocation of goodwill within operating segments. As a result, interim quantitative impairment tests were performed over the newly established goodwill reporting units, with the fair value of each reporting unit estimated using a discounted cash flow model. The Group’s quantitative impairment test indicated that the Machine Automation The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s goodwill process. This included controls related to management’s determination of the projected revenue growth rates, projected EBITDA margins, and the discount rate. We assessed the Group’s ability to accurately prepare projections for the Machine Automation reporting unit by comparing the projected revenues from past periods to actual results for the same period. Additionally, we evaluated the reasonableness of the reporting unit projected revenue growth rates and projected EBITDA margins used in management’s discounted cash flow 149
reporting unit within the Robotics & Discrete Automation operating segment had a carrying value that was not recoverable, resulting in an impairment charge of $290 million, which was recorded to reduce the carrying value of this reporting unit to its implied fair value. The goodwill balance was $2,228 million for the Robotics & Discrete Automation operating segment as of December 31, 2020. We identified the valuation of goodwill for the Machine Automation reporting unit as a critical audit matter. A high degree of subjective auditor judgment and specialized skills and knowledge was required to evaluate the projected revenue growth rates, projected earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, and the discount rate used in the Group’s impairment test. analysis by comparing projected amounts to past performance of the reporting unit. We involved valuation professionals with specialized skills and knowledge who assisted in assessing: (1) the reasonableness of the projected revenue growth rates and projected EBITDA margins by comparing the assumptions to relevant industry trends and current market indices of comparable entities (2) the reasonableness of the discount rate through testing the source information underlying the determination of the discount rate, and developing a range of independent estimates and comparing those to the discount rate applied by management. For further information on Goodwill refer to the following: — Note 2 “Significant accounting policies” — Note 11 “Goodwill and intangible assets” Valuation of the retained noncontrolling interest in the Power Grids business Critical Audit Matter Our response As discussed in Notes 3 and 4 to the consolidated financial statements, the Group completed the sale of 80.1 percent of its Power Grids (“PG”) business and retained a 19.9 percent ownership interest in the PG business with a fair value estimated at $1,661 million as of July 1, 2020, which was valued using a discounted cash flow model, and recognized within Investments in equity-accounted companies. The valuation of the retained noncontrolling interest had a direct impact on the gain on sale of the PG business, for which the Group recognized a gain of $5,141 million in Income from discontinued operations, net of tax. We identified the valuation of the retained noncontrolling interest in the PG business as a critical audit matter. A high degree of subjective auditor judgment and specialized skills and knowledge was required to evaluate the projected revenue growth rates, projected earnings before interest, taxes, depreciation, and amortization (“EBITDA”) margins, and the risk-adjusted weighted-average cost of capital (“discount rate”) assumptions applied by management in the discounted cash flow model used to estimate the fair value of the retained noncontrolling interest. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s valuation of noncontrolling interest process including internal controls related to management’s determination of the projected revenue growth rates, projected EBITDA margins, and the discount rate assumptions used in the discounted cash flow model. We evaluated the projected revenue growth rates and projected EBITDA margins by comparing projected amounts to historical performance of the PG business. We involved valuation professionals with specialized skills and knowledge who assisted in assessing: (1) the reasonableness of the projected revenue growth rates and projected EBITDA margins by comparing the assumptions to relevant industry trends and current market indices of comparable entities (2) the reasonableness of the discount rate through testing the source information underlying the determination of the discount rate, and developing a range of independent estimates and comparing those to the discount rate applied by management. 150
For further information on the valuation ofthe retained noncontrolling interestin the Power Grids businessrefer to the following:—Note 3 “Discontinued Operations”—Note 4 “Acquisitions, divestments and equity-accounted companies”Report on Other Legal and Regulatory RequirementsWe are a public accounting firm registered with the Swiss Federal Audit Oversight Authority (FAOA) and the PCAOB and we confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA). We are independent ofthe Group in accordance with Swiss law (article 728 CO and article 11 AOA) and U.S. federal securities laws as well as the applicable rules and regulations of the Swiss audit profession, the U.S. Securities andExchange Commission and the PCAOB, and we have fulfilledour other ethical responsibilities in accordance with these requirements.In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparationof consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved.We have also audited, in accordance with the standards of the PCAOB, the Group’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 25, 2021,expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.We have served as the Group’s auditor since 2018.KPMG AGHans-Dieter KraussMohammad NafeieLicensed Audit ExpertAuditor in ChargeZurich,SwitzerlandFebruary 25, 2021KPMG AG, Räffelstrasse 28, PO Box, CH-8036 Zurich© 2021 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 151
Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of ABB Ltd Opinion on Internal Control Over Financial Reporting We have audited ABB Ltd and its subsidiaries’ (the Group) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. We also have audited, in accordance with Swiss law, Swiss Auditing Standards and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated income statements, statements of comprehensive income, cash flows and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2021, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Group’s Board of Directors and management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 152
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.KPMG AGHans-Dieter KraussMohammad NafeieLicensed Audit ExpertAuditor in ChargeZurich, SwitzerlandFebruary25, 2021KPMG AG, Räffelstrasse 28, PO Box, CH-8036 Zurich© 2021 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
153
—
Consolidated Income Statements
Year ended December 31 ($ in millions, except per share data in $)
Sales of products
Sales of services and other
Total revenues
Cost of sales of products
Cost of services and other
Total cost of sales
Gross profit
Selling, general and administrative expenses
Non-order related research and development expenses
Impairment of goodwill
Other income (expense), net
Income from operations
Interest and dividend income
Interest and other finance expense
Losses from extinguishment of debt
Non-operational pension (cost) credit
Income from continuing operations before taxes
Income tax expense
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Net income attributable to noncontrolling interests
Net income attributable to ABB
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Weighted-average number of shares outstanding (in millions) used to compute:
Basic earnings per share attributable to ABB shareholders
Diluted earnings per share attributable to ABB shareholders
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
2020
21,214
4,920
26,134
2019
22,554
5,424
27,978
2018
22,366
5,296
27,662
(15,229)
(15,811)
(15,961)
(3,027)
(3,261)
(3,157)
(18,256)
(19,072)
(19,118)
7,878
(4,895)
(1,127)
8,906
(5,447)
(1,198)
8,544
(5,295)
(1,147)
(311)
48
1,593
51
(240)
(162)
(401)
841
(496)
345
4,860
5,205
(59)
5,146
294
4,852
5,146
0.14
2.30
2.44
0.14
2.29
2.43
2,111
2,119
—
(323)
1,938
67
(215)
—
72
1,862
(772)
1,090
438
1,528
(89)
1,439
1,043
396
1,439
0.49
0.19
0.67
0.49
0.19
0.67
—
124
2,226
72
(262)
—
83
2,119
(544)
1,575
723
2,298
(125)
2,173
1,514
659
2,173
0.71
0.31
1.02
0.71
0.31
1.02
2,133
2,135
2,132
2,139
154
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
—
Consolidated Statements of
Comprehensive Income
Year ended December 31 ($ in millions)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments:
Foreign currency translation adjustments
Gain on liquidation of foreign subsidiary
Changes attributable to divestments
Foreign currency translation adjustments
Available-for-sale securities:
Net unrealized gains (losses) arising during the year
Reclassification adjustments for net (gains) losses included in net income
Changes attributable to divestments
Unrealized gains (losses) on available-for-sale securities
Pension and other postretirement plans:
Prior service (costs) credits arising during the year
Net actuarial losses arising during the year
Amortization of prior service credit included in net income
Amortization of net actuarial loss included in net income
Net (gains) losses from pension settlements included in net income
Changes attributable to divestments
Pension and other postretirement plan adjustments
Cash flow hedge derivatives:
Net unrealized gains (losses) arising during the year
Reclassification adjustments for net (gains) losses included in net income
Unrealized gains (losses) of cash flow hedge derivatives
Total other comprehensive income (loss), net of tax
Total comprehensive income, net of tax
Total comprehensive income attributable to noncontrolling interests, net of tax
Total comprehensive income attributable to ABB, net of tax
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
2020
5,205
2019
1,528
2018
2,298
498
—
519
(130)
—
(2)
1,017
(132)
(627)
(31)
12
(646)
(4)
1
—
(3)
(7)
(352)
(24)
69
19
—
14
—
—
14
6
(220)
(28)
68
32
—
(142)
(295)
20
(9)
11
(249)
1,279
(83)
1,196
(49)
21
(28)
(972)
1,326
(110)
1,216
24
(14)
(3)
7
43
(200)
(11)
88
518
151
589
2
—
2
1,615
6,820
(86)
6,734
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
155
—
Consolidated Balance Sheets
December 31 ($ in millions, except share data)
Cash and equivalents
Restricted cash
Marketable securities and short-term investments
Receivables, net
Contract assets
Inventories, net
Prepaid expenses
Other current assets
Current assets held for sale and in discontinued operations
Total current assets
Restricted cash, non-current
Property, plant and equipment, net
Operating lease right-of-use assets
Investments in equity-accounted companies
Prepaid pension and other employee benefits
Intangible assets, net
Goodwill
Deferred taxes
Other non-current assets
Total assets
Accounts payable, trade
Contract liabilities
Short-term debt and current maturities of long-term debt
Current operating leases
Provisions for warranties
Other provisions
Other current liabilities
Current liabilities held for sale and in discontinued operations
Total current liabilities
Long-term debt
Non-current operating leases
Pension and other employee benefits
Deferred taxes
Other non-current liabilities
Non-current liabilities held for sale and in discontinued operations
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, CHF 0.12 par value
(2,168,148,264 issued shares at December 31, 2020 and 2019)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost
(137,314,095 and 34,647,153 shares at December 31, 2020 and 2019, respectively)
Total ABB stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
2020
3,278
323
2,108
6,820
985
4,469
201
760
282
19,226
300
4,174
969
1,784
360
2,078
10,850
843
504
2019
3,508
36
566
6,434
1,025
4,184
191
674
9,840
26,458
—
3,972
994
33
133
2,252
10,825
910
531
41,088
46,108
4,571
1,903
1,293
270
1,035
1,519
4,181
644
4,353
1,719
2,287
305
816
1,375
3,761
5,650
15,416
20,266
4,828
731
1,231
661
2,025
197
6,772
717
1,793
911
1,669
—
25,089
32,128
188
83
22,946
(4,002)
(3,530)
15,685
314
15,999
41,088
188
73
19,640
(5,590)
(785)
13,526
454
13,980
46,108
156
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
—
Consolidated Statements of
Cash Flows
Year ended December 31 ($ in millions)
2020
2019
2018
Operating activities:
Net income
Less: Income from discontinued operations, net of tax
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Impairment of goodwill
Pension and other employee benefits
Deferred taxes
Losses from extinguishment of debt
Net loss (gain) from derivatives and foreign exchange
Net gain from sale of property, plant and equipment
Net loss (gain) from sale of businesses
Fair value adjustment on assets and liabilities held for sale
Share-based payment arrangements
Other
Changes in operating assets and liabilities:
Trade receivables, net
Contract assets and liabilities
Inventories, net
Accounts payable, trade
Accrued liabilities
Provisions, net
Income taxes payable and receivable
Other assets and liabilities, net
Net cash provided by operating activities — continuing operations
Net cash provided by (used in) operating activities — discontinued operations
Net cash provided by operating activities
Investing activities:
Purchases of investments
Purchases of property, plant and equipment and intangible assets
Acquisition of businesses (net of cash acquired) and increases in cost- and
equity-accounted companies
Proceeds from sales of investments
Proceeds from maturity of investments
Proceeds from sales of property, plant and equipment
Proceeds from sales of businesses (net of transaction costs and cash disposed) and
cost- and equity-accounted companies
Net cash from settlement of foreign currency derivatives
Other investing activities
Net cash used in investing activities — continuing operations
Net cash provided by (used in) investing activities — discontinued operations
Net cash provided by (used in) investing activities
5,205
(4,860)
915
311
50
(280)
162
(2)
(37)
2
33
44
(20)
(100)
186
196
(13)
(92)
243
(76)
8
1,875
(182)
1,693
(5,933)
(694)
(121)
4,341
11
114
(136)
138
8
(2,272)
9,032
6,760
1,528
(438)
961
—
(102)
(83)
—
1
(51)
(55)
421
46
43
(202)
128
(182)
130
(76)
(36)
(3)
(131)
1,899
426
2,325
(748)
(762)
(22)
749
80
82
69
(76)
(23)
(651)
(164)
(815)
2,298
(723)
916
—
(100)
(142)
—
93
(57)
(57)
—
50
24
(144)
(18)
(336)
454
252
87
(102)
(143)
2,352
572
2,924
(322)
(772)
(2,664)
567
160
72
113
(30)
(32)
(2,908)
(177)
(3,085)
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
157
Year ended December 31 ($ in millions)
2020
2019
2018
Financing activities:
Net changes in debt with maturities of 90 days or less
Increase in debt
Repayment of debt
Delivery of shares
Purchase of treasury stock
Dividends paid
Dividends paid to noncontrolling shareholders
Other financing activities
Net cash used in financing activities — continuing operations
Net cash provided by (used in) financing activities — discontinued operations
Net cash used in financing activities
Effects of exchange rate changes on cash and equivalents and restricted cash
Net change in cash and equivalents and restricted cash
Cash and equivalents and restricted cash, beginning of period
Cash and equivalents and restricted cash, end of period
Supplementary disclosure of cash flow information:
Interest paid
Income taxes paid
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
(587)
343
(3,459)
412
(3,048)
(1,736)
(82)
(49)
164
2,406
(2,156)
10
—
(1,675)
(90)
13
(8,206)
(1,328)
31
(55)
(8,175)
(1,383)
79
357
3,544
3,901
189
905
(28)
99
3,445
3,544
284
1,005
221
1,914
(830)
42
(250)
(1,717)
(86)
(35)
(741)
(48)
(789)
(131)
(1,081)
4,526
3,445
243
1,026
158
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—
Consolidated Statements of
Changes in Stockholders’ Equity
Years ended December 31, 2020, 2019 and 2018 ($ in millions)
Balance at January 1, 2018
Cumulative effect of changes in accounting principles
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests
Noncontrolling interests recognized in connection with business combination
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Purchase of treasury stock
Delivery of shares
Call options
Balance at December 31, 2018
Adoption of accounting standard update
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests
Fair value adjustment to noncontrolling interests recognized in business combination
Changes in noncontrolling interests in connection with divestments
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Delivery of shares
Call options
Balance at December 31, 2019
Adoption of accounting standard update
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized (income) expense related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Total comprehensive income
Changes in noncontrolling interests
Changes in noncontrolling interests in connection with divestments
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Purchase of treasury stock
Delivery of shares
Other
Balance at December 31, 2020
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
Common
stock
188
Additional
paid-in capital
29
Retained
earnings
Accumulated other
comprehensive loss
Treasury stock
stockholders’ equity
(647)
interests
530
Total ABB
Noncontrolling
Total stockholders’
(4)
60
(35)
5
56
(17)
55
(24)
4
73
(16)
54
(24)
(3)
83
188
188
188
(4,345)
(9)
(631)
(3)
(295)
(28)
(5,311)
(36)
(126)
(142)
14
11
(5,590)
990
589
7
2
19,594
(192)
2,173
(1,736)
19,839
36
1,439
(1,675)
19,640
(82)
5,146
(1,758)
22,946
(4,002)
(249)
77
(820)
34
(785)
(3,181)
436
(3,530)
14,819
(201)
2,173
(631)
(3)
(295)
(28)
1,216
(4)
—
—
(1,736)
60
(249)
42
5
—
13,952
1,439
(126)
(142)
14
11
1,196
(17)
(1,675)
—
—
—
55
10
4
13,526
(82)
5,146
990
589
7
2
6,734
(16)
—
—
54
(1,758)
(3,181)
412
(3)
15,685
equity
15,349
(201)
2,298
(646)
(3)
(295)
(28)
1,326
(23)
107
(146)
(1,736)
60
(249)
42
5
—
14,534
1,528
(132)
(142)
14
11
1,279
(5)
(44)
(55)
(122)
(1,675)
55
10
4
13,980
(91)
5,205
1,017
589
6,820
7
2
3
(138)
(98)
(1,758)
54
(3,181)
412
(3)
15,999
125
(15)
110
(19)
107
(146)
582
89
(6)
83
12
(44)
(55)
(122)
454
(9)
59
27
86
19
(138)
(98)
314
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159
—
Consolidated Statements of
Changes in Stockholders’ Equity
Years ended December 31, 2020, 2019 and 2018 ($ in millions)
Balance at January 1, 2018
Cumulative effect of changes in accounting principles
Comprehensive income:
Net income
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Noncontrolling interests recognized in connection with business combination
Common
stock
188
Additional
paid-in capital
29
Total comprehensive income
Changes in noncontrolling interests
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Purchase of treasury stock
Delivery of shares
Call options
Balance at December 31, 2018
Adoption of accounting standard update
Comprehensive income:
Net income
Total comprehensive income
Changes in noncontrolling interests
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Delivery of shares
Call options
Balance at December 31, 2019
Adoption of accounting standard update
Comprehensive income:
Net income
Total comprehensive income
Changes in noncontrolling interests
Dividends to noncontrolling shareholders
Dividends paid to shareholders
Share-based payment arrangements
Purchase of treasury stock
Delivery of shares
Other
Balance at December 31, 2020
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized income (expense) related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Fair value adjustment to noncontrolling interests recognized in business combination
Changes in noncontrolling interests in connection with divestments
Foreign currency translation adjustments, net of tax
Effect of change in fair value of available-for-sale securities, net of tax
Unrecognized (income) expense related to pensions and other postretirement plans, net of tax
Change in derivatives qualifying as cash flow hedges, net of tax
Changes in noncontrolling interests in connection with divestments
188
188
(4)
60
(35)
5
56
(17)
55
(24)
4
73
(16)
54
(24)
(3)
83
Retained
earnings
Accumulated other
comprehensive loss
(4,345)
(9)
(631)
(3)
(295)
(28)
(5,311)
(36)
(126)
14
(142)
11
(5,590)
990
7
589
2
19,594
(192)
2,173
(1,736)
19,839
36
1,439
(1,675)
19,640
(82)
5,146
(1,758)
Due to rounding, numbers presented may not add to the totals provided.
See accompanying Notes to the Consolidated Financial Statements
188
22,946
(4,002)
Treasury stock
(647)
(249)
77
(820)
34
(785)
(3,181)
436
(3,530)
Total ABB
stockholders’ equity
Noncontrolling
interests
Total stockholders’
equity
14,819
(201)
2,173
(631)
(3)
(295)
(28)
1,216
(4)
—
—
(1,736)
60
(249)
42
5
13,952
—
1,439
(126)
14
(142)
11
1,196
(17)
—
—
—
(1,675)
55
10
4
13,526
(82)
5,146
990
7
589
2
6,734
(16)
—
—
(1,758)
54
(3,181)
412
(3)
15,685
530
125
(15)
110
(19)
107
(146)
582
89
(6)
83
12
(44)
(55)
(122)
454
(9)
59
27
86
19
(138)
(98)
314
15,349
(201)
2,298
(646)
(3)
(295)
(28)
1,326
(23)
107
(146)
(1,736)
60
(249)
42
5
14,534
—
1,528
(132)
14
(142)
11
1,279
(5)
(44)
(55)
(122)
(1,675)
55
10
4
13,980
(91)
5,205
1,017
7
589
2
6,820
3
(138)
(98)
(1,758)
54
(3,181)
412
(3)
15,999
160
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—
Notes to the Consolidated
Financial Statements
—
Note 1
The Company
ABB Ltd and its subsidiaries (collectively, the Company) together form a leading global technology
company, connecting software to its electrification, robotics, automation and motion portfolio to drive
performance to new levels.
—
Note 2
Significant accounting policies
The following is a summary of significant accounting policies followed in the preparation of these
Consolidated Financial Statements.
Basis of presentation
The Consolidated Financial Statements are prepared in accordance with United States of America
(United States or U.S.) generally accepted accounting principles (U.S. GAAP) and are presented in United
States dollars ($ or USD) unless otherwise stated. Due to rounding, numbers presented may not add to
the totals provided. The par value of capital stock is denominated in Swiss francs.
Reclassifications
Certain amounts reported for prior years in the Consolidated Financial Statements and the
accompanying Notes have been reclassified to conform to the current year’s presentation. These
changes primarily relate to the separate presentation of Restricted cash in the Consolidated
Balance Sheets.
Scope of consolidation
The Consolidated Financial Statements include the accounts of ABB Ltd and companies which are
directly or indirectly controlled by ABB Ltd. Additionally, the Company consolidates variable interest
entities if it has determined that it is the primary beneficiary. Intercompany accounts and transactions
are eliminated. Investments in joint ventures and affiliated companies in which the Company has the
ability to exercise significant influence over operating and financial policies (generally through direct or
indirect ownership of 20 percent to 50 percent of the voting rights), are recorded in the Consolidated
Financial Statements using the equity method of accounting.
Translation of foreign currencies and foreign exchange transactions
The functional currency for most of the Company’s subsidiaries is the applicable local currency. The
translation from the applicable functional currencies into the Company’s reporting currency is
performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for
income statement accounts using average exchange rates prevailing during the year. The resulting
translation adjustments are excluded from the determination of earnings and are recognized in
“Accumulated other comprehensive loss” until the subsidiary is sold, substantially liquidated or
evaluated for impairment in anticipation of disposal.
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Foreign currency exchange gains and losses, such as those resulting from foreign currency
denominated receivables or payables, are included in the determination of earnings, except as they
relate to intercompany loans that are equity-like in nature with no reasonable expectation of repayment,
which are recognized in “Accumulated other comprehensive loss”. Exchange gains and losses recognized
in earnings are included in “Total revenues”, “Total cost of sales”, “Selling, general and administrative
expenses” or “Interest and other finance expense” consistent with the nature of the underlying item.
Discontinued operations
The Company reports a disposal, or planned disposal, of a component or a group of components
as a discontinued operation if the disposal represents a strategic shift that has or will have a major
effect on the Company’s operations and financial results. A strategic shift could include a disposal
of a major geographical area, a major line of business or other major parts of the
Company. A component may be a reportable segment or an operating segment, a reporting
unit, a subsidiary, or an asset group.
The assets and liabilities of a component reported as a discontinued operation are presented
separately as held for sale in the Company’s Consolidated Balance Sheets.
Interest expense that is not directly attributable to or related to the Company’s continuing business or
discontinued business is allocated to discontinued operations based on the ratio of net assets to be
sold less debt that is required to be paid as a result of the planned disposal transaction to the sum of
total net assets of the Company plus consolidated debt. General corporate overhead is not allocated to
discontinued operations (see Note 3).
Operating cycle
A portion of the Company’s activities (primarily long-term system integration activities) has an
operating cycle that exceeds one year. For classification of current assets and liabilities related to such
activities, the Company elected to use the duration of the individual contracts as its operating cycle.
Accordingly, there are accounts receivable, inventories and provisions related to these contracts which
will not be realized within one year that have been classified as current.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
assumptions and estimates that directly affect the amounts reported in the Consolidated Financial
Statements and the accompanying Notes. These accounting assumptions and estimates include:
• growth rates, discount rates and other assumptions used to determine impairment of long-lived
assets and in testing goodwill for impairment,
• estimates to determine valuation allowances for deferred tax assets and amounts recorded for
unrecognized tax benefits,
• assumptions used in determining inventory obsolescence and net realizable value,
• estimates and assumptions used in determining the initial fair value of retained noncontrolling
interest and certain obligations in connection with divestments,
• estimates and assumptions used in determining the fair values of assets and liabilities assumed in
business combinations,
• assumptions used in the determination of corporate costs directly attributable to
discontinued operations,
• estimates of loss contingencies associated with litigation or threatened litigation and other claims
and inquiries, environmental damages, product warranties, self-insurance reserves, regulatory and
other proceedings,
• estimates used to record expected costs for employee severance in connection with
restructuring programs,
• estimates related to credit losses expected to occur over the remaining life of financial assets such as
trade and other receivables, loans and other instruments,
• assumptions used in the calculation of pension and postretirement benefits and the fair value of
pension plan assets, and
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• assumptions and projections, principally related to future material, labor and project-related
overhead costs, used in determining the percentage-of-completion on projects, as well as the amount
of variable consideration the Company expects to be entitled to.
The actual results and outcomes may differ from the Company’s estimates and assumptions.
Cash and equivalents
Cash and equivalents include highly liquid investments with maturities of three months or less at the
date of acquisition.
Currency and other local regulatory limitations related to the transfer of funds exist in a number of
countries where the Company operates. Funds, other than regular dividends, fees or loan repayments,
cannot be readily transferred abroad from these countries and are therefore deposited and used for
working capital needs locally. These funds are included in cash and equivalents as they are not
considered restricted.
Cash and equivalents that are subject to contractual restrictions or other legal obligations and not
readily available are classified as “Restricted cash”.
Marketable securities and short-term investments
Management determines the appropriate classification of held-to-maturity and available-for-sale debt
securities at the time of purchase. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity. Held-to-maturity debt securities
are carried at amortized cost, adjusted for accretion of discounts or amortization of premiums to
maturity computed under the effective interest method. Such accretion or amortization is included in
“Interest and dividend income”. Marketable debt securities not classified as held-to-maturity are
classified as available-for-sale and reported at fair value.
Unrealized gains and losses on available-for-sale debt securities are excluded from the determination of
earnings and are instead recognized in the “Accumulated other comprehensive loss” component of
stockholders’ equity, net of tax, until realized. Realized gains and losses on available-for-sale debt
securities are computed based upon the historical cost of these securities, using the specific
identification method.
Marketable debt securities are classified as either “Cash and equivalents” or “Marketable securities and
short-term investments” according to their maturity at the time of acquisition.
Marketable equity securities are generally classified as “Marketable securities and short-term
investments”, however, any marketable securities held as a long-term investment rather than as an
investment of excess liquidity are classified as “Other non-current assets”. Equity securities are
measured at fair value with fair value changes reported in net income. Fair value changes for equity
securities are generally reported in “Interest and other finance expense”, however, fair value changes for
certain equity securities classified as long-term investments are reported in “Other income (expense),
net”.
For debt securities classified as available-for-sale where fair value has declined below amortized cost
due to credit losses, the Company records an allowance for expected credit losses and adjusts the
allowance in subsequent periods in “Interest and other finance expense”. All fair value changes other
than those related to credit risk are reported in “Accumulated other comprehensive loss” until the
security is sold.
In addition, equity securities without readily determinable fair values are written down to fair value
if a qualitative assessment indicates that the investment is impaired and the fair value of the
investment is less than its carrying amount. The impairment charge is recorded in “Interest and other
finance expense”.
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Accounts receivable and allowance for expected credit losses
Accounts receivable are recorded at the invoiced amount. The Company has a group-wide policy on the
management of credit risk. The policy includes a credit assessment methodology to assess the
creditworthiness of customers and assign to those customers a risk category. Third-party agencies’
ratings are considered, if available. For customers where agency ratings are not available, the
customer’s most recent financial statements, payment history and other relevant information are
considered in the assignment to a risk category. Customers are assessed at least annually or more
frequently when information on significant changes in the customer’s financial position becomes
known. In addition to the assignment to a risk category, a credit limit per customer is set.
The Company recognizes an allowance for credit losses to present the net amount of receivables
expected to be collected as of the balance sheet date. The allowance is based on the credit losses
expected to arise over the asset’s contractual term taking into account historical loss experience,
customer-specific data as well as forward looking estimates. Receivables are grouped in pools based on
similar risk characteristics to estimate expected credit losses. Expected credit losses are estimated
individually when the related assets do not share similar risk characteristics.
Accounts receivable are written off when deemed uncollectible and are recognized as a deduction from
the allowance for credit losses. Expected recoveries, which are not to exceed the amount previously
written off, are considered in determining the allowance balance at the balance sheet date.
The Company, in its normal course of business, transfers receivables to third parties, generally without
recourse. The transfer is accounted for as a sale when the Company has surrendered control over the
receivables. Control is deemed to have been surrendered when (i) the transferred receivables have been
put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other
receivership, (ii) the third-party transferees have the right to pledge or exchange the transferred
receivables, and (iii) the Company has relinquished effective control over the transferred receivables
and does not retain the ability or obligation to repurchase or redeem the transferred receivables. At the
time of sale, the sold receivables are removed from the Consolidated Balance Sheets and the related
cash inflows are classified as operating activities in the Consolidated Statements of Cash Flows. Costs
associated with the sale of receivables, including the related gains and losses from the sales, are
included in “Interest and other finance expense”. Transfers of receivables that do not meet the
requirements for treatment as sales are accounted for as secured borrowings and the related cash
flows are classified as financing activities in the Consolidated Statements of Cash Flows.
Concentrations of credit risk
The Company sells a broad range of products, systems, services and software to a wide range of
industrial, commercial and utility customers as well as various government agencies and
quasi-governmental agencies throughout the world. Concentrations of credit risk with respect to
accounts receivable are limited, as the Company’s customer base is comprised of a large number of
individual customers. Ongoing credit evaluations of customers’ financial positions are performed to
determine whether the use of credit support instruments such as guarantees, letters of credit or credit
insurance are necessary; collateral is not generally required. The Company maintains an allowance for
credit losses as discussed above in “Accounts receivable and allowance for expected credit losses”. Such
losses, in the aggregate, are in line with the Company’s expectations.
It is the Company’s policy to invest cash in deposits with banks throughout the world with certain
minimum credit ratings and in high quality, low risk, liquid investments. The Company actively manages
its credit risk by routinely reviewing the creditworthiness of the banks and the investments held. The
Company has not incurred significant credit losses related to such investments.
The Company’s exposure to credit risk on derivative financial instruments is the risk that the
counterparty will fail to meet its obligations. To reduce this risk, the Company has credit policies that
require the establishment and periodic review of credit limits for individual counterparties. In addition,
the Company has entered into close-out netting agreements with most derivative counterparties.
Close-out netting agreements provide for the termination, valuation and net settlement of some or all
outstanding transactions between two counterparties on the occurrence of one or more pre-defined
trigger events. Derivative instruments are presented on a gross basis in the Consolidated
Financial Statements.
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Revenue recognition
A customer contract exists if collectability under the contract is considered probable, the contract has
commercial substance, contains payment terms, as well as the rights and commitments of both parties,
and has been approved.
The Company offers arrangements with multiple performance obligations to meet its customers’
needs. These arrangements may involve the delivery of multiple products and/or performance of
services (such as installation and training) and the delivery and/or performance may occur at different
points in time or over different periods of time. Goods and services under such arrangements are
evaluated to determine whether they form distinct performance obligations and should be accounted
for as separate revenue transactions. The Company allocates the sales price to each distinct
performance obligation based on the price of each item sold in separate transactions at the inception
of the arrangement.
The Company generally recognizes revenues for the sale of non-customized products including circuit
breakers, modular substation packages, control products, motors, generators, drives, robots,
turbochargers, measurement and analytical instrumentation, and other goods which are manufactured
on a standardized basis at a point in time. Revenues are recognized at the point in time that the
customer obtains control of the goods, which is when it has taken title to the products and assumed
the risks and rewards of ownership of the products specified in the purchase order or sales agreement.
Generally, the transfer of title and risks and rewards of ownership are governed by the contractually
defined shipping terms. The Company uses various International Commercial Terms (as promulgated by
the International Chamber of Commerce) in its sales of products to third party customers, such as Ex
Works (EXW), Free Carrier (FCA) and Delivered Duty Paid (DDP).
Billing terms for these point in time contracts vary but generally coincide with delivery to the customer.
Payment is generally due upon receipt of the invoice, payable within 90 days or less.
The Company generally recognizes revenues for the sale of customized products, including integrated
automation and electrification systems and solutions, on an over time basis using the
percentage-of-completion method of accounting. These systems are generally accounted for as a single
performance obligation as the Company is required to integrate equipment and services into one
deliverable for the customer. Revenues are recognized as the systems are customized during the
manufacturing or integration process and as control is transferred to the customer as evidenced by the
Company’s right to payment for work performed or by the customer’s ownership of the work in process.
The Company principally uses the cost-to-cost method to measure progress towards completion on
contracts. Under this method, progress of contracts is measured by actual costs incurred in relation to
the Company’s best estimate of total costs based on the Company’s history of manufacturing or
constructing similar assets for customers. Estimated costs are reviewed and updated routinely for
contracts in progress to reflect changes in quantity or pricing of the inputs. The cumulative effect of
any change in estimate is recorded in the period when the change in estimate is determined. Contract
costs include all direct materials, labor and subcontract costs and indirect costs related to contract
performance, such as indirect labor, supplies, tools and depreciation costs.
The nature of the Company’s contracts for the sale of customized products gives rise to several types of
variable consideration, including claims, unpriced change orders, liquidated damages and penalties.
These amounts are estimated based upon the most likely amount of consideration to which the
customer or the Company will be entitled. The estimated amounts are included in the sales price to the
extent it is probable that a significant reversal of cumulative revenues recognized will not occur when
the uncertainty associated with the variable consideration is resolved. All estimates of variable
consideration are reassessed periodically. Back charges to suppliers or subcontractors are recognized
as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can
be reliably estimated.
Billing terms for these over-time contracts vary but are generally based on achieving specified
milestones. The differences between the timing of revenues recognized and customer billings result in
changes to contract assets and contract liabilities. Payment is generally due upon receipt of the invoice,
payable within 90 days or less. Contractual retention amounts billed to customers are generally due
upon expiration of the contractual warranty period.
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165
Service revenues reflect revenues earned from the Company’s activities in providing services to
customers primarily subsequent to the sale and delivery of a product or complete system. Such
revenues consist of maintenance type contracts, repair services, equipment upgrades, field service
activities that include personnel and accompanying spare parts, training, and installation and
commissioning of products as a stand-alone service or as part of a service contract. The Company
generally recognizes revenues from service transactions as services are performed or at the point in
time that the customer obtains control of the spare parts. For long-term service contracts including
monitoring and maintenance services, revenues are recognized on a straight line basis over the term of
the contract consistent with the nature, timing and extent of the services or, if the performance pattern
is other than straight line, as the services are provided based on costs incurred relative to total
expected costs.
In limited circumstances the Company sells extended warranties that extend the warranty coverage
beyond the standard coverage offered on specific products. Revenues for these warranties are
recorded over the length of the warranty period based on their stand-alone selling price.
Billing terms for service contracts vary but are generally based on the occurrence of a service event.
Payment is generally due upon receipt of the invoice, payable within 90 days or less.
Revenues are reported net of customer rebates, early settlement discounts, and similar incentives.
Rebates are estimated based on sales terms, historical experience and trend analysis. The most
common incentives relate to amounts paid or credited to customers for achieving defined
volume levels.
Taxes assessed by a governmental authority that are directly imposed on revenue-producing
transactions between the Company and its customers, such as sales, use, value added and some excise
taxes, are excluded from revenues.
The Company does not adjust the contract price for the effects of a financing component if the
Company expects, at contract inception, that the time between control transfer and cash receipt is less
than 12 months.
Sales commissions are expensed immediately when the amortization period for the costs to obtain the
contract is less than a year.
Contract loss provisions
Losses on contracts are recognized in the period when they are identified and are based upon the
anticipated excess of contract costs over the related contract revenues.
Shipping and handling costs
Shipping and handling costs are recorded as a component of cost of sales.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in,
first-out method, the weighted-average cost method, or the specific identification method. Inventoried
costs are stated at acquisition cost or actual production cost, including direct material and labor and
applicable manufacturing overheads. Adjustments to reduce the cost of inventory to its net realizable
value are made, if required, for decreases in sales prices, obsolescence or similar reductions in value.
Impairment of long-lived assets
Long-lived assets that are held and used are evaluated for impairment for each of the Company’s asset
groups when events or circumstances indicate that the carrying amount of the long-lived asset or asset
group may not be recoverable. If the asset group’s net carrying value exceeds the asset group’s net
undiscounted cash flows expected to be generated over its remaining useful life including net proceeds
expected from disposition of the asset group, if any, the carrying amount of the asset group is reduced
to its estimated fair value. The estimated fair value is determined using a market, income and/or
cost approach.
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Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and is depreciated using
the straight-line method. The estimated useful lives of the assets are generally as follows:
• factories and office buildings: 30 to 40 years,
• other facilities: 15 years,
• machinery and equipment: 3 to 15 years,
• furniture and office equipment: 3 to 8 years, and
• leasehold improvements are depreciated over their estimated useful life or, for operating leases, over
the lease term, if shorter.
Goodwill and intangible assets
Goodwill is reviewed for impairment annually as of October 1, or more frequently if events or
circumstances indicate that the carrying value may not be recoverable.
Goodwill is evaluated for impairment at the reporting unit level. A reporting unit is an operating
segment or one level below an operating segment. For the annual impairment review performed in
2020, the reporting units were determined to be one level below the operating segments.
When evaluating goodwill for impairment, the Company uses either a qualitative or quantitative
assessment method for each reporting unit. The qualitative assessment involves determining, based on
an evaluation of qualitative factors, if it is more likely than not that the fair value of a reporting unit is
less than its carrying value. If, based on this qualitative assessment, it is determined to be more likely
than not that the reporting unit’s fair value is less than its carrying value, a quantitative impairment test
is performed, otherwise no further analysis is required. If the Company elects not to perform the
qualitative assessment for a reporting unit, then a quantitative impairment test is performed.
When performing a quantitative impairment test, the Company calculates the fair value of a reporting
unit using an income approach based on the present value of future cash flows, applying a discount rate
that represents the reporting unit’s weighted-average cost of capital, and compares it to the reporting
unit’s carrying value. If the carrying value of the net assets of a reporting unit exceeds the fair value of
the reporting unit then the Company records an impairment charge equal to the difference, provided
that the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.
The cost of acquired intangible assets with a finite life is amortized using a method of amortization
that reflects the pattern of intangible assets’ expected contributions to future cash flows. If that
pattern cannot be reliably determined, the straight-line method is used. The amortization periods range
from 3 to 5 years for software and from 5 to 20 years for customer-, technology- and marketing-related
intangibles. Intangible assets with a finite life are tested for impairment upon the occurrence of certain
triggering events.
Derivative financial instruments and hedging activities
The Company uses derivative financial instruments to manage currency, commodity, interest rate and
equity exposures, arising from its global operating, financing and investing activities (see Note 6).
The Company recognizes all derivatives, other than certain derivatives indexed to the Company’s own
stock, at fair value in the Consolidated Balance Sheets. Derivatives that are not designated as hedging
instruments are reported at fair value with derivative gains and losses reported through earnings and
classified consistent with the nature of the underlying transaction.
If the derivatives are designated as a hedge, depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the change in fair value of the hedged item
attributable to the risk being hedged through earnings (in the case of a fair value hedge) or recognized
in “Accumulated other comprehensive loss” until the hedged item is recognized in earnings (in the case
of a cash flow hedge). Where derivative financial instruments have been designated as cash flow hedges
of forecasted transactions and such forecasted transactions are no longer probable of occurring,
hedge accounting is discontinued and any derivative gain or loss previously included in “Accumulated
other comprehensive loss” is reclassified into earnings consistent with the nature of the original
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forecasted transaction. Gains or losses from derivatives designated as hedging instruments in a fair
value hedge are reported through earnings and classified consistent with the nature of the underlying
hedged transaction.
Certain commercial contracts may grant rights to the Company or the counterparties, or contain other
provisions that are considered to be derivatives. Such embedded derivatives are assessed at inception
of the contract and depending on their characteristics, accounted for as separate derivative
instruments and shown at their fair value in the Consolidated Balance Sheets with changes in their fair
value reported in earnings consistent with the nature of the commercial contract to which they relate.
Derivatives are classified in the Consolidated Statements of Cash Flows in the same section as the
underlying item. Cash flows from the settlement of undesignated derivatives used to manage the risks
of different underlying items on a net basis are classified within “Net cash provided by operating
activities”, as the underlying items are primarily operational in nature. Other cash flows on the
settlement of derivatives are recorded within “Net cash provided by (used in) investing activities”.
Leases
The Company leases primarily real estate, vehicles and machinery.
In January 2019, the Company adopted a new lease accounting standard. Prior to the adoption of the
new accounting standard, lease transactions where substantially all risks and rewards incident to
ownership were transferred from the lessor to the lessee were accounted for as capital leases. All other
leases were accounted for as operating leases. The periodic rent expense for operating leases was
recorded on a straight-line basis over the life of the lease term. Amounts due under capital leases were
recorded as a liability. The value of the assets under capital leases were recorded as property, plant and
equipment. Depreciation and amortization of assets recorded under capital leases was included in
depreciation and amortization expense.
Under the new lease accounting standard, the Company evaluates if a contract contains a lease at
inception of the contract. A contract is or contains a lease if it conveys the right to control the use of
identified property, plant, or equipment (an identified asset) for a period of time in exchange for
consideration. To determine this, the Company assesses whether, throughout the period of use, it has
both the right to obtain substantially all of the economic benefits from use of the identified asset and
the right to direct the use of the identified asset. Leases are classified as either finance or operating,
with the classification determining the pattern of expense recognition in the Consolidated Income
Statements. Lease expense for operating leases continues to be recorded on a straight-line basis over
the lease term. Lease expense for finance leases is separated between amortization of right-of-use
assets and lease interest expense.
In many cases, the Company’s leases include one or more options to renew, with renewal terms that can
extend up to 5 years. The exercise of lease renewal options is at the Company’s discretion. Renewal
periods are included in the expected lease term if they are reasonably certain of being exercised by the
Company. Certain leases also include options to purchase the leased property. None of the Company’s
lease agreements contain material residual value guarantees or material restrictions or covenants.
Long-term leases (leases with terms greater than 12 months) are recorded in the Consolidated Balance
Sheets at the commencement date of the lease based on the present value of the minimum lease
payments. The present value of the lease payments is determined by using the interest rate implicit in
the lease if available. As most of the Company’s leases do not provide an implicit rate, the Company’s
incremental borrowing rate is used for most leases and is determined for portfolios of leases based on
the remaining lease term, currency of the lease, and the internal credit rating of the subsidiary which
entered into the lease.
Short-term leases (leases with an initial lease term of 12 months or less and where it is reasonably
certain that the property will not be leased for a term greater than 12 months) are not recorded in the
Consolidated Balance Sheets and are expensed on a straight-line basis over the lease term. The majority
of short-term leases relate to real estate and machinery.
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Assets under operating lease are included in “Operating lease right-of-use assets”. Operating lease
liabilities are reported both as current and non-current operating lease liabilities. Right-of-use assets
represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent its obligation to make lease payments arising from the lease.
Assets under finance lease are included in “Property, plant and equipment, net” while finance lease
liabilities are included in “Long-term debt” (including “Current maturities of long-term debt” as
applicable).
Lease and non-lease components for leases other than real estate are not accounted for separately.
Income taxes
The Company uses the asset and liability method to account for deferred taxes. Under this method,
deferred tax assets and liabilities are determined based on temporary differences between the
financial reporting and the tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that are expected to be in effect when the differences are
expected to reverse. The Company records a deferred tax asset when it determines that it is more likely
than not that the deduction will be sustained based upon the deduction’s technical merit. Deferred tax
assets and liabilities that can be offset against each other are reported on a net basis. A valuation
allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to
be realized.
Deferred taxes are provided on unredeemed retained earnings of the Company’s subsidiaries. However,
deferred taxes are not provided on such unredeemed retained earnings to the extent it is expected that
the earnings are permanently reinvested. Such earnings may become taxable upon the sale or
liquidation of these subsidiaries or upon the remittance of dividends.
The Company operates in numerous tax jurisdictions and, as a result, is regularly subject to audit by tax
authorities. The Company provides for tax contingencies whenever it is deemed more likely than not
that a tax asset has been impaired or a tax liability has been incurred. Contingency provisions are
recorded based on the technical merits of the Company’s filing position, considering the applicable tax
laws and Organisation for Economic Co-operation and Development (OECD) guidelines and are based
on its evaluations of the facts and circumstances as of the end of each reporting period.
The Company applies a two-step approach to recognize and measure uncertainty in income taxes. The
first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax
benefit as the largest amount which is more than 50 percent likely of being realized upon ultimate
settlement. Uncertain tax positions that could be settled against existing loss carryforwards or income
tax credits are reported net.
Expenses related to tax penalties are classified in the Consolidated Income Statements as “Income tax
expense” while interest thereon is classified as “Interest and other finance expense”. Current income tax
relating to certain items is recognized directly in “Accumulated other comprehensive loss” and not in
earnings. In general, the Company applies the individual items approach when releasing income tax
effects from “Accumulated other comprehensive loss”.
Research and development
Research and development costs not related to specific customer orders are generally expensed
as incurred.
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted-average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding during the year, assuming that all potentially dilutive
securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call
options, outstanding options and shares granted subject to certain conditions under the Company’s
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share-based payment arrangements. See further discussion related to earnings per share in Note 20
and of potentially dilutive securities in Note 18.
Share-based payment arrangements
The Company has various share-based payment arrangements for its employees, which are described
more fully in Note 18. Such arrangements are accounted for under the fair value method. For awards
that are equity-settled, total compensation is measured at grant date, based on the fair value of the
award at that date, and recorded in earnings over the period the employees are required to render
service. For awards that are cash-settled, compensation is initially measured at grant date and
subsequently remeasured at each reporting period, based on the fair value and vesting percentage of
the award at each of those dates, with changes in the liability recorded in earnings.
Fair value measures
The Company uses fair value measurement principles to record certain financial assets and liabilities
on a recurring basis and, when necessary, to record certain non-financial assets at fair value
on a non-recurring basis, as well as to determine fair value disclosures for certain financial instruments
carried at amortized cost in the financial statements. Financial assets and liabilities recorded at fair
value on a recurring basis include foreign currency, commodity and interest rate derivatives, as well as
cash-settled call options and available-for-sale securities. Non-financial assets recorded at fair value
on a non-recurring basis include long-lived assets that are reduced to their estimated fair value due
to impairments.
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. In determining fair value,
the Company uses various valuation techniques including the market approach (using observable
market data for identical or similar assets and liabilities), the income approach (discounted cash flow
models) and the cost approach (using costs a market participant would incur to develop a comparable
asset). Inputs used to determine the fair value of assets and liabilities are defined by a three-level
hierarchy, depending on the nature of those inputs. The Company has categorized its financial assets
and liabilities and non-financial assets measured at fair value within this hierarchy based on whether
the inputs to the valuation technique are observable or unobservable. An observable input is based on
market data obtained from independent sources, while an unobservable input reflects the Company’s
assumptions about market data.
The levels of the fair value hierarchy are as follows:
Level 1:
Valuation inputs consist of quoted prices in an active market for identical assets or liabilities
(observable quoted prices). Assets and liabilities valued using Level 1 inputs include exchange-traded
equity securities, listed derivatives which are actively traded such as commodity futures, interest
rate futures and certain actively traded debt securities.
Level 2:
Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively quoted
prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such
as interest rate yield curves, credit spreads, or inputs derived from other observable data by
interpolation, correlation, regression or other means. The adjustments applied to quoted prices or
the inputs used in valuation models may be both observable and unobservable. In these cases, the
fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or
the unobservable input to the valuation model is significant, in which case the fair value
measurement would be classified as Level 3. Assets and liabilities valued or disclosed using Level 2
inputs include investments in certain funds, certain debt securities that are not actively traded,
interest rate swaps, commodity swaps, cash-settled call options, forward foreign exchange
contracts, foreign exchange swaps and forward rate agreements, time deposits, as well as financing
receivables and debt.
Level 3:
Valuation inputs are based on the Company’s assumptions of relevant market data (unobservable
input).
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Investments in private equity, real estate and collective funds held within the Company’s pension plans
are generally valued using the net asset value (NAV) per share as a practical expedient for fair value
provided certain criteria are met. The NAVs are determined based on the fair values of the underlying
investments in the funds. These assets are not classified in the fair value hierarchy but are
separately disclosed.
Whenever quoted prices involve bid-ask spreads, the Company ordinarily determines fair values based
on mid-market quotes. However, for the purpose of determining the fair value of cash-settled call
options serving as hedges of the Company’s management incentive plan (MIP), bid prices are used.
When determining fair values based on quoted prices in an active market, the Company considers if the
level of transaction activity for the financial instrument has significantly decreased, or would not be
considered orderly. In such cases, the resulting changes in valuation techniques would be disclosed. If
the market is considered disorderly or if quoted prices are not available, the Company is required to use
another valuation technique, such as an income approach.
Disclosures about the Company’s fair value measurements of assets and liabilities are included in
Note 7.
Contingencies
The Company is subject to proceedings, litigation or threatened litigation and other claims and
inquiries, related to environmental, labor, product, regulatory, tax (other than income tax) and other
matters, and is required to assess the likelihood of any adverse judgments or outcomes to these
matters, as well as potential ranges of probable losses. A determination of the provision required, if any,
for these contingencies is made after analysis of each individual issue, often with assistance from both
internal and external legal counsel and technical experts. The required amount of a provision
for a contingency of any type may change in the future due to new developments in the particular
matter, including changes in the approach to its resolution.
The Company records a provision for its contingent obligations when it is probable that a loss will be
incurred and the amount can be reasonably estimated. Any such provision is generally recognized on an
undiscounted basis using the Company’s best estimate of the amount of loss incurred or at the lower
end of an estimated range when a single best estimate is not determinable. In some cases, the
Company may be able to recover a portion of the costs relating to these obligations from insurers or
other third parties; however, the Company records such amounts only when it is probable that they will
be collected.
The Company provides for anticipated costs for warranties when it recognizes revenues on the related
products or contracts. Warranty costs include calculated costs arising from imperfections in design,
material and workmanship in the Company’s products. The Company makes individual assessments on
contracts with risks resulting from order-specific conditions or guarantees and assessments on an
overall, statistical basis for similar products sold in larger quantities.
The Company may have legal obligations to perform environmental clean-up activities related to land
and buildings as a result of the normal operations of its business. In some cases, the timing or the
method of settlement, or both, are conditional upon a future event that may or may not be within the
control of the Company, but the underlying obligation itself is unconditional and certain. The Company
recognizes a provision for these obligations when it is probable that a liability for the clean-up activity
has been incurred and a reasonable estimate of its fair value can be made. In some cases, a portion of
the costs expected to be incurred to settle these matters may be recoverable. An asset is recorded
when it is probable that such amounts are recoverable. Provisions for environmental obligations are not
discounted to their present value when the timing of payments cannot be reasonably estimated.
Pensions and other postretirement benefits
The Company has a number of defined benefit pension plans, defined contribution pension plans and
termination indemnity plans. The Company recognizes an asset for such a plan’s overfunded status
or a liability for such a plan’s underfunded status in its Consolidated Balance Sheets. Additionally, the
Company measures such a plan’s assets and obligations that determine its funded status as of the end
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of the year and recognizes the changes in the funded status in the year in which the changes occur.
Those changes are reported in “Accumulated other comprehensive loss”.
The Company uses actuarial valuations to determine its pension and postretirement benefit costs and
credits. The amounts calculated depend on a variety of key assumptions, including discount rates and
expected return on plan assets. Current market conditions are considered in selecting
these assumptions.
The Company’s various pension plan assets are assigned to their respective levels in the fair value
hierarchy in accordance with the valuation principles described in the “Fair value measures”
section above.
See Note 17 for further discussion of the Company’s employee benefit plans.
Business combinations
The Company accounts for assets acquired and liabilities assumed in business combinations using the
acquisition method and records these at their respective fair values. Contingent consideration is
recorded at fair value as an element of purchase price with subsequent adjustments recognized
in income.
Identifiable intangibles consist of intellectual property such as trademarks and trade names, customer
relationships, patented and unpatented technology, in-process research and development, order
backlog and capitalized software; these are amortized over their estimated useful lives. Such
intangibles are subsequently subject to evaluation for potential impairment if events or circumstances
indicate the carrying amount may not be recoverable. See “Goodwill and intangible assets” above.
Acquisition-related costs are recognized separately from the acquisition and expensed as incurred.
Upon gaining control of an entity in which an equity method or cost basis investment was held by the
Company, the carrying value of that investment is adjusted to fair value with the related gain or loss
recorded in income.
Deferred tax assets and liabilities based on temporary differences between the financial reporting and
the tax base of assets and liabilities as well as uncertain tax positions and valuation allowances on
acquired deferred tax assets assumed in connection with a business combination are initially estimated
as of the acquisition date based on facts and circumstances that existed at the acquisition date. These
estimates are subject to change within the measurement period (a period of up to 12 months after the
acquisition date during which the acquirer may adjust the provisional acquisition amounts) with any
adjustments to the preliminary estimates being recorded to goodwill. Changes in deferred taxes,
uncertain tax positions and valuation allowances on acquired deferred tax assets that occur after the
measurement period are recognized in income.
New accounting pronouncements
Applicable for current period
Measurement of credit losses on financial instruments
In January 2020, the Company adopted a new accounting standard update, along with additional
related updates containing targeted improvements and clarifications, that replaces the previous
incurred loss impairment methodology for most financial assets with a new “current expected credit
loss” model. The new model requires immediate recognition of the estimated credit losses expected to
occur over the remaining life of financial assets such as trade and other receivables, held-to-maturity
debt securities, loans and other instruments. Measurement of expected credit losses is now based on
historical experience, current conditions, and reasonable and supportable forecasts. The update also
requires additional disclosures related to estimates and judgments used to measure credit losses.
Credit losses relating to available-for-sale debt securities are now measured in a manner similar to the
loss impairment methodology, except that the losses are recorded through an allowance for credit
losses rather than as a direct write-down of the security.
The Company has adopted these updates on a modified retrospective basis and has therefore
recorded a cumulative-effect adjustment of $91 million to the opening balance of retained earnings on
January 1, 2020, relating to an increase in the allowance for credit losses on financial assets carried at
amortized cost. This adjustment consisted primarily of an impact on the opening balance of trade
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receivables of $98 million (excluding an offsetting amount for deferred tax), of which $56 million related
to continuing operations and $42 million related to the Power Grids business, which is included in
discontinued operations.
Disclosure Framework — Changes to the disclosure requirements for fair value measurement
In January 2020, the Company adopted a new accounting standard update which modified the
disclosure requirements for fair value measurements. The update eliminates the requirements to
disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, the
timing of transfers between levels and the Level 3 valuation process, while expanding the Level 3
disclosures to include the range and weighted-average used to develop significant unobservable inputs
and the changes in unrealized gains and losses on recurring fair value measurements. This update was
applied prospectively for the changes and modifications to the Level 3 disclosures, while all other
amendments were applied retrospectively. The update does not have a significant impact on the
Company’s Consolidated Financial Statements.
Applicable for future periods
Simplifying the accounting for income taxes
In December 2019, an accounting standard update was issued which enhances and simplifies various
aspects of the income tax accounting guidance related to intraperiod tax allocations, ownership
changes in investments, and certain aspects of interim period tax accounting. This update is effective
for the Company for annual and interim periods beginning January 1, 2021. Depending on the
amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis.
The Company does not expect this update to have a significant impact on its Consolidated
Financial Statements.
Facilitation of the effects of reference rate reform on financial reporting
In March 2020, an accounting standard update was issued which provides temporary optional
expedients and exceptions to the current guidance on contract modifications and hedge accounting to
ease the financial reporting burdens related to the expected market transition from the London
Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The
update can be adopted and applied no later than December 31, 2022, with early adoption permitted.
The Company is currently evaluating the impact of adopting this optional guidance on its Consolidated
Financial Statements.
—
Note 3
Discontinued operations
Divestment of the Power Grids business
On July 1, 2020, the Company completed the sale of 80.1 percent of its Power Grids business to Hitachi
Ltd (Hitachi). The transaction was executed through the sale of 80.1 percent of the shares of Hitachi
ABB Power Grids Ltd (“Hitachi ABB PG” or “HAPG”). Cash consideration received at the closing date was
$9,241 million net of cash disposed. Further, for accounting purposes, the 19.9 percent ownership
interest retained by the Company is deemed to have been both divested and reacquired at its fair value
on July 1, 2020. The Company also obtained a put option, exercisable commencing in April 2023,
allowing the Company to require Hitachi to purchase the remaining interest for fair value, subject
to a minimum floor price equivalent to a 10 percent discount compared to the price paid for the initial
80.1 percent. The combined fair value of the retained investment and the related put option, which
amounted to $1,779 million, was recorded at fair value on July 1, 2020, and also was accounted for as
part of the proceeds for the sale of the entire Power Grids business (see Note 4). The Company also
recorded a liability in discontinued operations for estimated future costs and other cash payments of
$487 million for various contractual items relating to the sale of the business including required future
cost reimbursements payable to HAPG, costs incurred by the Company for the direct benefit of HAPG
and an amount due to Hitachi Ltd in connection with the expected purchase price finalization of the
closing debt and working capital balances. From the date of the disposal through December 31, 2020,
$33 million of these liabilities have been paid and are reported as reductions in the cash
consideration received.
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As a result of the Power Grids sale, the Company has recognized a net gain of $5,141 million, net of
transaction costs, for the sale of the entire Power Grids business which is included in Income from
discontinued operations, net of tax, in 2020. Included in the calculation of the net gain was a cumulative
translation loss relating to the Power Grids business of $420 million which was reclassified from
Accumulated other comprehensive loss (see Note 21). Certain amounts included in the net gain are
estimated or otherwise subject to change in value and, as a result, the Company may record additional
adjustments to the gain in future periods which are not expected to have a material impact on the
Consolidated Financial Statements. In 2020, the Company has also recorded $262 million in Income tax
expense within discontinued operations in connection with the reorganization of the legal entity
structure of the Power Grids business required to facilitate the sale.
Certain entities of the Power Grids business for which the legal process or other regulatory delays
resulted in the Company not yet having transferred legal titles to Hitachi have been accounted for as
being sold since control of the business as well as all risks and rewards of the business have been fully
transferred to Hitachi ABB PG. The proceeds for these entities are included in the cash proceeds
described above and certain funds have been placed in escrow and are reflected as current restricted
cash of $302 million at December 31, 2020. All entities are expected to be transferred to HAPG by the
first half of 2021.
The Company has recognized liabilities in discontinued operations in connection with the divestment
for certain indemnities (see Note 15 for additional information). The Company has also recorded an
initial liability of $258 million representing the fair value of the right granted to Hitachi ABB PG for the
use of the ABB brand for up to 8 years.
Upon closing of the sale, the Company entered into various transition services agreements (TSAs).
Pursuant to these TSAs, the Company and Hitachi ABB PG provide to each other, on an interim,
transitional basis, various services. The services provided by the Company primarily include finance,
information technology, human resources and certain other administrative services. Under the current
terms, the TSAs will continue for up to 3 years, and can only be extended on an exceptional basis for
business-critical services for an additional period which is reasonably necessary to avoid a material
adverse impact on the business. In 2020, the Company has recognized within its continuing operations,
general and administrative expenses incurred to perform the TSAs, offset by $91 million in TSA-related
income for such services that is reported in Other income and expense, net.
Discontinued operations
As a result of the sale of the Power Grids business, substantially all Power Grids-related assets and
liabilities have been sold. As this divestment represented a strategic shift that would have a major
effect on the Company’s operations and financial results, the results of operations for this business
have been presented as discontinued operations and the assets and liabilities are presented as held for
sale and in discontinued operations for all periods presented. Certain of the business contracts in the
Power Grids business continue to be executed by subsidiaries of the Company for the benefit/risk of
Hitachi ABB PG. Assets and liabilities relating to, as well as the net financial results of, these contracts
will continue to be included in discontinued operations until they have been completed or otherwise
transferred to Hitachi ABB PG.
Prior to the divestment, interest expense that was not directly attributable to or related to the
Company’s continuing business or discontinued business was allocated to discontinued operations
based on the ratio of net assets to be sold less debt that was required to be paid as a result of the
planned disposal transaction to the sum of total net assets of the Company plus consolidated debt.
General corporate overhead was not allocated to discontinued operations.
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Operating results of the discontinued operations are summarized as follows:
($ in millions)
Total revenues
Total cost of sales
Gross profit
Expenses
Net gain recognized on sale of the Power Grids business
Income from operations
Net interest and other finance expense
Non-operational pension (cost) credit
Income from discontinued operations before taxes
Income tax expense
Income from discontinued operations, net of tax
2020
4,008
2019
9,037
2018
9,698
(3,058)
(6,983)
(7,378)
950
(808)
5,141
5,282
(5)
(94)
5,182
(322)
4,860
2,054
2,320
(1,394)
(1,326)
—
660
(61)
5
605
(167)
438
—
994
(55)
12
951
(228)
723
Of the total Income from discontinued operations before taxes in the table above, $5,170 million,
$566 million and $874 million in 2020, 2019 and 2018, respectively, are attributable to the Company,
while the remainder is attributable to noncontrolling interests.
Until the date of the divestment, Income from discontinued operations before taxes excluded stranded
costs which were previously able to be allocated to the Power Grids operating segment. As a result,
$40 million, $225 million and $297 million, for 2020, 2019 and 2018, respectively, of allocated overhead
and other management costs which were previously included in the measure of segment profit for the
Power Grids operating segment are now reported as part of Corporate and Other. In the table above,
Net interest and other finance expense in 2020, 2019 and 2018 includes $20 million, $44 million and
$43 million, respectively, of interest expense which has been recorded on an allocated basis in
accordance with the Company’s accounting policy election until the divestment date. In addition, as
required by U.S. GAAP, subsequent to December 17, 2018, (the date of the original agreement to sell the
Power Grids business) -the Company has not recorded depreciation or amortization on the property,
plant and equipment and intangible assets reported as discontinued operations. In 2018, a total of
$258 million of depreciation and amortization expense was recorded for such assets.
Included in the reported Total revenues of the Company for 2020, 2019 and 2018 are revenues for sales
from the Company’s operating segments to the Power Grids business of $108 million, $213 million and
$243 million, respectively, which represent intercompany transactions that, prior to Power Grids being
classified as a discontinued operation, were eliminated in the Company’s Consolidated Financial
Statements (see Note 23). Subsequent to the divestment, sales to Hitachi ABB PG are reported as
third-party revenues.
In addition, the Company also has retained obligations (primarily for environmental and taxes) related
to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes to
these retained obligations are also included in Income from discontinued operations, net of tax, above.
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175
The major components of assets and liabilities held for sale and in discontinued operations in the
Company’s Consolidated Balance Sheets are summarized as follows:
December 31, ($ in millions)
Receivables, net
Contract assets
Inventories, net
Property, plant and equipment, net
Goodwill
Other current assets
Current assets held for sale and in discontinued operations
Accounts payable, trade
Contract liabilities
Pension and other employee benefits
Other current liabilities
Current liabilities held for sale and in discontinued operations
Other non-current liabilities
Non-current liabilities held for sale and in discontinued operations
2020(1)
280
—
1
—
—
1
282
188
—
—
456
644
197
197
2019
2,541
1,243
1,667
1,754
1,631
1,004
9,840
1,722
1,121
419
1,984
5,246
—
—
(1) At December 31, 2020, the balances reported as held for sale and in discontinued operations pertain to Power Grids activities and other
obligations which will remain with the Company until such time as the obligation is settled or the activities are fully wound down.
—
Note 4
Acquisitions, divestments and equity-accounted companies
Acquisition of controlling interests
Acquisitions of controlling interests were as follows:
($ in millions, except number of acquired businesses)
Purchase price for acquisitions (net of cash acquired)
Aggregate excess of purchase price over fair value of net assets acquired(1)
Number of acquired businesses
2020
2019
79
92
3
—
92
—
2018
2,638
1,472
3
(1) Recorded as goodwill (see Note 11). Includes adjustments of $92 million in 2019 arising during the measurement period of acquisitions,
primarily reflecting changes in the valuation of net working capital, deferred tax liabilities and intangible assets acquired.
Acquisitions of controlling interests have been accounted for under the acquisition method and have
been included in the Company’s Consolidated Financial Statements since the date of acquisition. In
2020 and 2019, acquisitions of controlling interests were not material.
On June 30, 2018, the Company acquired through numerous share and asset purchases substantially all
the assets, liabilities and business activities of GEIS, General Electric’s global electrification solutions
business. GEIS, headquartered in Atlanta, United States, provides technologies that distribute and
control electricity and support the commercial, data center, health care, mining, renewable energy, oil
and gas, water and telecommunications sectors. The resulting cash outflows for the Company
amounted to $2,622 million (net of cash acquired of $192 million). The acquisition strengthens the
Company’s global position in electrification and expands its access to the North American market
through strong customer relationships, a large installed base and extensive distribution networks.
Consequently, the goodwill acquired represents expected operating synergies and cost savings as well
as intangible assets that are not separable such as employee know-how and expertise.
While the Company uses its best estimates and assumptions as part of the purchase price allocation
process to value assets acquired and liabilities assumed at the acquisition date, the purchase price
allocation for acquisitions is preliminary for up to 12 months after the acquisition date and is subject to
refinement as more detailed analyses are completed and additional information about the fair values of
the acquired assets and liabilities becomes available. The purchase price allocation relating to the GEIS
acquisition was finalized during the second quarter of 2019 and resulted in $92 million of net
176
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measurement period adjustments, increasing goodwill, primarily related to changes in the valuation of
net working capital, deferred tax liabilities and intangible assets acquired.
In addition, in November 2019, the Company recognized a gain of $92 million relating to the receipt of
cash from General Electric for a favorable resolution of an uncertainty with respect to the price paid to
acquire GEIS. This occurred after the end of the measurement period and as a result, the Company
recorded a gain in “Other income (expense), net”.
The final allocation of purchase consideration for GEIS was as follows:
($ in millions)
Technology
Customer relationships
Trade names
Supply agreement
Intangible assets
Property, plant and equipment
Deferred tax liabilities
Inventories
Other assets and liabilities, net(1)
Goodwill(2)
Noncontrolling interest
Total consideration (net of cash acquired)(3)
GEIS
Allocated amounts
Weighted-average
useful life
7 years
12 years
13 years
13 years
92
178
135
32
437
373
(45)
405
(19)
1,534
(63)
2,622
(1) Gross receivables from the GEIS acquisition totaled $658 million; the fair value of which was $624 million after adjusting for contractual
cash flows not expected to be collected.
(2) The amount of goodwill which is tax deductible is $769 million.
(3) Cash acquired in the GEIS acquisition totaled $192 million.
The Company’s Consolidated Income Statement for 2018, includes total revenues of $1,317 million and
net income of $1 million in respect of GEIS since the date of acquisition.
The unaudited pro forma financial information in the table below summarizes the combined pro forma
results of the Company and GEIS for 2018 as if GEIS had been acquired on January 1, 2017.
($ in millions)
Total revenues
Income from continuing operations, net of tax
2018
28,936
1,622
The pro forma results are for information purposes only and do not include any anticipated cost
synergies or other effects of the planned integration of GEIS. Accordingly, such pro forma amounts are
not necessarily indicative of the results that would have occurred had the acquisition been completed
on the date indicated, nor are they indicative of the future operating results of the combined company.
The unaudited pro forma results above include certain adjustments related to the GEIS acquisition. The
table below summarizes the adjustments necessary to present the pro forma financial information of
the combined entity as if GEIS had been acquired on January 1, 2017.
($ in millions)
Impact on cost of sales from additional amortization of intangible assets
Impact on cost of sales from fair valuing acquired inventory
Impact on cost of sales from additional depreciation of property, plant and equipment
Impact on selling, general and administrative expenses from additional amortization of intangible assets
Impact on selling, general and administrative expenses from acquisition-related costs
Impact on interest expense from financing costs
Taxation adjustments
Total pro forma adjustments
2018
(10)
26
(4)
(5)
44
(15)
(5)
31
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177
Acquisition of noncontrolling interests
In connection with the divestment of its Power Grids business to Hitachi (see Note 3), the Company
retained a 19.9 percent interest in the business. For accounting purposes the 19.9 percent interest is
deemed to have been both divested and reacquired, with a fair value at the transaction date of
$1,661 million. The fair value was based on a discounted cash flow model considering the expected
results of the future business operations of Hitachi ABB PG and using relevant market inputs
including a risk-adjusted weighted-average cost of capital. The Company also obtained a right to
require Hitachi to purchase this investment (see Note 3) with a floor price equivalent to a 10 percent
discount compared to the price paid for the initial 80.1 percent. This option was valued at $118 million
using a standard option pricing model with inputs considering the nature of the investment and the
expected period until option exercise. As this option is not separable from the investment the value has
been combined with the value of the underlying investment and is accounted for together.
The Company has concluded that based on its continuing involvement with the Power Grids business,
including membership in its governing board of directors, it has significant influence over Hitachi ABB
PG. As a result, the investment (including the value of the option) is accounted for using the
equity method.
The difference between the initial carrying value of the Company’s investment in Hitachi ABB PG at fair
value and its proportionate share of the underlying net assets created basis differences of
$8,503 million ($1,692 million for the Company’s 19.9 percent ownership), which are allocated as follows:
($ in millions)
Inventories
Order backlog
Property, plant and equipment(1)
Intangible assets(2)
Other contractual rights
Other assets
Deferred tax liabilities
Goodwill
Less: Amount attributed to noncontrolling interest
Basis difference
Allocated amounts
Weighted-average
useful life
5 months
2 years
9 years
2 years
169
727
1,016
1,731
251
43
(942)
5,959
(451)
8,503
(1) Property, plant and equipment includes assets subject to amortization having an initial fair value difference of $686 million and a
weighted-average useful life of 14 years.
(2) Intangible assets include brand license agreement, technology and customer relationships.
For assets subject to depreciation or amortization, the Company amortizes these basis differences
over the estimated remaining useful lives of the assets that gave rise to this difference, recording the
amortization, net of related deferred tax benefit, as a reduction of income from equity-accounted
companies. Certain other assets are recorded as an expense as the benefits from the assets are
realized. At December 31, 2020, the Company determined that no impairment of its equity-accounted
investments existed.
The carrying value of the Company’s investments in equity-accounted companies and respective
percentage of ownership is as follows:
($ in millions, except ownership share in %)
Hitachi ABB Power Grids Ltd
Ownership as of
December 31, 2020
19.9%
Others
Total
Carrying value at December 31,
2020
1,710
74
1,784
2019
—
33
33
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In 2020, 2019 and 2018, the Company recorded a loss of $66 million and gains of $8 million and
$6 million, respectively, in Other income (expense), net, representing the Company’s share of the
earnings of investees accounted for under the equity method of accounting, the components of which
are as follows:
($ in millions)
Income from equity-accounted companies, net of taxes
Basis difference amortization (net of deferred income tax benefit)
Income (loss) from equity-accounted companies
2020
29
(95)
(66)
2019
2018
8
—
8
6
—
6
Business divestments
In 2020, the Company completed the sale of its Power Grids business (see Note 3 for details) and its
solar inverters business. In 2019, the Company recorded net gains (including transactions costs) of
$55 million, primarily due to the divestment of two businesses in China, and in 2018, there were no
significant amounts recognized from divestments of consolidated businesses.
Divestment of the solar inverters business
In February 2020, the Company completed the sale of its solar inverters business for no consideration.
Under the agreement, which was reached in July 2019, the Company was required to transfer
$143 million of cash to the buyer on the closing date. In addition, payments totaling EUR 132 million
($145 million) are required to be transferred to the buyer from 2020 through 2025. In 2019, the Company
recorded a loss of $421 million, in “Other income (expense), net”, representing the excess of the carrying
value, which includes a loss of $99 million arising from the cumulative translation adjustment, over the
estimated fair value of this business. In 2020, a further loss of $33 million was recorded in “Other
income (expense), net” for changes in fair value of this business. The loss in 2020 includes the $99
million reclassification from other comprehensive income of the currency translation adjustment
related to the business.
The fair value was based on the estimated current market values using Level 3 inputs, considering the
agreed-upon sale terms with the buyer. The solar inverters business, which includes the solar inverter
business acquired as part of the Power-One acquisition in 2013, was part of the Company’s
Electrification operating segment.
As this divestment does not qualify as a discontinued operation, the results of operations for this
business prior to its disposal are included in the Company’s continuing operations for all periods
presented. The assets and liabilities of this business were shown as assets and liabilities held for sale in
the Company’s Consolidated Balance Sheet at December 31, 2019, and as at that date, the carrying
amounts of the major classes of assets and liabilities held for sale were as follows:
($ in millions)
Assets
Receivables, net
Inventories, net
Property, plant and equipment, net
Intangible assets, net
Other assets
Valuation allowance on assets held for sale
Current assets held for sale
Liabilities
Accounts payable, trade
Contract liabilities
Provisions for warranties
Other liabilities
Fair value adjustment on disposal group
Current liabilities held for sale
December 31, 2019
70
127
69
27
26
(319)
—
86
59
108
49
102
404
Including the above loss of $33 million and $421 million in 2020 and 2019, respectively, Income from
continuing operations before taxes includes net losses of $63 million and $490 million, from the solar
inverters business. In 2018, net losses of $94 million from this business were included in Income from
continuing operations before taxes.
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179
—
Note 5
Cash and equivalents, marketable securities and short-term
investments
Current assets
Cash and equivalents and marketable securities and short-term investments consisted of the following:
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Cash and
equivalents
Marketable
securities
and
short-term
investments
December 31, 2020 ($ in millions)
Cost basis
Changes in fair value recorded in net income
Cash
Time deposits
Equity securities
2,388
1,513
1,704
5,605
Changes in fair value recorded in other comprehensive income
Debt securities available-for-sale:
—U.S. government obligations
—European government obligations
—Corporate
Total
Of which:
—Restricted cash, current
—Restricted cash, non-current
274
24
69
367
5,972
12
12
19
6
25
37
—
—
—
2,388
1,513
1,716
5,617
293
24
75
392
2,388
1,513
3,901
—
6,009
3,901
323
300
1,716
1,716
293
24
75
392
2,108
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Cash and
equivalents
Marketable
securities
and
short-term
investments
December 31, 2019 ($ in millions)
Cost basis
Changes in fair value recorded in net income
Cash
Time deposits
Equity securities
2,111
1,433
294
3,838
Changes in fair value recorded in other comprehensive income
Debt securities available-for-sale:
—U.S. government obligations
—Corporate
Total
Of which:
—Restricted cash, current
191
61
252
4,090
10
10
7
4
11
21
—
(1)
(1)
(1)
2,111
1,433
304
3,848
197
65
262
2,111
1,433
3,544
—
4,110
3,544
36
304
304
197
65
262
566
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Contractual maturities
Contractual maturities of debt securities consisted of the following:
December 31, 2020 ($ in millions)
Less than one year
One to five years
Six to ten years
Due after ten years
Total
Available-for-sale
Cost basis
Fair value
104
133
70
60
367
104
139
76
73
392
At December 31, 2020 and 2019, the Company pledged $66 million and $66 million, respectively, of
available-for-sale marketable securities as collateral for issued letters of credit and other
security arrangements.
Note 6
Derivative financial instruments
The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its
global operating, financing and investing activities. The Company uses derivative instruments to
reduce and manage the economic impact of these exposures.
Currency risk
Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency
risk in their operating activities from entering into transactions in currencies other than their functional
currency. To manage such currency risks, the Company’s policies require its subsidiaries to hedge their
foreign currency exposures from binding sales and purchase contracts denominated in foreign
currencies. For forecasted foreign currency denominated sales of standard products and the related
foreign currency denominated purchases, the Company’s policy is to hedge up to a maximum of
100 percent of the forecasted foreign currency denominated exposures, depending on the length of the
forecasted exposures. Forecasted exposures greater than 12 months are not hedged. Forward foreign
exchange contracts are the main instrument used to protect the Company against the volatility of
future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and
purchases denominated in foreign currencies. In addition, within its treasury operations, the Company
primarily uses foreign exchange swaps and forward foreign exchange contracts to manage the currency
and timing mismatches arising in its liquidity management activities.
Commodity risk
Various commodity products are used in the Company’s manufacturing activities. Consequently it is
exposed to volatility in future cash flows arising from changes in commodity prices. To manage the price
risk of commodities, the Company’s policies require that its subsidiaries hedge the commodity price risk
exposures from binding contracts, as well as at least 50 percent (up to a maximum of 100 percent) of the
forecasted commodity exposure over the next 12 months or longer (up to a maximum of 18 months).
Primarily swap contracts are used to manage the associated price risks of commodities.
Interest rate risk
The Company has issued bonds at fixed rates. Interest rate swaps are used to manage the interest rate
risk associated with certain debt and generally such swaps are designated as fair value hedges. In
addition, from time to time, the Company uses instruments such as interest rate swaps, interest rate
futures, bond futures or forward rate agreements to manage interest rate risk arising from the
Company’s balance sheet structure but does not designate such instruments as hedges.
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181
Equity risk
The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs)
issued under its MIP (Management Incentive Plan) (see Note 18). A WAR gives its holder the right to
receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To
eliminate such risk, the Company has purchased cash-settled call options, indexed to the shares of the
Company, which entitle the Company to receive amounts equivalent to its obligations under the
outstanding WARs.
Volume of derivative activity
In general, while the Company’s primary objective in its use of derivatives is to minimize exposures
arising from its business, certain derivatives are designated and qualify for hedge accounting
treatment while others either are not designated or do not qualify for hedge accounting.
Foreign exchange and interest rate derivatives
The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether
designated as hedges or not) were as follows:
Type of derivative ($ in millions)
Foreign exchange contracts
Embedded foreign exchange derivatives
Interest rate contracts
Total notional amounts
at December 31,
2020
12,610
1,134
3,227
2019
2018
15,015
13,612
924
5,188
733
3,300
Derivative commodity contracts
The Company uses derivatives to hedge its direct or indirect exposure to the movement in the prices of
commodities which are primarily copper, silver and aluminum. The following table shows the notional
amounts of outstanding derivatives (whether designated as hedges or not), on a net basis, to reflect
the Company’s requirements for these commodities:
Type of derivative
Copper swaps
Silver swaps
Aluminum swaps
Unit
metric tonnes
ounces
metric tonnes
Total notional amounts
at December 31,
2020
39,390
2019
2018
42,494
46,143
1,966,677
2,508,770
2,861,294
8,112
8,388
9,491
Equity derivatives
At December 31, 2020, 2019 and 2018, the Company held 22 million, 40 million and 41 million
cash-settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of
$21 million, $26 million and $6 million, respectively.
Cash flow hedges
As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign
exchange risk of its operations, commodity swaps to manage its commodity risks and cash-settled call
options to hedge its WAR liabilities. Where such instruments are designated and qualify as cash flow
hedges, the effective portion of the changes in their fair value is recorded in “Accumulated other
comprehensive loss” and subsequently reclassified into earnings in the same line item and in the same
period as the underlying hedged transaction affects earnings. Any ineffectiveness in the hedge
relationship, or hedge component excluded from the assessment of effectiveness, is recognized in
earnings during the current period.
At December 31, 2020, 2019 and 2018, “Accumulated other comprehensive loss” included net unrealized
losses of $3 million, $5 million and net unrealized gains of $12 million, respectively, net of tax, on
derivatives designated as cash flow hedges. Of the amount at December 31, 2020, net losses of
$1 million are expected to be reclassified to earnings in 2021. At December 31, 2020, the longest
maturity of a derivative classified as a cash flow hedge was 49 months.
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In 2020, 2019 and 2018, the amounts of gains or losses, net of tax, reclassified into earnings due to the
discontinuance of cash flow hedge accounting and the amount of ineffectiveness in cash flow hedge
relationships directly recognized in earnings were not significant.
The pre-tax effects of derivative instruments, designated and qualifying as cash flow hedges, on
“Accumulated other comprehensive loss” and the Consolidated Income Statements in 2020, 2019 and
2018, were not significant.
Fair value hedges
To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company
uses interest rate swaps. Where such instruments are designated as fair value hedges, the changes in
the fair value of these instruments, as well as the changes in fair value of the risk component of the
underlying debt being hedged, are recorded as offsetting gains and losses in “Interest and other
finance expense”.
The effect of Interest rate contracts, designated and qualifying as fair value hedges, on the
Consolidated Income Statements was as follows:
($ in millions)
Gains (losses) recognized in Interest and other finance expense:
– on derivatives designated as fair value hedges
– on hedged item
Derivatives not designated in hedge relationships
2020
2019
2018
11
(11)
38
(38)
(4)
5
Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair
value hedges are economic hedges used for risk management purposes. Gains and losses from changes
in the fair values of such derivatives are recognized in the same line in the income statement as the
economically hedged transaction.
Furthermore, under certain circumstances, the Company is required to split and account separately for
foreign currency derivatives that are embedded within certain binding sales or purchase contracts
denominated in a currency other than the functional currency of the subsidiary and the counterparty.
The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in
hedging relationships were as follows:
Gains (losses) recognized in income
($ in millions)
Type of derivative not designated as a hedge
Location
Foreign exchange contracts
Total revenues
Total cost of sales
SG&A expenses(1)
Non-order related research and
development
Interest and other finance
expense
Embedded foreign exchange contracts
Total revenues
Commodity contracts
Other
Total
Total cost of sales
SG&A expenses(1)
Total cost of sales
Interest and other finance expense
(1) SG&A expenses represent “Selling, general and administrative expenses”.
2020
94
—
(11)
(2)
207
(34)
(1)
—
56
1
2019
(7)
(64)
2
1
(122)
17
(6)
—
12
—
310
(167)
2018
(121)
46
10
(1)
40
58
(4)
2
(33)
3
—
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183
The fair values of derivatives included in the Consolidated Balance Sheets were as follows:
December 31, 2020 ($ in millions)
Derivatives designated as hedging instruments:
Foreign exchange contracts
Interest rate contracts
Cash-settled call options
Total
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Interest rate contracts
Embedded foreign exchange derivatives
Total
Total fair value
December 31, 2019 ($ in millions)
Derivatives designated as hedging instruments:
Foreign exchange contracts
Interest rate contracts
Cash-settled call options
Total
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Commodity contracts
Cash-settled call options
Embedded foreign exchange derivatives
Total
Total fair value
Derivative assets
Derivative liabilities
Current in
“Other
current
assets”
Non-current
in “Other
non-current
assets”
Current in
“Other
current
liabilities”
Non-current
in “Other
non-current
liabilities”
6
10
16
221
59
2
10
292
308
1
78
11
90
22
2
24
114
2
2
106
7
2
28
143
145
4
4
26
16
42
46
Derivative assets
Derivative liabilities
Current
in “Other
current
assets”
Non-current
in “Other
non-current
assets”
Current
in “Other
current
liabilities”
Non-current
in “Other
non-current
liabilities”
72
14
86
14
1
3
18
104
2
2
127
2
12
141
143
11
11
85
17
7
109
120
6
6
14
3
17
23
Close-out netting agreements provide for the termination, valuation and net settlement of some or all
outstanding transactions between two counterparties on the occurrence of one or more pre-defined
trigger events.
Although the Company is party to close-out netting agreements with most derivative counterparties,
the fair values in the tables above and in the Consolidated Balance Sheets at December 31, 2020 and
2019, have been presented on a gross basis.
The Company’s netting agreements and other similar arrangements allow net settlements under certain
conditions. At December 31, 2020 and 2019, information related to these offsetting arrangements was
as follows:
December 31, 2020 ($ in millions)
Type of agreement or
similar arrangement
Derivatives
Total
Gross amount of
recognized assets
Derivative liabilities
eligible for set-off in
case of default
Cash
collateral
received
Non-cash
collateral
received
Net asset
exposure
410
410
(106)
(106)
—
—
304
304
184
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
Gross amount of
recognized
liabilities
Derivative liabilities
eligible for set-off in
case of default
Cash
collateral
pledged
Non-cash
collateral
pledged
Net liability
exposure
147
147
(106)
(106)
—
—
41
41
Gross amount of
recognized assets
Derivative liabilities
eligible for set-off in
case of default
Cash
collateral
received
Non-cash
collateral
received
Net asset
exposure
214
214
(102)
(102)
—
—
112
112
Gross amount of
recognized
liabilities
Derivative liabilities
eligible for set-off in
case of default
Cash
collateral
pledged
Non-cash
collateral
pledged
Net liability
exposure
151
151
(102)
(102)
—
—
49
49
December 31, 2020 ($ in millions)
Type of agreement or
similar arrangement
Derivatives
Total
December 31, 2019 ($ in millions)
Type of agreement or
similar arrangement
Derivatives
Total
December 31, 2019 ($ in millions)
Type of agreement or
similar arrangement
Derivatives
Total
—
Note 7
Fair values
Recurring fair value measures
The fair values of financial assets and liabilities measured at fair value on a recurring basis were
as follows:
December 31, 2020 ($ in millions)
Level 1
Level 2
Level 3
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
Debt securities—U.S. government obligations
Debt securities—European government obligations
Debt securities—Corporate
Derivative assets—current in “Other current assets”
Derivative assets—non-current in “Other non-current assets”
Total
Liabilities
Total fair
value
1,716
293
24
75
308
114
293
24
1,716
75
308
114
317
2,213
—
2,530
Derivative liabilities—current in “Other current liabilities”
Derivative liabilities—non-current in “Other non-current liabilities”
Total
145
46
191
—
145
46
191
—
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
185
December 31, 2019 ($ in millions)
Level 1
Level 2
Level 3
Assets
Securities in “Marketable securities and short-term investments”:
Equity securities
Debt securities—U.S. government obligations
Debt securities—Corporate
Derivative assets—current in “Other current assets”
Derivative assets—non-current in “Other non-current assets”
Total
Liabilities
Derivative liabilities—current in “Other current liabilities”
Derivative liabilities—non-current in “Other non-current liabilities”
Total
197
197
—
304
65
120
104
593
143
23
166
—
—
Total fair
value
304
197
65
120
104
790
143
23
166
During 2020, 2019 and 2018 there have been no reclassifications for any financial assets or liabilities
between Level 1 and Level 2.
The Company uses the following methods and assumptions in estimating fair values of financial assets
and liabilities measured at fair value on a recurring basis:
• Securities in “Marketable securities and short-term investments”: If quoted market prices in active
markets for identical assets are available, these are considered Level 1 inputs; however, when markets
are not active, these inputs are considered Level 2. If such quoted market prices are not available, fair
value is determined using market prices for similar assets or present value techniques, applying an
appropriate risk-free interest rate adjusted for non-performance risk. The inputs used in present value
techniques are observable and fall into the Level 2 category.
• Derivatives: The fair values of derivative instruments are determined using quoted prices of identical
instruments from an active market, if available (Level 1 inputs). If quoted prices are not available, price
quotes for similar instruments, appropriately adjusted, or present value techniques, based on
available market data, or option pricing models are used. Cash-settled call options hedging the
Company’s WAR liability are valued based on bid prices of the equivalent listed warrant. The fair values
obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input
unless significant unobservable inputs are used.
Non-recurring fair value measures
The Company elects to record private equity investments without readily determinable fair values at
cost, less impairment, adjusted for observable price changes. The Company reassesses at each
reporting period whether these investments continue to qualify for this treatment. In 2020, the
Company recognized net increases in fair value of $73 million related to certain of its private equity
investments based on observable market price changes for an identical or similar investment of the
same issuer. The fair values of these investments totaled $105 million and were determined using Level
2 inputs.
Based on valuations at July 1, 2020, the Company recorded goodwill impairment charges of $311 million
in the third quarter of 2020. The fair value measurements used in the analyses were calculated using the
income approach (discounted cash flow method). The discounted cash flow models were calculated
using unobservable inputs, which classified the fair value measurement as Level 3 (see Note 11 for
additional information including further detailed information related to these charges and significant
unobservable inputs).
In June 2019, upon meeting the criteria as held for sale, the Company adjusted the carrying value of the
solar inverters business which was sold in February 2020 (see Note 4). Apart from the transactions
above, there were no additional significant non-recurring fair value measurements during 2020
and 2019.
186
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Disclosure about financial instruments carried on a cost basis
The fair values of financial instruments carried on a cost basis were as follows:
Carrying
value
Level 1
Level 2
Level 3
Total fair
value
December 31, 2020 ($ in millions)
Assets
Cash and equivalents (excluding securities with original
maturities up to 3 months):
Cash
Time deposits
Restricted cash
Restricted cash, non-current
Liabilities
1,765
1,513
323
300
1,765
323
300
1,513
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
Long-term debt (excluding finance lease obligations)
1,266
4,668
497
4,909
769
89
Carrying
value
Level 1
Level 2
Level 3
Total fair
value
December 31, 2019 ($ in millions)
Assets
Cash and equivalents (excluding securities with original
maturities up to 3 months):
Cash
Time deposits
Restricted cash
Liabilities
2,075
1,433
36
2,075
—
36
—
1,433
—
Short-term debt and current maturities of long-term debt
(excluding finance lease obligations)
Long-term debt (excluding finance lease obligations)
2,270
6,618
1,534
6,267
736
692
The Company uses the following methods and assumptions in estimating fair values of financial
instruments carried on a cost basis:
• Cash and equivalents (excluding securities with original maturities up to 3 months), Restricted cash,
current and non-current, and Marketable securities and short-term investments (excluding securities):
The carrying amounts approximate the fair values as the items are short-term in nature or, for cash
held in banks, are equal to the deposit amount.
• Short-term debt and current maturities of long-term debt (excluding finance lease obligations):
Short-term debt includes commercial paper, bank borrowings and overdrafts. The carrying amounts
of short-term debt and current maturities of long-term debt, excluding finance lease obligations,
approximate their fair values.
• Long-term debt (excluding finance lease obligations): Fair values of bonds are determined using
quoted market prices (Level 1 inputs), if available. For bonds without available quoted market prices
and other long-term debt, the fair values are determined using a discounted cash flow methodology
based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for
non-performance risk (Level 2 inputs).
1,765
1,513
323
300
1,266
4,998
—
—
—
—
—
2,075
1,433
36
2,270
6,959
A B B A N N U A L R E P O R T 2 0 2 0
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187
—
Note 8
Receivables, net and Contract assets and liabilities
“Receivables, net” consisted of the following:
December 31, ($ in millions)
Trade receivables
Other receivables
Allowance
Total
2020
6,417
760
(357)
6,820
2019
5,967
695
(228)
6,434
“Trade receivables” in the table above includes contractual retention amounts billed to customers of
$146 million and $151 million at December 31, 2020 and 2019, respectively. Management expects that
the substantial majority of related contracts will be completed and the substantial majority of the billed
amounts retained by the customer will be collected. Of the retention amounts outstanding at
December 31, 2020, 70 percent and 18 percent are expected to be collected in 2021 and 2022,
respectively.
“Other receivables” in the table above consists of value added tax, claims, rental deposits and other
non-trade receivables.
The reconciliation of changes in the allowance for doubtful accounts is as follows:
($ in millions)
Balance at January 1,
Transition adjustment
Current-period provision for expected credit losses
Write-offs charged against the allowance
Exchange rate differences
Balance at December 31,
2020
228
56
115
(42)
—
357
2019
219
—
31
(19)
(3)
228
2018
202
—
50
(17)
(16)
219
The following table provides information about Contract assets and Contract liabilities:
($ in millions)
Contract assets
Contract liabilities
2020
985
1,903
2019
1,025
1,719
2018
1,082
1,707
Contract assets primarily relate to the Company’s right to receive consideration for work completed but
for which no invoice has been issued at the reporting date. Contract assets are transferred to
receivables when rights to receive payment become unconditional. Management expects that the
majority of the amounts will be collected within one year of the respective balance sheet date.
Contract liabilities primarily relate to up-front advances received on orders from customers as well as
amounts invoiced to customers in excess of revenues recognized predominantly on long-term projects.
Contract liabilities are reduced as work is performed and as revenues are recognized.
The significant changes in the Contract assets and Contract liabilities balances were as follows:
($ in millions)
Revenue recognized, which was included in the Contract liabilities
balance at January 1, 2020/2019
Additions to Contract liabilities - excluding amounts recognized as
revenue during the period
Receivables recognized that were included in the Contract assets
balance at January 1, 2020/2019
2020
2019
Contract
assets
Contract
liabilities
Contract
assets
Contract
liabilities
(1,011)
1,129
(1,158)
1,255
(680)
(786)
188
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
The Company considers its order backlog to represent its unsatisfied performance obligations. At
December 31, 2020, the Company had unsatisfied performance obligations totaling $14,303 million and,
of this amount, the Company expects to fulfill approximately 73 percent of the obligations in 2021,
approximately 15 percent of the obligations in 2022 and the balance thereafter.
—
Note 9
Inventories, net
“Inventories, net” consisted of the following:
December 31, ($ in millions)
Raw materials
Work in process
Finished goods
Advances to suppliers
Total
—
Note 10
Property, plant and equipment, net
“Property, plant and equipment, net” consisted of the following:
December 31, ($ in millions)
Land and buildings
Machinery and equipment
Construction in progress
Accumulated depreciation
Total
2020
1,785
1,020
1,499
165
4,469
2019
1,760
819
1,499
106
4,184
2020
3,889
6,144
505
10,538
(6,364)
4,174
2019
3,568
5,620
500
9,688
(5,716)
3,972
Assets under finance leases included in “Property, plant and equipment, net” were as follows:
December 31, ($ in millions)
Land and buildings
Machinery and equipment
Accumulated depreciation
Total
2020
2019
169
79
248
(111)
137
142
62
204
(99)
105
In 2020, 2019 and 2018 depreciation, including depreciation of assets under finance leases, was
$586 million, $616 million and $578 million, respectively. In 2020, 2019 and 2018 there were no
significant impairments of property, plant or equipment.
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
189
—
Note 11
Goodwill and intangible assets
The changes in “Goodwill” were as follows:
($ in millions)
Electrification
Industrial
Automation
Motion
Robotics &
Discrete
Automation
Corporate
and Other
Balance at January 1, 2019
4,276
1,616
2,441
2,410
Goodwill acquired during the year(1)
Goodwill allocated to disposals
Exchange rate differences and other
92
(18)
22
—
—
(1)
—
—
(5)
Balance at December 31, 2019
4,372
1,615
2,436
Goodwill acquired during the year
Impairment of Goodwill
Exchange rate differences and other
71
—
84
—
—
24
—
—
20
Balance at December 31, 2020(2)
4,527
1,639
2,456
—
—
(29)
2,381
21
(290)
116
2,228
21
—
—
—
21
—
(21)
—
—
Total
10,764
92
(18)
(13)
10,825
92
(311)
244
10,850
(1) Amount consists of adjustments arising during the twelve-month measurement period subsequent to the respective acquisition date (see
Note 4).
(2) As of December 31, 2020, the gross goodwill amounted to $11,152 million. The accumulated impairment charges amounted to $302 million
and related to the Robotics & Discrete Automation segment.
The Company adopted a new operating model on July 1, 2020, which resulted in a change to the
identification of the goodwill reporting units. Previously, the reporting units were the same as the
operating segments for Electrification, Motion and Robotics & Discrete Automation, while for the
Industrial Automation operating segment the reporting units were determined to be at the Division
level, which is one level below the operating segment. The new operating model provides the Divisions
with full ownership and accountability for their respective strategies, performance and resources and
based on these changes, the Company concluded that the reporting units would change and be the
respective Divisions within each operating segment. This change resulted only in an allocation of
goodwill within the operating segments and thus there is no change to segment level goodwill in the
table above.
As a result of the new allocation of goodwill, an interim quantitative impairment test was conducted
both before and after the changes which were effective July 1, 2020. In the “before” test, it was
concluded that the fair value of the Company’s reporting units exceeded the carrying value under the
historical reporting unit structure.
The impairment test was performed for the new reporting units and the fair value of each 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
reporting unit included management’s best estimates of the expected future results and discount rates
specific to the reporting unit. The fair value estimates were based on assumptions that the Company
believed to be reasonable, 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.
The interim quantitative impairment test indicated that the estimated fair values of the reporting units
were substantially in excess of their carrying value for all reporting units except for the Machine
Automation reporting unit within the Robotics & Discrete Automation operating segment. The
contraction of the global economy in 2020, particularly in end-customer industries related to this
reporting unit and considerable uncertainty around the continued pace of macroeconomic recovery
generally led to a reduction in the fair values of the reporting units, thus affecting this reporting unit.
Also, at the division level, this reporting unit does not benefit from shared cash flows generated within
an entire operating segment. In addition, the book value of the Machine Automation Division
includes a significant amount of intangible assets recognized in past acquisitions, resulting
in a proportionately higher book value than the other reporting unit within the Robotics & Discrete
Automation Business Area. With the fair value of the reporting unit lower due to the economic
conditions, the existing book value of the intangible assets combined with the newly allocated
reporting unit goodwill led to the carrying value of the Machine Automation reporting unit exceeding its
190
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fair value. During 2020, a goodwill impairment charge of $290 million was recorded to reduce the
carrying value of this reporting unit to its implied fair value. The remaining goodwill for the Machine
Automation reporting unit was $554 million as of December 31, 2020.
The Company performed its annual impairment test as of October 1, 2020, using a qualitative
assessment method for each reporting unit and determined it was not more likely than not that any
reporting unit’s fair value is less than its carrying value.
Intangible assets consisted of the following:
December 31, ($ in millions)
Capitalized software for internal use
Capitalized software for sale
Intangibles other than software:
Customer-related
Technology-related
Marketing-related
Other
Total
2020
2019
Gross
carrying
amount
Accumu-
lated amor-
tization
Net
carrying
amount
Gross
carrying
amount
Accumu-
lated amor-
tization
Net
carrying
amount
828
33
(694)
(32)
134
1
790
29
(628)
(29)
162
—
2,557
1,170
492
63
(1,104)
1,453
(898)
(304)
(33)
272
188
30
2,513
1,056
501
59
(1,005)
1,508
(722)
(286)
(26)
334
215
33
5,143
(3,065)
2,078
4,948
(2,696)
2,252
In 2020 and 2019, additions to intangible assets were $78 million and $42 million, respectively.
There were no significant intangible assets acquired in business combinations during 2020 and 2019.
Amortization expense of intangible assets consisted of the following:
($ in millions)
Capitalized software for internal use
Intangibles other than software
Total
2020
2019
2018
61
268
329
74
271
345
59
279
338
In 2020, 2019 and 2018, impairment charges on intangible assets were not significant.
At December 31, 2020, future amortization expense of intangible assets is estimated to be:
($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total
323
288
261
215
181
810
2,078
A B B A N N U A L R E P O R T 2 0 2 0
0 4 F I n A n C I A L r E V I E W o F A B B G r o u P
191
—
Note 12
Debt
The Company’s total debt at December 31, 2020 and 2019, amounted to $6,121 million and
$9,059 million, respectively.
Short-term debt and current maturities of long-term debt
The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:
December 31, ($ in millions)
Short-term debt
(weighted-average interest rate of 2.8% and 2.8%, respectively)
Current maturities of long-term debt
(weighted-average nominal interest rate of 3.2% and 0.7%, respectively)
Total
2020
2019
153
838
1,140
1,293
1,449
2,287
Short-term debt primarily represents short-term loans from various banks and issued
commercial paper.
At December 31, 2020, the Company had in place two commercial paper programs: a $2 billion
Euro-commercial paper program for the issuance of commercial paper in a variety of currencies,
and a $2 billion commercial paper program for the private placement of U.S. dollar denominated
commercial paper in the United States. At December 31, 2020 and 2019, no amount was outstanding
under the $2 billion Euro-commercial paper program. At December 31, 2020 and 2019, $32 million and
$708 million, respectively, was outstanding under the $2 billion program in the United States.
In March 2020, the Company entered into a bank-funded short-term EUR 2 billion Revolving Credit
Agreement (the “Agreement”). This Agreement was in addition to the Company’s existing $2 billion
multicurrency revolving credit facility (see below). Under this Agreement, outstanding amounts were
subject to interest at the rate of EURIBOR plus a margin of 0.25 percent. The Company requested the full
amount to be borrowed and the proceeds were received on March 31, 2020, amounting to $2,183 million,
net of issuance costs. The Agreement required that all outstanding amounts be repaid within 15 days
after the completion of the sale of the Power Grids business. The Agreement was terminated after the
final repayment on July 8, 2020.
In addition, during 2019, the Company replaced its previous $2 billion multicurrency revolving credit
facility, maturing in 2021, with a new $2 billion 5-year multicurrency credit facility maturing in 2024. The
new credit facility provides an option in 2020 and 2021 to extend the maturity to 2025 and 2026,
respectively. The Company exercised the option in 2020 to extend the maturity of the facility to 2025.
The facility is for general corporate purposes. Interest costs on drawings under the facility are LIBOR or
EURIBOR (depending on the currency of the drawings) plus a margin of 0.175 percent, while
commitment fees (payable on the unused portion of the facility) amount to 35 percent of the margin,
which represents commitment fees of 0.06125 percent per annum. Utilization fees, payable on
drawings, amount to 0.075 percent per annum on drawings up to one-third of the facility, 0.15 percent
per annum on drawings in excess of one-third but less than or equal to two-thirds of the facility, or
0.30 percent per annum on drawings over two-thirds of the facility. The facility contains cross-default
clauses whereby an event of default would occur if the Company were to default on indebtedness as
defined in the facility, at or above a specified threshold. No amount was drawn at December 31, 2020
and 2019, under this facility.
Long-term debt
The Company raises long-term debt in various currencies, maturities and on various interest rate terms.
For certain of its debt obligations, the Company utilizes derivative instruments to modify its interest
rate exposure. In particular, the Company uses interest rate swaps to effectively convert certain
fixed-rate long-term debt into floating rate obligations. The carrying value of debt, designated as being
hedged by fair value hedges, is adjusted for changes in the fair value of the risk component of the debt
being hedged.
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The following table summarizes the Company’s long-term debt considering the effect of interest rate
swaps. Consequently, a fixed-rate debt subject to a fixed-to-floating interest rate swap is included
as a floating rate debt in the table below:
December 31,
($ in millions, except % data)
Floating rate
Fixed rate
Current portion of long-term debt
Total
2020
Nominal
rate
Effective
rate
1.6%
3.2%
0.2%
3.3%
2019
Nominal
rate
Effective
rate
1.5%
2.8%
1.1%
2.4%
Balance
2,221
6,000
8,221
3.2%
2.6%
(1,449)
0.7%
0.6%
6,772
Balance
3,330
2,638
5,968
(1,140)
4,828
At December 31, 2020, the principal amounts of long-term debt repayable (excluding finance lease
obligations) at maturity were as follows:
($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total
1,108
1,255
860
1,238
83
1,186
5,730
Details of the Company’s outstanding bonds were as follows:
December 31, (in millions)
Bonds:
2.8% USD Notes, due 2020
Floating EUR Notes, due 2020
4.0% USD Notes, due 2021
2.25% CHF Bonds, due 2021
5.625% USD Notes, due 2021
2.875% USD Notes, due 2022
3.375% USD Notes, due 2023
0.625% EUR Instruments, due 2023
0.75% EUR Instruments, due 2024
0.3% CHF Notes, due 2024
3.8% USD Notes, due 2028
1.0% CHF Notes, due 2029
4.375% USD Notes, due 2042
Total
2020
2019
Nominal
outstanding
Carrying
value(1)
Nominal
outstanding
Carrying
value(1)
USD
CHF
650
350
USD
1,250
EUR
EUR
CHF
USD
CHF
USD
700
750
280
383
170
609
—
—
649
403
—
1,280
—
875
946
317
381
192
589
5,632
$
$
$
$
$
$
$
$
$
$
USD
300
EUR
1,000
USD
CHF
USD
USD
USD
EUR
EUR
CHF
USD
CHF
USD
650
350
250
1,250
450
700
750
280
750
170
750
$
$
$
$
$
$
$
$
$
$
$
$
$
$
300
1,122
648
373
260
1,267
448
799
859
288
746
175
724
8,009
(1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge
accounting, where appropriate.
During 2020, the Company repaid at maturity its 2.8% USD Notes and its floating EUR Notes. The 2.8%
USD Notes paid interest semi-annually in arrears, while the floating EUR Notes paid interest quarterly in
arrears at a variable interest rate of 35 basis points above the 3-month EURIBOR, with a floor rate
of zero.
In November 2020, the Company completed a cash tender offer on its 3.8% USD Notes due 2028 and
4.375% USD Notes due 2042. As a result of this tender offer the Company redeemed principal amounts
of $367 million of the 3.8% USD Notes due 2028 and $141 million of the 4.375% USD Notes due 2042
for a total cash payment of $629 million. The Company recognized losses from extinguishment of debt
of $123 million for these two transactions, representing the premium associated with the early
redemption, as well as the recognition of remaining unamortized issuance discounts and costs.
A B B A N N U A L R E P O R T 2 0 2 0
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193
In December 2020, the Company exercised its early redemption option on its 5.625% USD Notes due
2021 and its 3.375% USD Notes due 2023. Both USD Notes paid interest semi-annually in arrears. In
connection with the redemption, the Company recognized losses from extinguishment of debt of
$39 million representing the premium associated with the early redemption, as well as the recognition
of the relevant remaining unamortized premium or discount and issuance costs.
The 4.0% USD Notes, due 2021, pay interest semi-annually in arrears, at a fixed annual rate of
4.0 percent. The Company may redeem these notes prior to maturity, in whole or in part, at the greater
of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present
values of remaining scheduled payments of principal and interest (excluding interest accrued to the
redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest
accrued at the redemption date.
The 2.25% CHF Bonds, due 2021, pay interest annually in arrears, at a fixed annual rate of 2.25 percent.
The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued
interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or purchased
and cancelled. The Company entered into interest rate swaps to hedge its interest obligations on these
bonds. After considering the impact of such swaps, these bonds effectively became floating rate Swiss
franc obligations and consequently have been shown as floating rate debt in the table of long-term
debt above.
The 2.875% USD Notes, due 2022, pay interest semi-annually in arrears at a fixed annual rate of
2.875 percent. The 4.375% USD Notes, due 2042, pay interest semi-annually in arrears at a fixed annual
rate of 4.375 percent. The Company may redeem both of these notes (which were issued together in
May 2012) prior to maturity, in whole or in part, at the greater of (i) 100 percent of the principal amount
of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of
principal and interest (excluding interest accrued to the redemption date) discounted to the
redemption date at a rate defined in the note terms, plus interest accrued at the redemption date.
These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB Finance
(USA) Inc., a 100 percent owned finance subsidiary, and were fully and unconditionally guaranteed by
ABB Ltd. There are no significant restrictions on the ability of the parent company to obtain funds from
its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial
statements of ABB Finance (USA) Inc. are not provided. The Company has entered into interest rate
swaps for an aggregate nominal amount of $1,050 million to partially hedge its interest obligations on
the 2.875% USD Notes, due 2022. After considering the impact of such swaps, $1,050 million of the
outstanding principal is shown as floating rate debt in the table of long-term debt above.
The 0.625% EUR Instruments, due 2023, were issued in May 2016, with total net issuance proceeds of
EUR 697 million (equivalent to approximately $807 million on date of issuance). These Instruments pay
interest annually in arrears at a fixed rate of 0.625 percent per annum. The Company may redeem these
notes three months prior to maturity (Par call date), in whole or in part, at the greater of (i) 100 percent
of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining
scheduled payments of principal and interest (excluding interest accrued to the redemption date)
discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the
redemption date. The Company may redeem these instruments in whole or in part, after the Par call
date at 100 percent of the principal amount of the notes to be redeemed. The Company entered into
interest rate swaps to hedge its interest on these bonds. After considering the impact of such swaps,
these notes effectively became floating rate euro obligations and consequently have been shown as
floating rate debt, in the table of long-term debt above.
The 0.75% EUR Instruments, due 2024, were issued in May 2017, with total net issuance proceeds of
EUR 745 million (equivalent to approximately $824 million on date of issuance). These Instruments pay
interest annually in arrears at a fixed rate of 0.75 percent per annum and have the same early
redemption terms as the 0.625% EUR Instruments above. The Company entered into interest rate swaps
to hedge its interest on these bonds. After considering the impact of such swaps, these bonds
effectively became floating rate euro obligations and consequently have been shown as floating rate
debt in the table of long-term debt above.
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In April 2018, the Company issued the following notes (i) $300 million of 2.8% USD Notes, due 2020,
(ii) $450 million of 3.375% USD Notes, due 2023, and (iii) $750 million of 3.8% USD Notes, due 2028. Each
of the respective notes pays interest semi-annually in arrears. The aggregate net proceeds of these
bond issues, after underwriting discount and other fees, amounted to $1,494 million. The 2020 Notes
were repaid at maturity in October 2020 and the 2023 Notes were redeemed in full in December 2020.
The Company may redeem the remaining principal outstanding on the 2028 Notes up to three months
prior to their maturity date, in whole or in part, at the greater of (i) 100 percent of the principal amount
of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of
principal and interest (excluding interest accrued to the redemption date) discounted to the
redemption date at a rate defined in the Notes terms, plus interest accrued at the redemption date. On
or after January 3, 2028 (three months prior to their maturity date), the Company may also redeem the
2028 Notes, in whole or in part, at any time at a redemption price equal to 100 percent of the principal
amount of the notes to be redeemed plus unpaid accrued interest to, but excluding, the redemption
date. These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB
Finance (USA) Inc., a 100 percent owned finance subsidiary, and were fully and unconditionally
guaranteed by ABB Ltd. There are no significant restrictions on the ability of the parent company to
obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the
separate financial statements of ABB Finance (USA) Inc. are not provided.
In February 2019, the Company issued the following notes: (i) CHF 280 million of 0.3% CHF Notes, due
2024 and (ii) CHF 170 million of 1.0% CHF Notes, due 2029. Each of the respective notes pays interests
annually in arrears. The Company recorded aggregate net proceeds, after underwriting discount and
other fees, of CHF 449 million (equivalent to approximately $449 million on date of issuance).
The Company’s various debt instruments contain cross-default clauses which would allow the
bondholders to demand repayment if the Company were to default on any borrowing at or
above a specified threshold. Furthermore, all such bonds constitute unsecured obligations of the
Company and rank pari passu with other debt obligations.
In addition to the bonds described above, included in long-term debt at December 31, 2020 and 2019,
are finance lease obligations, bank borrowings of subsidiaries and other long-term debt, none of which
is individually significant.
Subsequent events
In January 2021, the Company issued zero interest notes having a principal amount of EUR 800 million
and due in 2030. The Company recorded net proceeds (after underwriting fees) of EUR 791 million
(equivalent to $960 million on the date of issuance).
—
Note 13
Other provisions, other current liabilities and other
non-current liabilities
“Other provisions” consisted of the following:
December 31, ($ in millions)
Contract-related provisions
Restructuring and restructuring-related provisions
Provisions for contractual penalties and compliance and litigation matters
Provision for insurance-related reserves
Other
Total
2020
2019
754
292
113
176
184
607
234
209
168
157
1,519
1,375
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195
“Other current liabilities” consisted of the following:
December 31, ($ in millions)
Employee-related liabilities
Accrued expenses
Non-trade payables
Income taxes payable
Accrued customer rebates
Other tax liabilities
Derivative liabilities (see Note 6)
Deferred income
Pension and other employee benefits
Accrued interest
Other
Total
“Other non-current liabilities” consisted of the following:
December 31, ($ in millions)
Income tax related liabilities
Deferred income
Provisions for contractual penalties and compliance and litigation matters
Employee-related liabilities
Environmental provisions
Derivative liabilities (see Note 6)
Other
Total
—
Note 14
Leases
2020
1,467
2019
1,396
650
622
395
317
286
145
130
42
29
98
4,181
2020
1,423
138
120
70
38
46
190
2,025
592
442
355
287
282
143
25
36
44
159
3,761
2019
1,218
7
112
72
48
23
189
1,669
The Company’s lease obligations primarily relate to real estate, machinery and equipment. Prior to the
adoption of the new lease standard in 2019, rent expense was $364 million in 2018. Sublease income
received by the Company on leased assets was $7 million in 2018.
Under the accounting standard, adopted in January 2019, the components of lease expense were
as follows:
($ in millions)
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Variable lease cost(1)
Short-term lease cost
Sub-lease income
Total lease expense
2020
Machinery
and
equipment
Land and
buildings
287
11
2
3
17
(20)
300
89
13
3
3
31
(1)
138
2019
Machinery
and
equipment
Land and
buildings
268
101
13
1
—
19
(2)
20
2
5
29
—
Total
369
33
3
5
48
(2)
299
157
456
Total
376
24
5
6
48
(21)
438
(1) Primarily relates to variable payments that are tied to the consumer price index and are therefore included in the measurement of the right-
of-use asset or lease liability.
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The following table presents supplemental cash flow information related to leases:
($ in millions)
Cash paid for amounts included in the
measurement of lease liabilities:
Operating cash flows from
- operating leases
- finance leases
Financing cash flows from
- finance leases
Right-of-use assets obtained in exchange for
new liabilities:
Under operating leases
Under finance leases
2020
Machinery
and
equipment
Land and
buildings
Total
Land and
buildings
2019
Machinery
and
equipment
263
2
11
266
32
83
3
13
57
14
346
5
24
323
46
252
1
8
153
23
96
2
12
52
18
Total
348
3
20
205
41
At December 31, 2020, the future net minimum lease payments for operating and finance leases and the
related present value of the net minimum lease payments consisted of the following:
($ in millions)
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Difference between undiscounted cash flows and discounted cash flows
Present value of minimum lease payments
Operating Leases
Finance Leases
Land and
buildings
Machinery
and
equipment
Land and
buildings
Machinery
and
equipment
215
168
138
110
87
215
933
(80)
853
67
43
22
9
4
5
150
(2)
148
26
25
24
23
23
80
201
(43)
158
12
9
5
2
1
—
29
—
29
The following table presents certain information related to lease terms and discount rates:
Operating Leases
Finance Leases
Land and buildings
Machinery and
equipment
Land and buildings
Machinery and
equipment
($ in millions)
2020
2019
2020
2019
2020
2019
2020
2019
Weighted-average
remaining term
(months)
Weighted-average
discount rate
84
78
29
29
107
110
40
33
3.0%
3.0%
2.0%
2.2%
7.7%
8.2%
2.3%
2.8%
The present value of minimum finance lease payments included in “Short-term debt and current
maturities of long-term debt” and “Long-term debt” in the Consolidated Balance Sheets at December
31, 2020, amounts to $27 million and $160 million, respectively, and at December 31, 2019, amounts to
$17 million and $154 million, respectively.
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197
—
Note 15
Commitments and contingencies
Contingencies—Regulatory, Compliance and Legal
Regulatory
As a result of an internal investigation, the Company self-reported to the Securities and Exchange
Commission (SEC) and the Department of Justice (DoJ) in the United States as well as to the Serious
Fraud Office (SFO) in the United Kingdom concerning certain of its past dealings with Unaoil and its
subsidiaries, including alleged improper payments made by these entities to third parties. In May 2020,
the SFO closed its investigation, which it originally announced in February 2017, as the case did not
meet the relevant test for prosecution. The Company continues to cooperate with the U.S. authorities
as requested. At this time, it is not possible for the Company to make an informed judgment about the
outcome of this matter.
Based on findings during an internal investigation, the Company self-reported to the SEC and the DoJ,
in the United States, to the Special Investigating Unit (SIU) and the National Prosecuting Authority
(NPA) in South Africa as well as to various authorities in other countries potential suspect payments
and other compliance concerns in connection with some of the Company’s dealings with Eskom and
related persons. Many of those parties have expressed an interest in, or commenced an investigation
into, these matters and the Company is cooperating fully with them. The Company paid $104 million to
Eskom in December 2020 as part of a full and final settlement with Eskom and the Special Investigating
Unit relating to improper payments and other compliance issues associated with the Controls and
Instrumentation Contract, and its Variation Orders for Units 1 and 2 at Kusile. The Company continues
to cooperate fully with the National Prosecuting Authority in South Africa as well as other authorities in
their review of the Kusile project. Although the Company believes that there could be an unfavorable
outcome in one or more of these ongoing reviews, at this time it is not possible for the Company to
make an informed judgment about the possible financial impact.
General
The Company is aware of proceedings, or the threat of proceedings, against it and others in respect of
private claims by customers and other third parties with regard to certain actual or alleged
anticompetitive practices. Also, the Company is subject to other claims and legal proceedings, as well
as investigations carried out by various law enforcement authorities. With respect to the
above-mentioned claims, regulatory matters, and any related proceedings, the Company will bear the
related costs, including costs necessary to resolve them.
Liabilities recognized
At December 31, 2020 and 2019, the Company had aggregate liabilities of $100 million and $157 million,
respectively, included in “Other provisions” and “Other non-current liabilities”, for the above regulatory,
compliance and legal contingencies, and none of the individual liabilities recognized was significant. As
it is not possible to make an informed judgment on, or reasonably predict, the outcome of certain
matters and as it is not possible, based on information currently available to management, to estimate
the maximum potential liability on other matters, there could be adverse outcomes beyond the
amounts accrued.
Guarantees
General
The following table provides quantitative data regarding the Company’s third-party guarantees. The
maximum potential payments represent a “worst-case scenario”, and do not reflect management’s
expected outcomes.
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December 31, ($ in millions)
Performance guarantees
Financial guarantees
Indemnification guarantees(2)
Total
Maximum potential payments(1)
2020
6,726
339
177
7,242
2019
1,860
10
64
1,934
(1) Maximum potential payments include amounts in both continuing and discontinued operations.
(2) Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids are without limit.
The carrying amount of liabilities recorded in the Consolidated Balance Sheets reflects the Company’s
best estimate of future payments, which it may incur as part of fulfilling its guarantee obligations. In
respect of the above guarantees, the carrying amounts of liabilities at December 31, 2020, amounted to
$135 million, which was included in discontinued operations, while at December 31, 2019, balances were
not significant.
The Company is party to various guarantees providing financial or performance assurances to certain
third parties. These guarantees, which have various maturities up to 2035, mainly consist of
performance guarantees whereby (i) the Company guarantees the performance of a third party’s
product or service according to the terms of a contract and (ii) as member of a consortium/joint
venture that includes third parties, the Company guarantees not only its own performance but also the
work of third parties. Such guarantees may include guarantees that a project will be completed
within a specified time. If the third party does not fulfill the obligation, the Company will compensate
the guaranteed party in cash or in kind. The original maturity dates for the majority of these
performance guarantees range from one to ten years.
In conjunction with the divestment of the high-voltage cable and cables accessories businesses, the
Company has entered into various performance guarantees with other parties with respect to certain
liabilities of the divested business. At December 31, 2020 and 2019, the maximum potential payable
under these guarantees amounts to $994 million and $898 million, respectively, and these guarantees
have various maturities ranging from one to ten years.
The Company retained obligations for financial, performance and indemnification guarantees related to
the Power Grids business sold on July 1, 2020 (see Note 3 for details). The performance and financial
guarantees have been indemnified by Hitachi at the same proportion of its ownership in Hitachi ABB
Power Grids (80.1 percent). These guarantees, which have various maturities up to 2035, primarily
consist of bank guarantees, standby letters of credit, business performance guarantees and other
trade-related guarantees, the majority of which have original maturity dates ranging from one to ten
years. The maximum amount payable under the guarantees is approximately $5.5 billion and the
carrying amounts of liabilities (recorded in discontinued operations) at December 31, 2020, amounted
to $135 million.
Commercial commitments
In addition, in the normal course of bidding for and executing certain projects, the Company has
entered into standby letters of credit, bid/performance bonds and surety bonds (collectively
“performance bonds”) with various financial institutions. Customers can draw on such performance
bonds in the event that the Company does not fulfill its contractual obligations. The Company would
then have an obligation to reimburse the financial institution for amounts paid under the performance
bonds. At December 31, 2020 and 2019, the total outstanding performance bonds aggregated to
$4.3 billion and $6.8 billion, respectively, of which $0.3 billion and $3.7 billion, respectively, relate to
discontinued operations. There have been no significant amounts reimbursed to financial institutions
under these types of arrangements in 2020, 2019 and 2018.
Product and order-related contingencies
The Company calculates its provision for product warranties based on historical claims experience and
specific review of certain contracts.
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The reconciliation of the “Provisions for warranties”, including guarantees of product performance, was
as follows:
($ in millions)
Balance at January 1,
Net change in warranties due to acquisitions,
divestments and liabilities held for sale(1)
Claims paid in cash or in kind
Net increase in provision for changes in estimates,
warranties issued and warranties expired
Exchange rate differences
Balance at December 31,
2020
816
8
(209)
369
51
1,035
2019
948
(88)
(310)
276
(10)
816
2018
909
41
(307)
341
(36)
948
(1) Includes adjustments to the initial purchase price allocation recorded during the measurement period.
During 2018, the Company determined that the provision for a product warranty related to a divested
business was no longer sufficient to cover expected warranty costs in the remaining warranty period.
Due to an unexpected level of product failure, the previously estimated product warranty provision was
increased by a total of $92 million during 2018 and further increased by $143 million during 2020. In both
years, the corresponding increase was included in “Cost of sales of products”. As these costs relate
to a divested business, in accordance with the definition of the Company’s primary measure of segment
performance, Operational EBITA (see Note 23), the costs have been excluded from this measure.
The warranty liability has been recorded based on the information currently available and is subject to
change in the future.
Related party transactions
The Company conducts business with certain companies where members of the Company’s Board of
Directors or Executive Committee act, or in recent years have acted, as directors or senior executives.
The Company’s Board of Directors has determined that the Company’s business relationships with
those companies do not constitute material business relationships. This determination was made in
accordance with the Company’s related party transaction policy which was prepared based on the
Swiss Code of Best Practice and the independence criteria set forth in the corporate governance rules
of the New York Stock Exchange.
—
Note 16
Income taxes
“Income tax expense” consisted of the following:
($ in millions)
Current taxes
Deferred taxes
Income tax expense allocated to continuing operations
Income tax expense allocated to discontinued operations
2020
776
(280)
496
322
2019
855
(83)
772
167
2018
686
(142)
544
228
Income tax expense from continuing operations is reconciled below from the Company’s
weighted-average global tax rate (rather than from the Swiss domestic statutory tax rate) as the parent
company of the ABB Group, ABB Ltd, is domiciled in Switzerland and income generated in jurisdictions
outside of Switzerland (hereafter “foreign jurisdictions”) which has already been subject to corporate
income tax in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. There is no
requirement in Switzerland for any parent company of a group to file a tax return of the consolidated
group determining domestic and foreign pre-tax income. As the Company’s consolidated income from
continuing operations is predominantly earned outside of Switzerland, the weighted-average global tax
rate of the Company results from enacted corporate income tax rates in foreign jurisdictions.
200
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The reconciliation of “Income tax expense from continuing operations” at the weighted-average tax
rate to the effective tax rate is as follows:
($ in millions, except % data)
Income from continuing operations before income taxes
Weighted-average global tax rate
Income taxes at weighted-average tax rate
Items taxed at rates other than the weighted-average tax rate
Unrecognized tax benefits
Changes in valuation allowance, net
Effects of changes in tax laws and (enacted) tax rates
Non-deductible expenses (including impairment of goodwill)
Other, net
Income tax expense from continuing operations
Effective tax rate for the year
2020
841
22.9%
2019
1,862
18.3%
2018
2,119
22.2%
193
3
(38)
29
23
232
54
496
341
(7)
133
198
63
44
—
772
470
(43)
(22)
41
1
86
11
544
59.0%
41.5%
25.7%
The allocation of consolidated income from continued operations, which is predominantly earned
outside of Switzerland, impacts the “weighted-average global tax rate”. In 2019, based on the enacted
tax rates in the applicable jurisdictions, the loss recorded for the planned sale of the solar inverters
business reduced the weighted-average global tax rate by approximately 2 percent.
In 2018, the benefit reported in “Items taxed at rates other than the weighted-average tax rate”
included positive impacts of $17 million, relating to non-taxable amounts for net gains from sale of
businesses. In 2020 and 2019, the amount was not significant.
In 2020, “Changes in valuation allowance, net” predominantly reflects increases in the valuation
allowance resulting from changes in expectations of future economic conditions due to impacts on the
Company’s business from the COVID-19 pandemic.
In 2019, “Changes in valuation allowance, net” included adjustments to the valuation allowance in
certain jurisdictions where the Company updated its assessment that it was more likely than not that
such deferred tax assets would be realized. In 2019, the Company recorded an increase of $158 million
to the valuation allowance in certain operations in North America, including an amount to provide for
certain deferred tax assets arising in 2019.
In 2018, the “Changes in valuation allowance, net” included adjustments in valuation allowance recorded
in certain jurisdictions where the Company updated its assessment that it was more likely than not that
such deferred tax assets would be realized. The amount included an increase of $40 million relating to
certain operations in Central Europe.
In 2020, “Effects of changes in tax laws and (enacted) tax rates” primarily reflects the impact of
changes to tax rates in certain countries in Asia by $16 million. In 2019, “Effects of changes in tax laws
and (enacted) tax rates” primarily reflects a change in tax law applicable to a country in Europe. The
benefit in 2019 was mostly offset by a related change in the valuation allowance, resulting in a net
benefit of $17 million.
In 2020, the impact on the income tax expense from “Non-deductible expenses” was $232 million, and
includes an impact of $82 million for the impairment of non-deductible goodwill. In addition, the
amount in 2020 includes $62 million relating to non-operational pension costs resulting from the
settlement of certain defined benefit plans which were principally not deductible. Non-deductible
expenses also includes other items that were deducted for financial accounting purposes but are
typically not tax deductible, such as interest expense, local taxes on productive activities, disallowed
meals and entertainment expenses and other similar items. The amounts in 2019 and 2018 related
primarily to these typically non-deductible items.
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201
In 2020 and 2018, “Unrecognized tax benefits” in the table above included a net benefit of $20 million
and $22 million, respectively, related to the interpretation for tax law and double tax treaty agreements
by competent tax authorities while in 2019, “Unrecognized tax benefits” included a net charge of
$91 million.
In 2020, “Other, net” represents income tax expense of $54 million related to finalization of tax audits
in Europe.
Deferred tax assets and liabilities (excluding amounts held for sale and in discontinued operations)
consisted of the following:
December 31, ($ in millions)
Deferred tax assets:
Unused tax losses and credits
Provisions and other accrued liabilities
Other current assets including receivables
Pension
Inventories
Intangible assets
Other
Total gross deferred tax asset
Valuation allowance
Total gross deferred tax asset, net of valuation allowance
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Other assets
Pension
Other liabilities
Inventories
Unremitted earnings of subsidiaries
Total gross deferred tax liability
Net deferred tax asset (liability)
Included in:
“Deferred taxes”—non-current assets
“Deferred taxes”—non-current liabilities
Net deferred tax asset (liability)
2020
2019
758
750
114
413
370
873
76
507
650
121
592
463
972
179
3,354
(1,518)
1,836
3,484
(1,632)
1,852
(275)
(419)
(65)
(223)
(310)
(29)
(333)
(244)
(483)
(161)
(214)
(359)
(39)
(353)
(1,654)
(1,853)
182
(1)
843
(661)
182
910
(911)
(1)
Certain entities have deferred tax assets related to net operating loss carry-forwards and other items.
As recognition of these assets in certain entities did not meet the more likely than not criterion,
valuation allowances have been recorded. “Unused tax losses and credits” at December 31, 2020 and
2019, in the table above, included $170 million and $126 million, respectively, for which the Company has
established a valuation allowance as, due to limitations imposed by the relevant tax law, the Company
determined that, more likely than not, such deferred tax assets would not be realized.
The valuation allowance at December 31, 2020, 2019 and 2018, was $1,518 million, $1,632 million and
$1,535 million, respectively.
At December 31, 2020 and 2019, deferred tax liabilities totaling $333 million and $353 million,
respectively, have been provided for withholding taxes, dividend distribution taxes or additional
corporate income taxes (hereafter “withholding taxes”) on unremitted earnings which will be payable in
foreign jurisdictions in the event of repatriation of the foreign earnings to Switzerland. Income which
has been generated outside of Switzerland and has already been subject to corporate income tax in
such foreign jurisdictions is, to a large extent, tax exempt in Switzerland and therefore, generally no or
only limited Swiss income tax has to be provided for on the repatriated earnings of foreign subsidiaries.
202
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Certain countries levy withholding taxes on dividend distributions and these taxes cannot always be
fully reclaimed by the Company’s relevant subsidiary receiving the dividend although the taxes have to
be withheld and paid by the relevant subsidiary distributing such dividend. In 2020 and 2019, certain
taxes arose in certain foreign jurisdictions for which the technical merits do not allow utilization of
benefits. At December 31, 2020 and 2019, foreign subsidiary retained earnings subject to withholding
taxes upon distribution of approximately $100 million and $100 million, respectively, were considered
as indefinitely reinvested, as these funds are used for financing current operations as well as business
growth through working capital and capital expenditure in those countries and, consequently, no
deferred tax liability was recorded.
At December 31, 2020, net operating loss carry-forwards of $3,033 million and tax credits of $82 million
were available to reduce future income taxes of certain subsidiaries. Of these amounts, $1,682 million of
operating loss carry-forwards and $57 million of tax credits will expire in varying amounts through
2042, while the remainder are available for carryforward indefinitely. The largest amount of these
carry-forwards related to the Company’s Europe operations.
Unrecognized tax benefits consisted of the following:
($ in millions)
Classification as unrecognized tax items on January 1, 2018
Net change due to acquisitions and divestments
Increase relating to prior year tax positions
Decrease relating to prior year tax positions
Increase relating to current year tax positions
Decrease due to settlements with tax authorities
Decrease as a result of the applicable statute of limitations
Exchange rate differences
Balance at December 31, 2018,
which would, if recognized, affect the effective tax rate
Net change due to acquisitions and divestments
Increase relating to prior year tax positions
Decrease relating to prior year tax positions
Increase relating to current year tax positions
Decrease due to settlements with tax authorities
Decrease as a result of the applicable statute of limitations
Exchange rate differences
Balance at December 31, 2019,
which would, if recognized, affect the effective tax rate
Net change due to acquisitions and divestments
Increase relating to prior year tax positions
Decrease relating to prior year tax positions
Increase relating to current year tax positions
Decrease due to settlements with tax authorities
Decrease as a result of the applicable statute of limitations
Exchange rate differences
Balance at December 31, 2020,
which would, if recognized, affect the effective tax rate
Unrecognized
tax benefits
1,025
8
35
(99)
126
(44)
(66)
(24)
961
11
202
(82)
163
(57)
(83)
(9)
1,106
1
298
(161)
390
(340)
(59)
63
1,298
Penalties and
interest related
to unrecognized
tax benefits
242
—
37
14
5
(17)
(31)
(11)
239
7
85
(63)
6
(8)
(28)
(5)
233
—
96
(57)
5
(75)
(16)
6
192
Total
1,267
8
72
(85)
131
(61)
(97)
(35)
1,200
18
287
(145)
169
(65)
(111)
(14)
1,339
1
394
(218)
395
(415)
(75)
69
1,490
In 2020, the “Increase relating to current year tax positions” included a total of $381 million, in taxes
related to the interpretation of tax law and double tax treaty agreements by competent tax authorities,
of which $301 million is reported as Income tax expense in discontinued operations.
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In 2019 and 2018, the “Increase relating to current year tax positions” included a total of $163 million and
$111 million, respectively, in taxes related to the interpretation of tax law and double tax treaty
agreements by competent tax authorities.
In 2020, the “Increase relating to prior year tax positions” is predominantly related to the interpretation
of tax law and double tax treaty agreements by competent tax authorities in Europe, of which
$73 million is reported as Income tax expense in discontinued operations.
In 2020, the “Decrease relating to prior year tax positions” included a total of $85 million related
to a change of interpretation of tax law in Asia and changed tax risk assessments in Europe of
$59 million.
In 2020, the “Decrease due to settlements with tax authorities” is predominantly related to closed tax
audits in Europe.
At December 31, 2020, the Company expected the resolution, within the next twelve months, of
unrecognized tax benefits related to pending court cases amounting to $32 million for income taxes,
penalties and interest. Otherwise, the Company had not identified any other significant changes which
were considered reasonably possible to occur within the next twelve months.
At December 31, 2020, the earliest significant open tax years that remained subject to examination were
the following:
Region
Europe
United States
Rest of Americas
China
Rest of Asia, Middle East and Africa
Year
2015
2017
2015
2011
2011
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—
Note 17
Employee benefits
The Company operates defined benefit pension plans, defined contribution pension plans, and
termination indemnity plans, in accordance with local regulations and practices. At December 31, 2020,
the Company’s most significant defined benefit pension plans are in Switzerland as well as in Germany,
the United Kingdom, and the United States. These plans cover a large portion of the Company’s
employees and provide benefits to employees in the event of death, disability, retirement, or
termination of employment. Certain of these plans are multi-employer plans. The Company also
operates other postretirement benefit plans including postretirement health care benefits and other
employee-related benefits for active employees including long-service award plans. The measurement
date used for the Company’s employee benefit plans is December 31. The funding policies of the
Company’s plans are consistent with the local government and tax requirements.
During 2020, the Company took steps to transfer the defined benefit pension risks in three
International countries to external financial institutions. Two of these plans were settled entirely for
accounting purposes while the third plan involved the settlement of specific obligations for certain
former employees. In connection with these transactions, the Company made net payments of
$309 million and recorded non-operational pension charges of $520 million which are included in net
periodic benefit cost as curtailments, settlements and special termination benefits. The Company also
made cash payments of $143 million and recorded non-operational pension charges of $101 million in
2020 for the settlement of pension obligations in discontinued operations.
The Company recognizes in its Consolidated Balance Sheets the funded status of its defined benefit
pension plans, postretirement plans, and other employee-related benefits measured as the difference
between the fair value of the plan assets and the benefit obligation.
Unless otherwise indicated, the following tables include amounts relating to both continuing and
discontinued operations.
Obligations and funded status of the plans
The change in benefit obligation, change in fair value of plan assets, and funded status recognized in
the Consolidated Balance Sheets were as follows:
($ in millions)
Benefit obligations at January 1,
Service cost
Interest cost
Contributions by plan participants
Benefit payments
Settlements
Benefit obligations of businesses acquired
(divested)
Actuarial (gain) loss
Plan amendments and other
Exchange rate differences
Benefit obligation at December 31,
Fair value of plan assets at January 1,
Actual return on plan assets
Contributions by employer
Contributions by plan participants
Benefit payments
Settlements
Plan assets of businesses acquired (divested)
Plan amendments and other
Exchange rate differences
Fair value of plan assets at December 31,
Funded status — overfunded (underfunded)
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
2020
4,308
74
6
72
(160)
(101)
(765)
71
—
365
3,870
4,189
191
228
72
(160)
(101)
(664)
—
378
4,133
263
2019
3,993
76
15
75
(133)
(111)
—
323
—
70
4,308
3,879
320
91
75
(133)
(111)
—
—
68
4,189
(119)
2020
7,878
92
111
12
(295)
(2,542)
(165)
214
(64)
286
5,527
6,246
375
611
12
(295)
(2,542)
(82)
62
221
4,608
(919)
2019
7,429
113
174
19
(302)
(102)
(21)
617
9
(58)
7,878
5,866
689
115
19
(302)
(102)
(12)
—
(27)
6,246
(1,632)
2020
110
1
3
—
(12)
—
(5)
4
(3)
—
98
—
—
12
—
2019
120
1
4
—
(10)
—
—
(1)
(5)
1
110
—
—
10
—
(12)
(10)
—
—
—
—
—
—
—
—
—
—
(98)
(110)
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The amounts recognized in “Accumulated other comprehensive loss” and “Noncontrolling interests”
were:
Defined pension
benefits
Other postretirement
benefits
December 31, ($ in millions)
2020
2019
2018
2020
2019
2018
Net actuarial (loss) gain
Prior service credit
(2,038)
(2,782)
(2,628)
75
59
74
Amount recognized in OCI(1) and NCI(2)
(1,963)
(2,723)
(2,554)
Taxes associated with
amount recognized in OCI and NCI
Amount recognized in
OCI and NCI, net of tax(3)
374
536
535
(1,589)
(2,187)
(2,019)
21
11
32
—
32
28
13
41
—
41
30
23
53
—
53
(1) OCI represents “Accumulated other comprehensive loss”.
(2) NCI represents “Noncontrolling interests”.
(3) NCI, net of tax, amounted to $(1) million, $(1) million, and $(1) million at December 31, 2020, 2019 and 2018.
In addition, the following amounts were recognized in the Company’s Consolidated Balance Sheets:
December 31, ($ in millions)
Overfunded plans
Underfunded plans — current
Underfunded plans — non-current
Funded status - underfunded
Amounts reported as assets and
liabilities held for sale
December 31, ($ in millions)
Non-current assets
Overfunded pension plans
Other employee-related benefits
Pension and other employee benefits
December 31, ($ in millions)
Current liabilities
Underfunded pension plans
Underfunded other postretirement benefit plans
Other employee-related benefits
Pension and other employee benefits
Amounts reported as Current liabilities held for sale
December 31, ($ in millions)
Non-current liabilities
Underfunded pension plans
Underfunded other postretirement benefit plans
Other employee-related benefits
Pension and other employee benefits
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
2020
267
—
(4)
263
—
2019
62
(78)
(103)
(119)
2020
92
(22)
(989)
(919)
2019
71
(295)
(1,408)
(1,632)
2020
—
(9)
(89)
(98)
2019
—
(14)
(96)
(110)
(78)
—
(277)
—
(5)
2020
2019
359
1
360
132
1
133
2020
2019
(22)
(9)
(11)
(42)
—
(374)
(14)
(72)
(460)
(424)
2020
2019
(993)
(89)
(149)
(1,510)
(96)
(186)
(1,231)
(1,792)
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The accumulated benefit obligation (ABO) for all defined benefit pension plans was $9,310 million and
$11,981 million at December 31, 2020 and 2019, respectively. The projected benefit obligation (PBO),
ABO and fair value of plan assets, for pension plans with a PBO in excess of fair value of plan assets or
ABO in excess of fair value of plan assets, was:
December 31,
($ in millions)
PBO
ABO
Fair value of plan assets
PBO exceeds fair value of plan assets
ABO exceeds fair value of plan assets
Switzerland
International
Switzerland
International
2020
13
13
9
2019
3,769
3,769
3,588
2020
5,131
5,056
4,120
2019
7,346
7,156
5,643
2020
13
13
9
2019
3,769
3,769
3,588
2020
5,008
4,942
4,004
2019
7,228
7,054
5,537
All of the Company’s other postretirement benefit plans are unfunded.
Components of net periodic benefit cost
Net periodic benefit cost consisted of the following:
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
($ in millions)
2020
2019
2018
2020
2019
2018
2020
2019
2018
Operational pension cost:
Service cost
Operational pension cost
Non-operational pension cost (credit):
74
74
76
76
92
92
92
92
113
113
122
122
Interest cost
6
15
30
111
174
198
Expected return on plan assets
(123)
(112)
(117)
(253)
(276)
(305)
Amortization of prior service cost (credit)
(11)
(14)
(15)
Amortization of net actuarial loss
Curtailments, settlements
and special termination benefits
7
6
—
11
—
—
Non-operational pension cost (credit)
(115)
(100)
(102)
Net periodic benefit cost
(41)
(24)
(10)
2
109
644
613
705
2
108
27
35
1
92
23
9
148
131
1
1
3
—
(2)
(3)
—
(2)
(1)
1
1
4
—
(5)
(3)
(10)
(14)
(13)
1
1
4
—
(5)
(1)
—
(2)
(1)
The components of net periodic benefit cost other than the service cost component are included in the
line “Non-operational pension (cost) credit” in the income statement. Net periodic benefit cost includes
$121 million, $47 million and $45 million in 2020, 2019 and 2018, respectively, related to discontinued
operations.
Assumptions
The following weighted-average assumptions were used to determine benefit obligations:
December 31, (in %)
Discount rate
Rate of compensation increase
Rate of pension increase
Cash balance interest credit rate
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
2020
2019
2020
2019
2020
2019
—
—
—
1.0
0.2
—
—
1.0
1.6
1.0
1.4
2.1
2.0
2.2
1.3
1.6
2.1
0.2
—
—
2.8
0.2
—
—
For the Company’s significant benefit plans, the discount rate used at each measurement date is set
based on a high-quality corporate bond yield curve (derived based on bond universe information
sourced from reputable third-party index and data providers and rating agencies) reflecting the timing,
amount and currency of the future expected benefit payments for the respective plan. Consistent
discount rates are used across all plans in each currency zone, based on the duration of the applicable
plan(s) in that zone. For plans in the other countries, the discount rate is based on high quality corporate
or government bond yields applicable in the respective currency, as appropriate at each measurement
date with a duration broadly consistent with the respective plan’s obligations.
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At the end of 2018, the Company changed the approach used to calculate the service and interest
components of net periodic benefit cost for its significant benefit plans to provide a more precise
measurement of service and interest costs. This change compared to the previous approach resulted
in a net decrease in the service and interest components for benefit cost in 2019. Previously, the
Company calculated the service and interest cost components utilizing a single weighted-average
discount rate derived from the yield curve used to measure the benefit obligation at the beginning of
the period. The Company has elected to utilize an approach that discounts the individual expected cash
flows using the applicable spot rates derived from the yield curve over the projected cash flow period.
This change does not affect the measurement of our total benefit obligations.
The following weighted-average assumptions were used to determine the “Net periodic benefit cost”:
(in %)
Discount rate
Expected long-term rate
of return on plan assets
Rate of compensation increase
Cash balance interest credit rate
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
2020
2019
2018
2020
2019
2018
2020
2019
2018
0.3
3.0
—
1.0
0.8
0.8
1.9
2.8
2.6
2.8
3.9
3.2
3.0
—
1.0
3.0
—
1.0
4.3
2.2
1.6
4.9
2.4
1.6
4.9
2.5
1.7
—
0.2
—
—
0.2
—
—
—
—
The “Expected long-term rate of return on plan assets” is derived for each benefit plan by considering
the expected future long-term return assumption for each individual asset class. A single long-term
return assumption is then derived for each plan based upon the plan’s target asset allocation.
The Company maintains other postretirement benefit plans, which are generally contributory with
participants’ contributions adjusted annually. The assumptions used were:
December 31,
Health care cost trend rate assumed for next year
Rate to which the trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2020
5.9%
4.9%
2028
2019
6.3%
5.0%
2028
Plan assets
The Company has pension plans in various countries with the majority of the Company’s pension
liabilities deriving from a limited number of these countries.
The pension plans are typically funded by regular contributions from employees and the Company.
These plans are typically administered by boards of trustees (which include Company representatives)
whose primary responsibilities include ensuring that the plans meet their liabilities through
contributions and investment returns. The boards of trustees have the responsibility for making key
investment strategy decisions within a risk-controlled framework.
The pension plan assets are invested in diversified portfolios that are managed by third-party asset
managers, in accordance with local statutory regulations, pension plan rules and the respective plans’
investment guidelines, as approved by the boards of trustees.
Plan assets are generally segregated from those of the Company and invested with the aim of meeting
the respective plans’ projected future pension liabilities. Plan assets are measured at fair value at the
balance sheet date.
The boards of trustees manage the assets of the pension plans in a risk-controlled manner and assess
the risks embedded in the pension plans through asset/liability management studies. Asset/liability
management studies typically take place every three years. However, the risks of the plans are
monitored on an ongoing basis.
The board of trustees’ investment goal is to maximize the long-term returns of plan assets within
specified risk parameters, while considering the future liabilities and liquidity needs of the individual
plans. Risk measures taken into account include the funding ratio of the plan, the likelihood of
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extraordinary cash contributions being required, the risk embedded in each individual asset class, and
the plan asset portfolio as a whole.
The Company’s global pension asset allocation is the result of the asset allocations of the individual
plans, which are set by the respective boards of trustees. The target asset allocation of the Company’s
plans on a weighted-average basis is as follows:
(in %)
Asset class
Equity
Fixed income
Real estate
Other
Total
Target
Switzerland
International
19
54
22
5
100
16
68
6
10
100
The actual asset allocations of the plans are in line with the target asset allocations.
Equity securities primarily includes investments in large-cap and mid-cap publicly traded companies.
Fixed income assets primarily include corporate bonds of companies from diverse industries and
government bonds. Both fixed income and equity assets are invested either via funds or directly in
segregated investment mandates, and include an allocation to emerging markets. Real estate consists
primarily of investments in real estate in Switzerland held in the Swiss plans. The “Other” asset class
includes investments in private equity, hedge funds, commodities, and cash, and reflects a variety of
investment strategies.
Based on the above global asset allocation and the fair values of the plan assets, the expected
long-term return on assets at December 31, 2020, is 3.5 percent. The Company and the local boards of
trustees regularly review the investment performance of the asset classes and individual asset
managers. Due to the diversified nature of the investments, the Company is of the opinion that no
significant concentration of risks exists in its pension fund assets.
At December 31, 2020 and 2019, plan assets include ABB Ltd’s shares (as well as an insignificant amount
of the Company’s debt instruments) with a total value of $8 million and $10 million, respectively.
The fair values of the Company’s pension plan assets by asset class are presented below. For further
information on the fair value hierarchy and an overview of the Company’s valuation techniques applied,
see the “Fair value measures” section of Note 2.
December 31, 2020 ($ in millions)
Asset class
Equity
Equity securities
Mutual funds/commingled funds
Emerging market mutual funds/commingled funds
Fixed income
Government and corporate securities
Government and corporate—mutual funds/commingled funds
Emerging market bonds—mutual funds/commingled funds
Real estate
Insurance contracts
Cash and short-term investments
Private equity
Hedge funds
Total
Level 1
Level 2
Not subject
to leveling(1)
Total
fair value
180
389
103
5
1,298
243
1,415
2,876
547
50
190
185
1,298
243
1,804
2,876
547
1,289
50
293
156
1
1,289
156
1
672
6,624
1,446
8,742
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209
December 31, 2019 ($ in millions)
Asset class
Equity
Equity securities
Mutual funds/commingled funds
Emerging market mutual funds/commingled funds
Fixed income
Government and corporate securities
Government and corporate—mutual funds/commingled funds
Emerging market bonds—mutual funds/commingled funds
Real estate
Insurance contracts
Cash and short-term investments
Private equity
Hedge funds
Commodities
Total
Level 1
Level 2
Not subject
to leveling(1)
Total
fair value
224
521
101
846
7
1,687
339
1,013
3,738
805
123
152
26
7,890
23
31
1,433
211
1
231
1,710
339
1,534
3,769
805
1,433
123
253
211
1
26
1,699
10,435
(1) Amounts relate to assets measured using the NAV practical expedient which are not subject to leveling.
The Company applies accounting guidance related to the presentation of certain investments using the
net asset value (NAV) practical expedient. This accounting guidance exempts investments using this
practical expedient from categorization within the fair value hierarchy. Investments measured at NAV
are primarily non exchange-traded commingled or collective funds in private equity and real estate
where the fair value of the underlying assets is determined by the investment manager. Investments in
private equity can never be redeemed, but instead the funds will make distributions through liquidation
of the underlying assets. Total unfunded commitments for the private equity funds were approximately
$115 million at December 31, 2020. The real estate funds are typically subject to a lock-in period of up to
three years after subscribing. After this period, the real estate funds typically offer a redemption notice
of three to twelve months.
Contributions
Employer contributions were as follows:
Defined pension
benefits
Other postretirement
benefits
Switzerland
International
International
($ in millions)
2020
2019
2020
2019
2020
2019
Total contributions to defined benefit pension
and other postretirement benefit plans
Of which, discretionary contributions
to defined benefit pension plans
228
152
91
2
611
520
115
8
12
—
10
—
In 2020, total contributions included non-cash contributions totaling $224 million of available-for-sale
debt securities to certain of the Company’s pension plans in Switzerland and the United Kingdom. The
contributions in 2019 and 2018 were not significant.
The Company expects to contribute approximately $156 million, including $35 million in discretionary
contributions, to its defined benefit pension plans in 2021. Of these discretionary contributions,
$14 million are expected to be non-cash contributions. The Company expects to contribute
approximately $9 million to its other postretirement benefit plans in 2021.
The Company also contributes to a number of defined contribution plans. The aggregate expense for
these plans in continuing operations was $205 million, $190 million and $186 million in 2020, 2019 and
2018, respectively. Contributions to multi-employer plans were not significant in 2020, 2019 and 2018.
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Estimated future benefit payments
The expected future cash flows to be paid by the Company’s plans in respect of pension and other
postretirement benefit plans at December 31, 2020, are as follows:
($ in millions)
Switzerland
International
International
Defined pension
benefits
Other postretirement
benefits
2021
2022
2023
2024
2025
Years 2026 - 2030
347
235
219
209
200
877
314
264
257
261
264
1,308
9
9
8
8
7
29
—
Note 18
Share -based payment arrangements
The Company has granted share-based instruments to its employees under three principal share-based
payment plans, as more fully described in the respective sections below. Compensation cost for
equity-settled awards is recorded in Total cost of sales and in Selling, general and administrative
expenses and totaled $44 million, $46 million and $50 million in 2020, 2019 and 2018, respectively, while
compensation cost for cash-settled awards, recorded in Selling, general and administrative expenses,
was not significant, as mentioned in the WARs, LTIP and Other share-based payments sections of this
note. The total tax benefit recognized in 2020, 2019 and 2018 was not significant.
At December 31, 2020, the Company had the ability to issue up to 94 million new shares out of
contingent capital in connection with share-based payment arrangements. In addition, 28 million of the
137 million shares held by the Company as treasury stock at December 31, 2020, could be used to settle
share-based payment arrangements.
As the primary trading market for the shares of ABB Ltd is the SIX Swiss Exchange (on which the shares
are traded in Swiss francs) and substantially all the share-based payment arrangements with employees
are based on the Swiss franc share or have strike prices set in Swiss francs, certain data disclosed below
related to the instruments granted under share-based payment arrangements are presented in
Swiss francs.
Management Incentive Plan
Up to 2019, the Company offered, under the MIP, options and cash-settled WARs to key employees for
no consideration. Starting in 2020, the employee group previously eligible to receive grants under the
MIP were granted shares under the LTIP (see LTIP section below) and consequently no grants were made
in 2020 under the MIP.
The options granted under the MIP allow participants to purchase shares of ABB Ltd at predetermined
prices. Participants may sell the options rather than exercise the right to purchase shares. Equivalent
warrants are listed by a third-party bank on the SIX Swiss Exchange, which facilitates pricing and
transferability of options granted under this plan. The options entitle the holder to request that the
third-party bank purchase such options at the market price of equivalent listed warrants related to that
MIP launch. If the participant elects to sell the options, the options will thereafter be held by a third
party and, consequently, the Company’s obligation to deliver shares will be toward this third party.
Each WAR gives the participant the right to receive, in cash, the market price of an equivalent listed
warrant on the date of exercise of the WAR. Participants may exercise or sell options and exercise WARs
after the vesting period, which is three years from the date of grant. All options and WARs expire six
years from the date of grant.
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Options
The fair value of each option was estimated on the date of grant using a lattice model that used the
assumptions noted in the table below. Expected volatilities were based on implied volatilities from
equivalent listed warrants on ABB Ltd shares. The expected term of the options granted is the
contractual six-year life of each option, based on the fact that after the vesting period, a participant can
elect to sell the option rather than exercise the right to purchase shares, thereby also realizing the time
value of the options. The risk-free rate was based on a six-year Swiss franc interest rate, reflecting the
six-year contractual life of the options. In estimating forfeitures, the Company used data from previous
comparable MIP launches.
Expected volatility
Dividend yield
Expected term
Risk-free interest rate
2019
19%
4.7%
6 years
-0.9%
2018
17%
3.1%
6 years
-0.1%
Presented below is a summary of the activity related to options under the MIP:
Number of
options
(in millions)
Number of
shares
(in millions)(1)
Weighted-
average
exercise
price
(in Swiss
francs)(2)
Weighted-
average
remaining
contractual
term (in years)
Aggregate
intrinsic value
(in millions of
Swiss francs)(3)
Outstanding at January 1, 2020
Exercised(4)
Forfeited
Expired
Outstanding at December 31, 2020
Vested and expected to vest
at December 31, 2020
Exercisable at December 31, 2020
417.6
(72.5)
(8.9)
(0.1)
336.1
336.1
261.0
83.5
(14.5)
(1.8)
—
67.2
67.2
52.2
21.13
21.00
21.16
21.00
21.16
21.16
21.15
2.5
2.5
2.0
239
239
186
(1) Information presented reflects the number of ABB Ltd shares that can be received upon exercise, as options have a conversion ratio of 5:1.
(2) Information presented reflects the exercise price per ABB Ltd share.
(3) Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option in
Swiss francs.
(4) The cash received upon exercise amounted to approximately $334 million. The shares were delivered out of treasury stock.
At December 31, 2020, there was $12 million of total unrecognized compensation cost related to
non-vested options granted under the MIP. That cost is expected to be recognized
over a weighted-average period of 1.3 years. The weighted-average grant-date fair value (per option) of
options granted during 2019 and 2018 was 0.34 Swiss francs and 0.46 Swiss francs, respectively. As
mentioned previously, no options were granted in 2020. In 2020 and 2018, the aggregate intrinsic value
(on the date of exercise) of options exercised was $38 million and $13 million, respectively, while the
amount in 2019 was not significant.
Presented below is a summary, by launch, related to options outstanding at December 31, 2020:
Exercise price (in Swiss francs)(1)
Number of options
(in millions)
Number of shares
(in millions)(2)
Weighted-average
remaining contractual
term (in years)
19.50
21.50
22.50
23.50
19.00
Total number of options and shares
77.9
72.7
63.9
62.4
59.2
336.1
15.6
14.5
12.8
12.5
11.8
67.2
0.6
1.7
2.6
3.7
4.7
2.5
(1) Information presented reflects the exercise price per share of ABB Ltd.
(2) Information presented reflects the number of shares of ABB Ltd that can be received upon exercise.
WARs
As each WAR gives the holder the right to receive cash equal to the market price of the equivalent listed
warrant on date of exercise, the Company records a liability based upon the fair value of outstanding
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WARs at each period end, accreted on a straight-line basis over the three-year vesting period. In Selling,
general and administrative expenses, the Company records the changes in both the fair value and
vested portion of the outstanding WARs. To hedge its exposure to fluctuations in the fair value of
outstanding WARs, the Company purchased cash-settled call options, which entitle the Company to
receive amounts equivalent to its obligations under the outstanding WARs. The cash-settled call
options are recorded as derivatives measured at fair value (see Note 6), with subsequent changes in fair
value recorded in Selling, general and administrative expenses to the extent that they offset the change
in fair value of the liability for the WARs. The total impact in Selling, general and administrative expenses
in 2020, 2019 and 2018 was not significant.
The aggregate fair value of outstanding WARs was $21 million and $26 million at December 31, 2020 and
2019, respectively. The fair value of WARs was determined based upon the trading price of equivalent
warrants listed on the SIX Swiss Exchange.
Presented below is a summary of the activity related to WARs:
(in millions)
Outstanding at January 1, 2020
Exercised
Forfeited
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Number of WARs
39.9
(17.1)
(0.7)
22.1
9.0
The aggregate fair value at date of grant of WARs granted in 2019 and 2018 was not significant. As
mentioned previously, no grants were made in 2020 under the MIP. In 2020, share-based liabilities of
$13 million were paid upon exercise of WARs by participants. The amounts in 2019 and 2018 were
not significant.
Employee Share Acquisition Plan
The employee share acquisition plan (ESAP) is an employee stock-option plan with a savings feature.
Employees save over a twelve-month period, by way of regular payroll deductions. At the end of the
savings period, employees choose whether to exercise their stock options using their savings plus
interest, if any, to buy ABB Ltd shares (American Depositary Shares (ADS) in the case of employees in
the United States and Canada—each ADS representing one registered share of the Company) at the
exercise price set at the grant date, or have their savings returned with any interest. The savings are
accumulated in bank accounts held by a third-party trustee on behalf of the participants and earn
interest, where applicable. Employees can withdraw from the ESAP at any time during the savings
period and will be entitled to a refund of their accumulated savings.
The fair value of each option is estimated on the date of grant using the same option valuation model as
described under the MIP, using the assumptions noted in the table below. The expected term of the
option granted has been determined to be the contractual one-year life of each option, at the end of
which the options vest and the participants are required to decide whether to exercise their options or
have their savings returned with interest. The risk-free rate is based on one-year Swiss franc interest
rates, reflecting the one-year contractual life of the options. In estimating forfeitures, the Company has
used the data from previous ESAP launches.
Expected volatility
Dividend yield
Expected term
Risk-free interest rate
2020
24%
3.8%
1 year
-0.7%
2019
18%
4.1%
1 year
-0.7%
2018
19%
4.1%
1 year
-0.6%
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Presented below is a summary of activity under the ESAP:
Weighted-
average exercise
price (in Swiss
francs)(2)
Weighted-
average
remaining
contractual
term (in years)
Aggregate
intrinsic value
(in millions of
Swiss francs)(2)(3)
Number of shares
(in millions)(1)
Outstanding at January 1, 2020
Granted
Forfeited
Exercised(4)
Not exercised (savings returned plus interest)
Outstanding at December 31, 2020
Vested and expected to vest at
December 31, 2020
Exercisable at December 31, 2020
2.3
2.1
(0.1)
(1.4)
(0.8)
2.1
2.0
—
20.78
22.87
20.79
20.78
20.78
22.87
22.87
—
0.8
0.8
—
3.9
3.8
—
(1) Includes shares represented by ADS.
(2) Information presented for ADS is based on equivalent Swiss franc denominated awards.
(3) Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option in
Swiss francs.
(4) The cash received in 2020 upon exercise was approximately $28 million. The shares were delivered out of treasury stock.
The exercise prices per ABB Ltd share and per ADS of 22.87 Swiss francs and $24.93, respectively, for the
2020 grant, 20.78 Swiss francs and $20.17, respectively, for the 2019 grant, and 20.38 Swiss francs and
$20.37, respectively, for the 2018 grant were determined using the closing price of the ABB Ltd share on
the SIX Swiss Exchange and ADS on the New York Stock Exchange on the respective grant dates.
At December 31, 2020, the total unrecognized compensation cost related to non-vested options granted
under the ESAP was not significant. The weighted-average grant-date fair value (per option) of options
granted during 2020, 2019 and 2018 was 1.67 Swiss francs, 1.05 Swiss francs and 1.10 Swiss francs,
respectively. The total intrinsic value (on the date of exercise) of options exercised in 2020, 2019 and
2018 was not significant.
Long-Term Incentive Plan
The long-term incentive plan (LTIP) involves annual grants of the Company’s stock subject to certain
conditions (Performance Shares) to members of the Company’s Executive Committee and selected
other senior executives, as defined in the terms of the LTIP. In 2020, certain of the employee group
previously eligible to receive grants under the MIP are now included in the LTIP. The ultimate amount
delivered under the LTIP’s Performance Shares grant is based on achieving certain results against
targets, as set out below, over a three-year period from grant and the final amount is delivered to the
participants at the end of this period. In addition, for certain awards to vest, the participant has to
fulfill a three-year service condition as defined in the terms and conditions of the LTIP.
The Performance Shares under the 2020, 2019 and 2018 LTIP launches include a performance
component, based on the Company’s earnings per share performance, and a market component, based
on the Company’s relative total shareholder return.
For the relative total shareholder return component of the Performance Shares, the actual number of
shares that will be delivered at a future date is based on the Company’s total shareholder return
performance relative to a peer group of companies over a three-year period starting with the year of
grant. The actual number of shares that will ultimately be delivered will vary depending on the relative
total shareholder return outcome achieved between a lower threshold (no shares delivered) and an
upper threshold (the number of shares delivered is capped at 200 percent of the conditional grant).
For the earnings per share performance component of the Performance Shares, the actual number of
shares that will be delivered at a future date is based on the Company’s average earnings per share over
three financial years, beginning with the year of launch. The actual number of shares that will ultimately
be delivered will vary depending on the earnings per share outcome as computed under each LTIP
launch, interpolated between a lower threshold (no shares delivered) and an upper threshold (the
number of shares delivered is capped at 200 percent of the conditional grant).
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Under the 2019 and 2018 LTIP launches, participants receive 65 percent of the shares that have vested in
the form of shares and 35 percent of the value of the shares that have vested in cash, with the possibility
to elect to also receive the 35 percent portion in shares rather than in cash. Under the 2020 LTIP
launches, participants generally do not have the ability to receive any of the award in cash, subject to
legal restrictions in certain jurisdictions.
Presented below is a summary of activity under the Performance Shares of the LTIP:
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Number of
Performance Shares
(in millions)
Weighted-average
grant-date fair value per
share (Swiss francs)
1.0
1.4
(0.7)
(0.4)
1.3
19.26
10.50
15.72
16.41
12.76
The aggregate fair value, at the dates of grant, of Performance Shares granted in 2019 and 2018 was
$18 million and $19 million, respectively, while in 2020 it was not significant. The total grant-date fair
value of shares that vested during 2019 and 2018 was $21 million and $17 million, respectively. The
amount in 2020 was not significant. The weighted-average grant-date fair value (per share) of shares
granted during 2020, 2019 and 2018 was 10.50 Swiss francs, 15.94 Swiss francs and 21.97 Swiss francs,
respectively.
Starting in 2020, key employees which were previously eligible to participate in the MIP and which were
not included in the employee group granted the Performance Shares described above, were granted
Restricted Shares of the Company under the LTIP. The Restricted Shares do not have performance
conditions and vest over a three-year period from the grant date.
Presented below is a summary of activity under the Restricted Shares of the LTIP:
Nonvested at January 1, 2020
Granted
Forfeited
Nonvested at December 31, 2020
Number of Restricted
Shares (in millions)
Weighted-average
grant-date fair value per
share (Swiss francs)
—
1.3
(0.1)
1.2
—
15.76
15.20
15.80
The aggregate fair value, at the dates of grant, of Restricted Shares granted in 2020 was $22 million.
The weighted-average grant-date fair value (per share) of shares granted during 2020 was
15.76 Swiss francs.
Equity-settled awards are recorded in the Additional paid-in capital component of Stockholders’ equity,
with compensation cost recorded in Selling, general and administrative expenses over the vesting
period (which is from grant date to the end of the vesting period) based on the grant-date fair value of
the shares. Cash-settled awards are recorded as a liability, remeasured at fair value at each reporting
date for the percentage vested, with changes in the liability recorded in Selling, general and
administrative expenses.
At December 31, 2020, total unrecognized compensation cost related to equity-settled awards under
the LTIP was $34 million and is expected to be recognized over a weighted-average period of 2.3 years.
The compensation cost recorded in 2020, 2019 and 2018 for cash-settled awards was not significant.
For the relative total shareholder return component of the LTIP launches, the fair value of granted
shares at grant date, for equity-settled awards, and at each reporting date, for cash-settled awards, is
determined using a Monte Carlo simulation model. The main inputs to this model are the Company’s
share price and dividend yield, the volatility of the Company’s and the peer group’s share price as well
as the correlation between the peer companies. For the earnings per share component of the LTIP
launches, the fair value of granted shares is based on the market price of the ABB Ltd share at grant
date for equity-settled awards and at each reporting date for cash-settled awards, as well as the
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probable outcome of the earnings per share achievement, as computed using a Monte Carlo simulation
model. The main inputs to this model are the Company’s and external financial analysts’ revenue growth
rates and Operational EBITA margin expectations.
Other share-based payments
The Company has other minor share-based payment arrangements with certain employees. The
compensation cost related to these arrangements in 2020, 2019 and 2018 was not significant.
—
Note 19
Stockholders’ equity
At both December 31, 2020 and 2019, the Company had 2,672 million authorized shares, of which 2,168
million were registered and issued.
At the Annual General Meeting of Shareholders (AGM) in March 2020, the shareholders approved the
proposal of the Board of Directors to distribute a total of 0.80 Swiss francs per share. The approved
dividend distribution amounted to $1,758 million and was paid in April 2020. At the AGM in March 2019,
the shareholders approved the proposal of the Board of Directors to distribute a total of 0.80 Swiss
francs per share. The approved dividend distribution amounted to $1,675 million and was paid in May
2019. At the AGM in March 2018, the shareholders approved the proposal of the Board of Directors to
distribute a total of 0.78 Swiss francs per share. The approved dividend distribution amounted to
$1,736 million and was paid in April 2018.
In July 2020, the Company announced it initially intends to buy 10 percent of its share capital (which at
the time represented a maximum of 180 million shares, in addition to those already held in treasury)
through the share buyback program that started in July 2020. The share buyback program is executed
on a second trading line on the SIX Swiss Exchange and is planned to run until the Company’s AGM in
March 2021. At the AGM the Company intends to request shareholder approval to cancel the shares
purchased through this program. In 2020, under this program, the Company purchased 109 million
shares for cancellation, resulting in an increase in Treasury Stock of $2,835 million.
In addition to the ongoing share buyback program, in the fourth quarter of 2020, the Company
purchased 13 million of its own shares on the open market mainly for use in connection with its
employee share plans. These transactions resulted in an increase in Treasury stock of $346 million. In
the first quarter of 2018, the Company purchased on the open market an aggregate of 10 million of its
own shares to be available for delivery under its employee share programs. These transactions resulted
in an increase in Treasury stock of $249 million.
Upon and in connection with each launch of the Company’s MIP, the Company sold call options to a bank
at fair value, giving the bank the right to acquire shares equivalent to the number of shares represented
by the MIP WAR awards to participants. Under the terms of the agreement with the bank, the call
options can only be exercised by the bank to the extent that MIP participants have exercised their WARs.
At December 31, 2020, such call options representing 9.7 million shares and with strike prices ranging
from 19.00 to 23.50 Swiss francs (weighted-average strike price of 21.15 Swiss francs) were held by the
bank. The call options expire in periods ranging from August 2021 to August 2025. However, only
5.3 million of these instruments, with strike prices ranging from 19.00 to 23.50 Swiss francs
(weighted-average strike price of 20.99 Swiss francs), could be exercised at December 31, 2020, under
the terms of the agreement with the bank.
In addition to the above, at December 31, 2020, the Company had further outstanding obligations
to deliver:
• up to 15.6 million shares relating to the options granted under the 2015 launch of the MIP, with a strike
price of 19.50 Swiss francs, vested in August 2018 and expiring in August 2021,
• up to 14.5 million shares relating to the options granted under the 2016 launch of the MIP, with a strike
price of 21.50 Swiss francs, vested in August 2019 and expiring in August 2022,
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• up to 12.8 million shares relating to the options granted under the 2017 launch of the MIP, with a strike
price of 22.50 Swiss francs, vested in August 2020 and expiring in August 2023,
• up to 12.5 million shares relating to the options granted under the 2018 launch of the MIP, with a strike
price of 23.50 Swiss francs, vesting in August 2021 and expiring in August 2024,
• up to 11.8 million shares relating to the options granted under the 2019 launch of the MIP, with a strike
price of 19.00 Swiss francs, vesting in August 2022 and expiring in August 2025,
• up to 2.1 million shares relating to the ESAP, vesting and expiring in October 2021,
• up to 6.7 million shares to Eligible Participants under the 2020, 2019 and 2018 launches of the LTIP,
vesting and expiring in April 2023, May 2022 and April 2021, respectively, and
• approximately 1 million shares in connection with certain other share-based payment arrangements
with employees.
See Note 18 for a description of the above share-based payment arrangements.
In 2020 and 2018, the Company delivered 16.5 million and 2.4 million shares, respectively, out of treasury
stock, for options exercised in relation to the MIP, while in 2019 the amount was not significant. In
addition, in 2020 and 2019 the Company delivered 1.4 million and 0.5 million shares from treasury stock
under the ESAP. No shares were delivered in 2018 under the ESAP.
Amounts available to be distributed as dividends to the stockholders of ABB Ltd are based on the
requirements of Swiss law and ABB Ltd’s Articles of Incorporation, and are determined based on
amounts presented in the unconsolidated financial statements of ABB Ltd, prepared in accordance with
Swiss law. At December 31, 2020, the total unconsolidated stockholders’ equity of ABB Ltd was
9,063 million Swiss francs ($10,287 million), including 260 million Swiss francs ($295 million)
representing share capital, 12,032 million Swiss francs ($13,657 million) representing reserves and
3,229 million Swiss francs ($3,665 million) representing a reduction of equity for own shares (treasury
stock). Of the reserves, 3,229 million Swiss francs ($3,665 million) relating to own shares and 52 million
Swiss francs ($59 million) representing 20 percent of share capital, are restricted and not available
for distribution.
In February 2021, the Company announced that a proposal will be put to the 2021 AGM for approval by
the shareholders to distribute 0.80 Swiss francs per share to shareholders.
Subsequent events
Subsequent to December 31, 2020, and up to February 24, 2021, the Company purchased, under the
share buyback program, an additional 14 million shares, for approximately $400 million, and, on the
open market, an additional 13 million shares, for approximately $378 million.
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—
Note 20
Earnings per share
Basic earnings per share is calculated by dividing income by the weighted-average number of shares
outstanding during the year. Diluted earnings per share is calculated by dividing income by the
weighted-average number of shares outstanding during the year, assuming that all potentially dilutive
securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call
options and outstanding options and shares granted subject to certain conditions under the
Company’s share-based payment arrangements. In 2020, 2019 and 2018, outstanding securities
representing a maximum of 65 million, 81 million and 88 million shares, respectively, were excluded from
the calculation of diluted earnings per share as their inclusion would have been antidilutive.
Basic earnings per share:
($ in millions, except per share data in $)
2020
2019
2018
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
294
4,852
5,146
1,043
396
1,439
1,514
659
2,173
Weighted-average number of shares outstanding (in millions)
2,111
2,133
2,132
Basic earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
Diluted earnings per share:
0.14
2.30
2.44
0.49
0.19
0.67
0.71
0.31
1.02
($ in millions, except per share data in $)
2020
2019
2018
Amounts attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
294
4,852
5,146
1,043
396
1,439
1,514
659
2,173
Weighted-average number of shares outstanding (in millions)
2,111
2,133
2,132
Effect of dilutive securities:
Call options and shares
8
2
7
Adjusted weighted-average number of shares outstanding (in millions)
2,119
2,135
2,139
Diluted earnings per share attributable to ABB shareholders:
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
Net income
0.14
2.29
2.43
0.49
0.19
0.67
0.71
0.31
1.02
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—
Note 21
Other comprehensive income
The following table includes amounts recorded within “Total other comprehensive income (loss)”
including the related income tax effects:
2020
2019
2018
Before
tax
Tax
effect
Net of
tax
Before
tax
Tax
effect
Net of
tax
Before
tax
Tax
effect
Net of
tax
Net change during the year
1,019
(2)
1,017
(132)
— (132)
(660)
500
—
519
(2)
—
—
498
—
519
(130)
— (130)
(641)
—
(2)
—
—
—
(2)
(31)
12
($ in millions)
Foreign currency translation adjustments:
Foreign currency translation adjustments
Gain on liquidation of foreign subsidiary
Changes attributable to divestments
Available-for-sale securities:
Net unrealized gains (losses) arising
during the year
Reclassification adjustments for net
(gains) losses included in net income
Changes attributable to divestments
Net change during the year
Pension and other postretirement plans:
Prior service (costs) credits
arising during the year
Net actuarial gains (losses)
arising during the year
Amortization of prior service cost (credit)
included in net income
Amortization of net actuarial loss
included in net income
Net losses from pension settlements
included in net income
Changes attributable to divestments
Net change during the year
Cash flow hedge derivatives:
Net gains (losses) arising during the year
Reclassification adjustments for net (gains)
losses included in net income
Net change during the year
14
—
—
14
1
—
—
1
(627)
(31)
12
(646)
(4)
1
—
(3)
31
(18)
(3)
10
(7)
4
—
(3)
24
(14)
(3)
7
16
1
—
17
(2)
(1)
—
(3)
14
—
—
14
(5)
1
—
(4)
55
(12)
43
3
3
6
(11)
4
(7)
(243)
43
(200)
(293)
73
(220)
(411)
59
(352)
(11)
— (11)
(25)
(3)
(28)
(19)
(5)
(24)
113
(25)
88
99
(31)
91
(22)
650
186
750
(132)
(35)
(161)
518
151
589
38
—
(178)
2
(2)
—
—
2
2
2
—
2
20
(9)
11
68
32
—
23
—
(142)
(327)
20
(51)
(9)
11
20
(31)
(6)
—
36
—
—
—
33
69
19
—
(295)
(49)
21
(28)
(4)
—
32
2
1
3
Total other comprehensive income (loss)
1,779
(164)
1,615
(282)
(249) (1,022)
50
(972)
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The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to
ABB, by component, net of tax:
($ in millions)
Balance at January 1, 2018
Cumulative effect of changes in
accounting principles(1)
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from OCI
Total other comprehensive (loss) income
Less:
Amounts attributable
to noncontrolling interests
Balance at December 31, 2018
Adoption of an accounting standard update(2)
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from OCI
Total other comprehensive (loss) income
Less:
Amounts attributable
to noncontrolling interests
Balance at December 31, 2019
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from OCI
Total other comprehensive (loss) income
Less:
Amounts attributable
to noncontrolling interests
Balance at December 31, 2020
Foreign
currency
translation
adjustments
Unrealized
gains (losses)
on available-
for-sale
securities
Pension and
other post-
retirement
plan
adjustments
Unrealized
gains (losses)
of cash
flow hedge
derivatives
Accumulated
other compre-
hensive loss
(2,693)
—
(627)
(19)
(646)
(15)
(3,324)
—
(130)
(2)
(132)
(6)
(3,450)
498
519
1,017
27
(2,460)
8
(9)
(4)
1
(3)
—
(4)
—
14
—
14
—
10
24
(17)
7
—
17
(1,672)
—
(359)
64
(295)
—
(1,967)
(36)
(214)
72
(142)
—
(2,145)
(157)
746
589
—
(1,556)
12
—
(49)
21
(28)
—
(16)
—
20
(9)
11
—
(5)
2
—
2
—
(3)
(4,345)
(9)
(1,039)
67
(972)
(15)
(5,311)
(36)
(310)
61
(249)
(6)
(5,590)
367
1,248
1,615
27
(4,002)
(1) Amounts relate to the adoption of two accounting standard updates in 2018 regarding the Recognition and measurement of financial
assets and financial liabilities and Revenue from contracts with customers.
(2) Amounts relate to the adoption of an accounting standard update in 2019 regarding the Tax Cuts and Jobs Act of 2017.
220
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The following table reflects amounts reclassified out of OCI in respect of Foreign currency translation
adjustments and Pension and other postretirement plan adjustments:
($ in millions)
Details about OCI components
Location of (gains) losses
reclassified from OCI
2020
2019
2018
Foreign currency translation adjustments:
Gain on liquidation of foreign subsidiary
Other income (expense), net
Changes attributable to divestments:
- Loss on solar inverters business
(see Note 4)
Other income (expense), net
- Losses (gains) on other divestments, net Other income (expense), net
- Loss on Power Grids business
(see Note 3)
Income from discontinued
operations, net of tax
Amounts reclassified from OCI
Pension and other postretirement plan adjustments:
Amortization of prior service cost (credit)
Non-operational pension (cost) credit(1)
Amortization of net actuarial loss
Non-operational pension (cost) credit(1)
Net losses from pension settlements and
curtailments
Changes attributable to divestments
Total before tax
Tax
Changes in tax attributable to divestments
Amounts reclassified from OCI
Non-operational pension (cost) credit(1)
Income from discontinued operations,
net of tax(2)
Income tax expense
Income from discontinued operations,
net of tax(2)
—
99
—
420
519
(11)
113
650
186
938
(157)
(35)
746
—
(31)
—
(2)
—
(2)
(25)
99
38
—
112
(40)
—
72
—
12
—
(19)
(19)
91
23
—
95
(31)
—
64
(1) Amounts include a total of $94 million, $6 million and $12 million in 2020, 2019 and 2018, respectively, reclassified from OCI to Income from
discontinued operations (see Note 3).
(2) Amounts represent the reclassification of OCI relating to pensions, including tax, on divestment of the Power Grids business.
The amounts reclassified out of OCI in respect of Unrealized gains (losses) on available-for-sale
securities and Unrealized gains (losses) of cash flow hedge derivatives were not significant in 2020,
2019 and 2018.
—
Note 22
Restructuring and related expenses
OS program
In December 2018, the Company announced a two-year restructuring program with the objective of
simplifying its business model and structure through the implementation of a new organizational
structure driven by its businesses. The program resulted in the elimination of the country and regional
structures within the previous matrix organization, including the elimination of the three regional
Executive Committee roles. The operating businesses are now responsible for both their
customer-facing activities and business support functions, while the remaining Group-level corporate
activities primarily focus on Group strategy, portfolio and performance management and capital
allocation. During the year ended December 2020, the total program costs, originally estimated to be
$350 million, were reduced by $41 million to $309 million, mainly due to reductions in both estimated
costs and number of projects planned. As of December 31, 2020, the Company has incurred
substantially all costs related to the OS program.
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221
The following table outlines the costs incurred in 2020, 2019, 2018 and the cumulative costs incurred
under the program per operating segment as well as Corporate and Other:
($ in millions)
Electrification
Industrial Automation
Motion
Robotics & Discrete Automation
Corporate and Other
Total
Costs incurred in
2020
35
37
18
10
49
149
2019
18
3
6
8
54
89
2018
32
21
1
—
11
65
Cumulative costs
incurred up to
December 31, 2020
85
61
25
18
114
303
The Company recorded the following expenses, net of change in estimates, under this program:
($ in millions)
Employee severance costs
Estimated contract settlement, loss order and other costs
Inventory and long-lived asset impairments
Total
Costs incurred in
2020
109
17
23
149
2019
2018
81
1
7
89
65
—
—
65
Cumulative costs
incurred up to
December 31, 2020
255
18
30
303
Restructuring expenses recorded for this program are included in the following line items in the
Consolidated Income Statements:
($ in millions)
Total cost of sales
Selling, general and administrative expenses
Non-order related research and development expenses
Other income (expense), net
Total
2020
2019
2018
38
37
4
70
149
8
46
1
34
89
35
23
3
4
65
Liabilities associated with the OS program are included primarily in Other provisions. The following
table shows the activity from the beginning of the program to December 31, 2020:
($ in millions)
Liability at January 1, 2018
Expenses
Liability at December 31, 2018
Expenses
Cash payments
Change in estimates
Exchange rate differences
Liability at December 31, 2019
Expenses
Cash payments
Change in estimates
Exchange rate differences
Liability at December 31, 2020
Employee
severance costs
Contract settlement,
loss order and
other costs
—
65
65
111
(44)
(30)
(3)
99
119
(91)
(10)
4
121
—
—
—
1
(1)
—
—
—
17
(15)
—
—
2
Total
—
65
65
112
(45)
(30)
(3)
99
136
(106)
(10)
4
123
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Other restructuring-related activities
In addition, during 2020, 2019 and 2018, the Company executed various other restructuring-related
activities and incurred the following charges, net of changes in estimates:
($ in millions)
Employee severance costs
Estimated contract settlement, loss order and other costs
Inventory and long-lived asset impairments
Total
2020
164
18
12
194
2019
2018
55
37
22
114
74
29
13
116
Expenses associated with these activities are recorded in the following line items in the Consolidated
Income Statements:
($ in millions)
Total cost of sales
Selling, general and administrative expenses
Non-order related research and development expenses
Other income (expense), net
Total
2020
2019
2018
95
50
10
39
46
4
—
64
24
52
2
38
194
114
116
At December 31, 2020 and 2019, $233 million and $189 million, respectively, was recorded for other
restructuring-related liabilities and is primarily included in “Other provisions”.
—
Note 23
Operating segment and geographic data
The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates
resources to and assesses the performance of each operating segment using the information outlined
below. The Company is organized into the following segments, based on products and services:
Electrification, Industrial Automation, Motion, and Robotics & Discrete Automation. The remaining
operations of the Company are included in Corporate and Other.
A description of the types of products and services provided by each reportable segment is as follows:
• Electrification: manufactures and sells electrical products and solutions which are designed to
provide safe, smart and sustainable electrical flow from the substation to the socket. The portfolio of
increasingly digital and connected solutions includes electric vehicle charging infrastructure,
renewable power solutions, modular substation packages, distribution automation products,
switchboard and panelboards, switchgear, UPS solutions, circuit breakers, measuring and sensing
devices, control products, wiring accessories, enclosures and cabling systems and intelligent home
and building solutions, designed to integrate and automate lighting, heating, ventilation, security and
data communication networks. The products and services are delivered through five operating
Divisions: Distribution Solutions, Smart Power, Smart Buildings, Installation Products and
Power Conversion.
• Industrial Automation: develops and sells a broad range of industry-specific, integrated automation
and electrification systems and solutions, as well as digital solutions, lifecycle services and artificial
intelligence applications for the process and hybrid industries. Products and solutions include
process and discrete control technologies, advanced process control software and manufacturing
execution systems, sensing, measurement and analytical instrumentation, electric ship propulsion
systems and large turbochargers. In addition, the Business Area offers a comprehensive range of
services ranging from repair to advanced services such as remote monitoring, preventive
maintenance, asset performance management and cybersecurity services. The products and services
are delivered through five operating Divisions: Energy Industries, Process Industries, Marine & Ports,
Turbocharging, and Measurement & Analytics.
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223
• Motion: manufactures and sells drives, motors, generators, traction converters and mechanical power
transmission products that are driving the low-carbon future for industries, cities, infrastructure and
transportation. These products, digital technology and related services enable industrial customers
to increase energy efficiency, improve safety and reliability, and achieve precise control of their
processes. Building on over 130 years of cumulative experience in electric powertrains, the Business
Area combines domain expertise and technology to deliver the optimum solution for a wide range of
applications in all industrial segments. In addition, the Business Area, along with partners, has an
unmatched global service presence. These products and services are delivered through six operating
Divisions: Motors & Generators, Drive Products, System Drives, Service, Traction and Mechanical
Power Transmission.
• Robotics & Discrete Automation: delivers its products, solutions and services through two operating
Divisions: Robotics and Machine Automation. Robotics includes: industrial robots, software, robotic
solutions and systems, field services, spare parts, and digital services. Machine Automation
specializes in solutions based on its programmable logic controllers (PLC), industrial PCs (IPC), servo
motion, transport systems and machine vision. Both Divisions offer engineering and simulation
software as well as a comprehensive range of digital solutions.
Corporate and Other: includes headquarters, central research and development, the Company’s real
estate activities, Corporate Treasury Operations, historical operating activities of certain divested
businesses and other non-core operating activities.
The primary measure of profitability on which the operating segments are evaluated is Operational
EBITA, which 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),
• changes in estimates relating to opening balance sheets of acquired businesses (changes in
pre-acquisition estimates),
• 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,
• other income/expense relating to the Power Grids joint venture,
• 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 (including impairment of goodwill) and certain other fair value
changes, as well as other items which are determined by management on a case-by-case basis.
The CODM primarily reviews the results of each segment on a basis that is before the elimination of
profits made on inventory sales between segments. Segment results below are presented before these
eliminations, with a total deduction for intersegment profits to arrive at the Company’s consolidated
Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were
to third parties, at current market prices.
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The following tables present disaggregated segment revenues from contracts with customers for 2020,
2019 and 2018:
29
26,026
($ in millions)
Electrification
2020
Industrial
Automation
Motion
Robotics &
Discrete
Automation
Corporate
and Other
Geographical markets
Europe
The Americas
of which: United States
Asia, Middle East and Africa
of which: China
Product type
Products
Systems
Services and software
Third-party revenues
Intersegment revenues(1)
Total revenues
4,008
4,050
3,093
3,506
1,820
11,564
9,951
743
870
11,564
11,564
360
11,924
2,322
1,321
805
2,038
628
5,681
1,263
1,665
2,753
5,681
5,681
111
5,792
1,934
2,173
1,846
1,807
926
5,914
5,040
—
874
5,914
5,914
495
6,409
1,429
385
270
1,024
714
2,838
1,635
780
423
2,838
2,838
69
2,907
15
7
5
7
3
53
(24)
—
29
29
(927)
(898)
($ in millions)
Electrification
2019
Industrial
Automation
Motion
Robotics &
Discrete
Automation
Corporate
and Other
Geographical markets
Europe
The Americas
of which: United States
Asia, Middle East and Africa
of which: China
Product type
Products
Systems
Services and software
Third-party revenues
Intersegment revenues(1)
Total revenues
4,039
4,568
3,522
3,665
1,729
12,272
10,315
958
999
12,272
12,272
456
12,728
2,416
1,582
948
2,153
608
6,151
1,439
1,648
3,064
6,151
6,151
122
6,273
1,879
2,315
1,972
1,827
876
6,021
5,152
—
869
6,021
6,021
512
6,533
1,634
453
290
1,157
825
3,244
1,785
968
491
3,244
3,244
70
3,314
36
1
3
40
1
77
65
12
—
77
77
(947)
(870)
Total
9,708
7,936
6,019
8,382
4,091
17,942
3,164
4,920
26,026
26,026
108
26,134
Total
10,004
8,919
6,735
8,842
4,039
27,765
18,756
3,586
5,423
27,765
27,765
213
27,978
A B B A N N U A L R E P O R T 2 0 2 0
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225
($ in millions)
Electrification
2018
Industrial
Automation
Motion
Robotics &
Discrete
Automation
Corporate
and Other
Geographical markets
Europe
The Americas
of which: United States
Asia, Middle East and Africa
of which: China
Product type
Products
Systems
Services and software
Third-party revenues
Intersegment revenues(1)
Total revenues
3,881
3,650
2,686
3,680
1,724
11,211
9,679
617
915
11,211
11,211
475
11,686
2,475
1,467
941
2,449
609
6,391
1,528
1,853
3,010
6,391
6,391
109
6,500
1,862
2,389
2,018
1,699
858
5,950
5,111
—
839
5,950
5,950
513
6,463
1,737
476
310
1,339
987
3,552
2,019
1,001
532
3,552
3,552
59
3,611
58
21
25
236
2
315
118
197
—
315
315
(913)
(598)
Total
10,013
8,003
5,980
9,403
4,180
27,419
18,455
3,668
5,296
27,419
27,419
243
27,662
(1) Intersegment revenues until June 30, 2020, include sales to the Power Grids business, which is presented as discontinued operations, and
are not eliminated from Total revenues (see Note 3).
Revenues by geography reflect the location of the customer. In 2020, 2019 and 2018 the United States
and China are the only countries where revenue exceeded 10 percent of Total revenues. In each of 2020,
2019 and 2018 more than 98 percent of the Company’s total revenues were generated from customers
outside Switzerland.
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The following tables present Operational EBITA, the reconciliations of consolidated Operational EBITA
to Income from continuing operations before taxes, as well as Depreciation and amortization, and
Capital expenditure for 2020, 2019 and 2018, as well as Total assets at December 31, 2020, 2019
and 2018:
($ in millions)
Operational EBITA:
Electrification
Industrial Automation
Motion
Robotics & Discrete Automation
Corporate and Other:
— Non-core and divested businesses
— Stranded corporate costs
— Corporate costs and Other intersegment elimination
Total
Acquisition-related amortization
Restructuring, related and implementation costs(1)
Changes in obligations related to divested businesses
Changes in pre-acquisition estimates
Gains and losses from sale of businesses
Fair value adjustment on assets and liabilities held for sale
Acquisition- and divestment-related expenses and integration costs
Other income/expenses relating to the Power Grids joint venture
Foreign exchange/commodity timing differences in income from operations:
Unrealized gains and losses on derivatives (foreign exchange,
commodities, embedded derivatives)
Realized gains and losses on derivatives where the underlying hedged transaction
has not yet been realized
Unrealized foreign exchange movements on receivables/payables (and related
assets/liabilities)
Certain other non-operational items:
Costs for planned divestment of Power Grids
Regulatory, compliance and legal costs
Business transformation costs
Executive Committee transition costs
Favorable resolution of an uncertain purchase price adjustment
Gain on sale of investments
Gain on liquidation of a foreign subsidiary
Asset write downs/impairments & certain other fair value changes(2)
Other non-operational items
Income from operations
Interest and dividend income
Interest and other finance expense
Losses from extinguishment of debt
Non-operational pension (cost) credit
Income from continuing operations before taxes
2020
2019
2018
1,681
451
1,075
237
(133)
(40)
(372)
2,899
(263)
(410)
(218)
(11)
(2)
(33)
(74)
(20)
67
26
(33)
(86)
(7)
(31)
(1)
36
—
—
(239)
(7)
1,593
51
(240)
(162)
(401)
841
1,688
732
1,082
393
(145)
(225)
(418)
3,107
(265)
(300)
(36)
(22)
55
(421)
(121)
—
20
8
(7)
(141)
(7)
(19)
(14)
92
15
—
(4)
(2)
1,938
67
(215)
—
72
1,626
914
1,023
528
(291)
(297)
(498)
3,005
(273)
(172)
(106)
(8)
57
—
(204)
—
(1)
(23)
(9)
—
(34)
(17)
—
—
—
31
(25)
5
2,226
72
(262)
—
83
1,862
2,119
(1) Amounts in 2020 and 2019 include $67 million and $97 million, respectively, of implementation costs in relation to the OS program.
(2) Amount in 2020 includes goodwill impairment charges of $311 million.
A B B A N N U A L R E P O R T 2 0 2 0
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227
($ in millions)
Electrification
Industrial Automation
Motion
Robotics & Discrete Automation
Corporate and Other
Consolidated
Depreciation and
amortization
Capital expenditures(1)
Total assets(1)(2)
at December 31,
2020
2019
2018
2020
2019
2018
2020
2019
2018
381
63
168
126
177
915
414
55
169
124
199
961
355
57
184
127
193
916
276
56
93
64
205
694
279
64
110
59
250
762
244
12,098
11,671
12,052
58
93
74
303
772
4,624
6,248
4,660
4,559
6,149
4,661
4,287
6,016
4,760
13,458
19,068
17,326
41,088
46,108
44,441
(1) Capital expenditures and Total assets are after intersegment eliminations and therefore reflect third-party activities only.
(2) At December 31, 2020, 2019 and 2018, Corporate and Other includes $282 million, $9,840 million and $8,591 million, respectively, of assets
in the Power Grids business which is reported as discontinued operations (see Note 3). In addition, at December 31, 2020, Corporate and
Other includes $1,710 million related to the equity investment in Hitachi ABB Power Grids Ltd (see Note 4).
Other geographic information
Geographic information for long-lived assets was as follows:
($ in millions)
Europe
The Americas
Asia, Middle East and Africa
Total
Long-lived assets at
December 31,
2020
2,822
1,382
940
5,144
2019
2,565
1,469
932
4,966
Long-lived assets represent “Property, plant and equipment, net” and “Operating lease right-of-use
assets” and are shown by location of the assets. At December 31, 2020, approximately 21 percent,
10 percent and 11 percent of the Company’s long-lived assets were located in the United States, China
and Switzerland, respectively. At December 31, 2019, approximately 23 percent, 10 percent and
10 percent of the Company’s long-lived assets were located in the United States, China and Switzerland,
respectively.
05
ABB Ltd
Statutory
Financial
Statements
—
228– 245
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229
230
ABB Ltd Management Report 2020
231
Financial Statements 2020
232
Notes to Financial Statements
242
243
Proposed appropriation of available
earnings
Report of the Statutory Auditor on
the Financial Statements
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—
ABB Ltd Management Report 2020
ABB Ltd is the holding company of the ABB Group,
owning directly or indirectly all
subsidiaries globally.
The major business activities
during 2020 can be summarized
as follows:
Management services
The Company provided management services
to a Group company for CHF 18 million.
Share transactions
• share deliveries for employee share programs of
CHF 422 million.
• share repurchases for the intended cancellation
of CHF 2,578 million
• share repurchases for employee share programs
of CHF 312 million
Dividend payment to external shareholders
• from retained earnings of CHF 1,343 million.
Divestment of the Power Grids business
On July 1, 2020, the Company received CHF 6,490
million (USD 6,850 million) in cash and restricted
cash for the sale of 80.1 percent of the shares in
Hitachi ABB Power Grids Ltd.
Other information
In 2020, the Company employed on average
19 employees.
Once a year, the Company’s Board of Directors
performs a risk assessment in accordance with
the Group’s risk management process and
discusses appropriate actions if necessary.
The Company does not carry out any research and
development activities.
In 2021, the Company will continue to operate as
the holding company of the ABB Group. No
change of business is expected.
February 25, 2021
A B B A N N U A L R E P O R T 2 0 2 0
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231
—
Financial Statements 2020
Income Statement
Year ended December 31 (CHF in thousands)
Dividend income
Finance income
Other operating income
Finance expense
Personnel expenses
Other operating expenses
Write down of participation
Loss on sale of participation
Net income before taxes
Income taxes
Net income
Balance Sheet
December 31 (CHF in thousands)
Cash
Cash deposit with ABB Corporate Treasury Operations
Non-trade receivables
Non-trade receivables – Group
Short-term loans – Group
Accrued income and prepaid expenses
Accrued income and prepaid expenses – Group
Other short-term assets
Total current assets
Long-term loans – Group
Participations
Other long-term assets
Total non-current assets
Total assets
Interest-bearing liabilities
Interest-bearing liabilities – Group
Non-trade payables
Non-trade payables – Group
Deferred income and accrued expenses
Deferred income and accrued expenses – Group
Short-term provisions
Total current liabilities
Interest-bearing liabilities
Interest-bearing liabilities – Group
Long-term provisions
Total non-current liabilities
Total liabilities
Share capital
Legal reserves
Legal reserves from capital contribution
Legal other reserves
Legal reserves from retained earnings
Free reserves
Retained earnings
Net income
Own shares
Total stockholders' equity
Total liabilities and stockholders’ equity
Note
2020
2019
7
8,045,320
1,200,000
107,326
8
83,603
(100,778)
(42,142)
(65,101)
2 (3,263,742)
2
(308,073)
27,660
98,274
(31,788)
(51,857)
(40,076)
—
—
4,456,413
1,202,213
(906)
(3,842)
4,455,507
1,198,371
Note
2020
781
2019
243
3,573,027
345,299
2,306
7,878
22,026
631
4,155
2
266,281
76
24,190
24,205
582
4,092
—
3,877,085
398,687
330,394
387,280
7,086,247
8,973,229
266,143
2,530
7,682,784
9,363,039
11,559,869
9,761,726
350,000
22,026
145,435
908
—
24,205
9,416
3,204
533,787
115,134
50,367
349,453
1,451,976
450,251
330,394
264,315
756
—
152,715
800,292
387,280
1,850
1,044,960
1,189,422
2,496,936
1,342,137
260,178
260,178
—
30,430
30,430
—
1,000,000
1,000,000
6,545,827
6,690,847
4,455,507
1,198,371
2
2
4
4
2
2
2
4
4
2
6
6
6
6
6
6 (3,229,009)
(760,237)
9,062,933
8,419,589
11,559,869
9,761,726
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—
Notes to Financial Statements
—
Note 1
General
ABB Ltd, Zurich, Switzerland (the Company) is the parent company of the ABB Group. Its stand-alone
financial statements are prepared in accordance with Swiss law.
The financial statements have been prepared in accordance with Article 957 et seqq. of Title 32 of the
Swiss Code of Obligations.
Group companies are all companies which are directly or indirectly controlled by the Company and
variable interest entities if it is determined that the Company is the primary beneficiary.
—
Note 2
Participations
Company name
Purpose
Domicile
2020
2020
2019
2019
ABB Asea Brown Boveri Ltd.
Holding CH-Zurich CHF 2,767,880,000
100.00% CHF 2,768,000,000
100.00%
Hitachi ABB Power Grids Ltd.
Holding CH-Zurich
CHF 1,250,000
19.90%
—
—
Share capital
Ownership and
voting rights
Share capital
Ownership and
voting rights
Development of participations
Opening balance January 1
Additions(1)
Disposals
Write offs
Closing balance December 31
(1) thereof dividend in kind from ABB Asea Brown Boveri Ltd CHF 6,745,619
CHF in thousands
2020
2019
8,973,229
8,973,229
6,917,922
(5,541,042)
(3,263,862)
—
—
—
7,086,247
8,973,229
On July 1, 2020, the Company completed the sale of 80.1 percent of its Powers Grids business to
Hitachi Ltd (Hitachi). The transaction was executed through the sale of 80.1 percent of the shares of
Hitachi ABB Power Grids Ltd (“Hitachi ABB PG”). Cash consideration received directly by the Company at
the closing date was USD 5,674 million (CHF 5,376 million) and USD 1,176 million (CHF 1,114 million)
restricted cash. The Company also obtained a put option allowing the Company to require Hitachi to
purchase the remaining interest for fair value, subject to a minimum floor price equivalent
to a 10 percent discount compared to the total price paid for the initial 80.1 percent. The put option can
be exercised commencing April 2023. It is not recognized in the accounts of the Company.
The book value of the retained 19.9 percent investment for Hitachi ABB Power Grids Ltd was
CHF 1,377 million. The Company has also recorded liabilities for estimated payments of approximately
CHF 845 million for various contractual items relating to the sale of the business including required
future cost reimbursements (CHF 178 million included in Deferred income and accrued expenses - Group
and Short-term provisions) and the expected finalization of the closing debt and working capital
balances (CHF 217 million included in Short-term provisions) and deferred income (CHF 450 million
included in Deferred income and accrued expenses).
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233
For certain entities of the Power Grids business, the legal process or other regulatory delays resulted in the
Company not having transferred legal title to Hitachi as at the date of this report. The proceeds for these
entities are included in Other short-term assets of CHF 266 million at December 31, 2020. The remaining
entities: ABB Power Technology Services Private Limited, India, and ABB Power Products And Systems India
Limited, India, have been transferred to Hitachi ABB PG in February 2021. ABB Power Grids South Africa (Pty)
Ltd and an entity to be established in Kuwait are expected to be transferred by the first half of 2021.
—
Note 3
Indirect Participations
The following table set forth the name, country of incorporation, ownership and voting rights, as well as share
capital, of the significant indirect subsidiaries of the Company, as of December 31, 2020 and 2019.
Company name/location
ABB S.A., Buenos Aires
ABB Australia Pty Limited, Moorebank, NSW
ABB Group Investment Management Pty. Ltd.,
Moorebank, NSW
ABB AG, Wiener Neudorf
B&R Holding GmbH, Eggelsberg
B&R Industrial Automation GmbH, Eggelsberg
ABB N.V., Zaventem
ABB AUTOMACAO LTDA., SOROCABA
ABB Ltda., São Paulo
ABB Eletrificacao Ltda., Sorocaba
ABB Bulgaria EOOD, Sofia
ABB Electrification Canada ULC, Edmonton, Alberta
ABB Inc., Saint-Laurent, Quebec
ABB S.A., Santiago
ABB (China) Investment Limited, Beijing
ABB (China) Ltd., Beijing
ABB Beijing Drive Systems Co. Ltd., Beijing
ABB Beijing Switchgear Limited, Beijing
ABB Electrical Machines Ltd., Shanghai
ABB Engineering (Shanghai) Ltd., Shanghai
ABB Shanghai Free Trade Zone Industrial Co., Ltd.,
Shanghai
ABB Shanghai Motors Co. Ltd., Shanghai
ABB Xiamen Low Voltage Equipment Co. Ltd.,
Xiamen
ABB Xiamen Switchgear Co. Ltd., Xiamen
ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui
Country
Argentina
Australia
Australia
Austria
Austria
Austria
Belgium
Brazil
Brazil
Brazil
Bulgaria
Canada
Canada
Chile
China
China
China
China
China
China
China
China
China
China
China
ABB s.r.o., Prague
ABB A/S, Skovlunde
Czech Republic
100.00
400,000
Denmark
100.00
100,000
ABB for Electrical Industries (ABB ARAB) S.A.E.,
Cairo
Asea Brown Boveri S.A.E., Cairo
ABB AS, Jüri
ABB Oy, Helsinki
ABB France, Cergy Pontoise
ABB SAS, Cergy Pontoise
ABB AG, Mannheim
ABB Automation GmbH, Mannheim
ABB Automation Products GmbH, Ladenburg
ABB Beteiligungs- und Verwaltungsges. mbH,
Mannheim
ABB Stotz-Kontakt GmbH, Heidelberg
Egypt
Egypt
Estonia
Finland
France
France
Germany
Germany
Germany
Germany
Germany
100.00
100.00
100.00
100.00
99.83
100.00
100.00
100.00
100.00
100.00
100.00
353,479
166,000
1,663
10,003
25,778
45,921
167,500
15,000
10,620
61,355
7,500
Company
ownership
and voting
rights %
2020
Share
capital in
thousands
2020
Company
ownership
and voting
rights %
2019
Share
capital in
thousands
2019 Currency
100.00
100.00
278,860
131,218
—(3)
—(3)
100.00
131,218
100.00
100.00
100.00
100.00
100.00
100.00
—(4)
100.00
100.00
100.00
100.00
505,312
15,000
35
1,240
34,308
196,554
—(4)
268,759
65,110
—(1)
—(1)
100.00 5,484,348
100.00
95,000
100.00
505,312
—(3)
100.00
100.00
—(3)
100.00
100.00
—(3)
100.00
100.00
100.00
—(3)
—(3)
—(3)
35
1,240
—(3)
37,780
854,784
—(3)
65,110
—(1)
—(1)
—(3)
—(3)
100.00
140,000
100.00
235,000
90.00
60.00
100.00
100.00
100.00
75.00
100.00
66.52
90.00
5,000
16,500
14,400
40,000
6,500
11,217
15,800
29,500
6,200
90.00
—(3)
100.00
100.00
100.00
—(3)
100.00
66.52
90.00
100.00
100.00
100.00
100.00
100.00
100.00
99.83
100.00
100.00
100.00
100.00
100.00
100.00
5,000
—(3)
14,400
40,000
6,500
—(3)
15,800
29,500
6,200
400,000
100,000
353,479
166,000
1,663
10,003
25,778
45,921
167,500
15,000
10,620
61,355
7,500
ARS
AUD
AUD
EUR
EUR
EUR
EUR
BRL
BRL
BRL
BGN
CAD
CAD
CLP
USD
USD
USD
USD
USD
USD
CNY
USD
USD
USD
USD
CZK
DKK
EGP
USD
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
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Company name/location
B + R Industrie-Elektronik GmbH, Bad Homburg
Busch-Jaeger Elektro GmbH, Lüdenscheid
ABB Engineering Trading and Service Ltd., Budapest
Industrial C&S Hungary Kft., Budapest
ABB Global Industries and Services Private Limited,
Bangalore
ABB India Limited, Bangalore
ABB S.p.A., Milan
Power-One Italy S.p.A., Terranuova Bracciolini (AR)
ABB K.K., Tokyo
ABB Ltd., Seoul
ABB Electrical Control Systems S. de R.L. de C.V.,
Monterrey
ABB Mexico S.A. de C.V., San Luis Potosi SLP
Asea Brown Boveri S.A. de C.V., San Luis Potosi SLP
ABB B.V., Rotterdam
ABB Capital B.V., Rotterdam
ABB Finance B.V., Rotterdam
ABB Holdings B.V., Rotterdam
ABB AS, Fornebu
ABB Electrification Norway AS, Skien
ABB Holding AS, Fornebu
ABB Business Services Sp. z o.o., Warsaw
ABB Industrial Solutions (Bielsko-Biala) Sp. z o.o.,
Bielsko-Biala
ABB Industrial Solutions (Klodzko) Sp.z.o.o., Klodzko
ABB Sp. z o.o., Warsaw
Company
ownership
and voting
rights %
2020
Share
capital in
thousands
2020
Company
ownership
and voting
rights %
2019
Share
capital in
thousands
2019 Currency
Country
Germany
Germany
Hungary
Hungary
100.00
100.00
358
1,535
100.00 26,436,281
100
100.00
—(3)
100.00
3,000
100.00
358
1,535
—(3)
3,000
India
India
Italy
Italy
100.00
366,923
100.00
190,000
75.00
423,817
100.00
110,000
—(4)
—(4)
75.00
100.00
100.00
423,817
110,000
22,000
Japan
100.00 1,000,000
100.00
1,000,000
Korea, Republic of
100.00 23,670,000
100.00 23,670,000
KRW
Mexico
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
Norway
Norway
Norway
Poland
Poland
Poland
Poland
100.00
100.00
100.00
100.00
—(3)
100.00
100.00
100.00
100.00
315,134
683,418
667,686
9,200
—(3)
20
119
134,550
60,450
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
—(3)
315,134
633,368
667,686
9,200
1,000
20
119
134,550
—(3)
100.00
240,000
100.00
240,000
99.93
24
99.93
24
99.93
99.93
99.93
328,125
99.93
328,125
50
—(3)
—(3)
245,461
99.93
245,461
Industrial C&S of P.R. LLC, San Juan
Puerto Rico
100.00
—
100.00
—
ABB Ltd., Moscow
Russian
Federation
100.00
5,686
100.00
5,686
ABB Electrical Industries Co. Ltd., Riyadh
Saudi Arabia
65.00
181,000
65.00
181,000
ABB Holdings Pte. Ltd., Singapore
ABB Pte. Ltd., Singapore
ABB Holdings (Pty) Ltd., Modderfontein
ABB South Africa (Pty) Ltd., Modderfontein
Asea Brown Boveri S.A., Madrid
ABB AB, Västerås
ABB Norden Holding AB, Västerås
ABB Power Grids Sweden AB, Västerås
ABB Canada EL Holding GmbH, Zurich
ABB Capital AG, Zurich
ABB Information Systems Ltd., Zurich
ABB Investment Holding 2 GmbH, Zurich
ABB Management Holding Ltd., Zurich(5)
ABB Management Services Ltd., Zurich
ABB Schweiz AG, Baden
ABB Turbo Systems AG, Baden
ABB Ltd., Taipei
ABB LIMITED, Bangkok
ABB Elektrik Sanayi A.S., Istanbul
ABB Industries (L.L.C.), Dubai
ABB Holdings Limited, Warrington
ABB Limited, Warrington
ABB Enterprise Software Inc., Atlanta, GA
ABB Finance (USA) Inc., Wilmington, DE
ABB Holdings Inc., Cary, NC
ABB Inc., Cary, NC
ABB Installation Products Inc, Memphis, TN
Singapore
Singapore
South Africa
South Africa
— (4)
100.00
100.00
74.91
— (4)
32,797
4,050
1
Spain
100.00
33,318
100.00
200,000
100.00
100.00
100.00
74.91
100.00
100.00
32,797
28,842
4,050
1
33,318
200,000
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Switzerland
Taiwan (Chinese
Taipei)
Thailand
Turkey
United Arab
Emirates
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
100.00 2,344,783
100.00
2,344,783
—(4)
100.00
100.00
100.00
100.00
—(4)
100.00
100.00
—(4)
—(4)
1,000
100
500
20
—(4)
571
55,000
—(4)
100.00
400,000
—(3)
100.00
100.00
100.00
100.00
100.00
100.00
100.00
—(3)
100
500
20
1,051
571
55,000
10,000
100.00
195,000
—(3)
—(3)
—(4)
99.99
49.00
100.00
100.00
—(4)
100.00
100.00
100.00
100.00
—(4)
100.00
1,034,000
13,410
99.99
13,410
5,000
226,014
120,000
—(4)
1
2
1
1
49.00(2)
100.00
100.00
100
100.00
100.00
100.00
100.00
5,000
226,014
120,000
1
1
2
1
1
EUR
EUR
HUF
HUF
INR
INR
EUR
EUR
JPY
MXN
MXN
MXN
EUR
USD
EUR
EUR
NOK
NOK
NOK
PLN
PLN
PLN
PLN
USD
RUB
SAR
SGD
SGD
ZAR
ZAR
EUR
SEK
SEK
SEK
CHF
CHF
CHF
CHF
CHF
CHF
CHF
CHF
TWD
THB
TRY
AED
GBP
GBP
USD
USD
USD
USD
USD
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235
Company name/location
ABB Installation Products International LLC.,
Wilmington, DE
ABB Motors and Mechanical Inc, Fort Smith, AR
ABB Treasury Center (USA), Inc., Wilmington, DE
Edison Holding Corporation, Wilmington, DE
Country
United States
United States
United States
United States
Industrial Connections & Solutions LLC, Cary, NC
United States
Verdi Holding Corporation, Wilmington, DE
United States
Company
ownership
and voting
rights %
2020
Share
capital in
thousands
2020
Company
ownership
and voting
rights %
2019
Share
capital in
thousands
2019 Currency
100.00
100.00
100.00
100.00
100.00
—(3)
—
—
1
—
—
—(3)
—(3)
100.00
100.00
100.00
100.00
100.00
—(3)
—
1
—
—
—
USD
USD
USD
USD
USD
USD
(1) Shares without par value.
(2) Company consolidated as ABB exercises full management control.
(3) Based on the internally defined thresholds, these indirect participations are considered not significant, and therefore no details to these participa-
tions are disclosed in the respective year.
(4) Participation was either sold, liquidated or merged in 2020.
(5) Participation was renamed into Hitachi ABB Power Grids Ltd in 2020 and is reported as direct participation of the Company.
—
Note 4
Interest-bearing liabilities
December 31 (CHF in thousands)
Bonds 2019–2024 0.3% coupon
Bonds 2019–2029 1.0% coupon
Bonds 2011–2021 2.25% coupon
Loan 2016-2024 USD 400 million (in 2019 USD 425 million)
Total
2020
2019
nominal value
280,000
280,000
premium on issuance
75
96
nominal value
170,000
170,000
premium on issuance
176
196
nominal value
350,000
350,000
352,420
411,485
1’152’671
1,211,777
In February 2019, the Company issued the following bonds: (i) CHF 280 million 0.3% bonds due 2024 and
(ii) CHF 170 million 1.0% bonds due 2029. Each of the respective bonds pays interest annually in arrears
in August and May respectively. The Company has the option, one month before their maturity date in
case of the 2024 bonds and three months before their maturity date in the case of the 2029 bonds, to
redeem the bonds, in whole but not in part, at par plus accrued interest.
The 2.25% bonds, due 2021, also pay interest annually in arrears, at a fixed annual rate of 2.25%. The
Company has, through ABB Corporate Treasury Operations, entered into an interest rate swap
with a bank to effectively convert the bonds maturing 2021 into floating rate obligations. The interest
swap is treated as an off-balance sheet item and is therefore not recorded.
The Company has the option to redeem all the above bonds prior to maturity, in whole but not in part
only, at par plus accrued interest, if 85% of the aggregate principle amount of the relevant bond issue
has been redeemed or purchased and cancelled at the time of the option exercise notice.
Bonds are accreted/amortized to par over the period to maturity. The bonds, issued prior to January 1,
2013, are stated at their nominal value less any discount or plus any premium on issuance.
In 2016, the Company entered into a borrowing agreement of USD 500 million with ABB Corporate
Treasury Operations due in 2024 (with an amortization schedule of USD 25 million per annum) to hedge
the USD 500 million loan granted to a Group company. In 2020 and 2019, the Company repaid
USD 25 million in each year. The average interest in 2020 and 2019 was 1.89% and 3.40%, respectively.
In March 2020, the Company entered into a bank-funded short term EUR 2 billion Revolving Credit
Agreement (the “Agreement”). This Agreement was in addition to the Group Facility referred to in Note
5. Under this Agreement, outstanding amounts were subject to interest at the rate of EURIBOR
plus a margin of 0.25%. The Company requested the full amount to be borrowed and the proceeds were
received on March 31, 2020, amounting to EUR 2,000 million (CHF 2,115 million). The Company
terminated the Agreement on July 8, 2020 after repaying the amount then outstanding.
236
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Note 5
Contingent liabilities
The Company has issued a support letter to a surety institution for the issuance of surety bonds on
behalf of Group companies. The amount issued under this letter was CHF 889.9 million as of
December 31, 2020 and CHF 726.2 million as of December 31, 2019.
With certain Group companies, the Company has keep-well agreements. A keep-well agreement
is a shareholder agreement between the Company and a Group company. These agreements provide for
maintenance of a minimum net worth in the Group company and the maintenance of 100% direct or
indirect ownership by the Company.
The keep-well agreements additionally provide that if at any time the Group company has insufficient
liquid assets to meet any payment obligation on its debt (as defined in the agreements) and has
insufficient unused commitments under its credit facilities with its lenders, the Company will make
available to the Group company sufficient funds to enable it to fulfill such payment obligation as it falls
due. A keep-well agreement is not a guarantee by the Company for payment of the indebtedness, or any
other obligation, of a Group company. No party external to the ABB Group is a party to any
keep-well agreement.
The Company has also provided certain guarantees securing the performance of Group companies in
connection with commercial paper programs, indentures or other debt instruments to enable them to
fulfill the payment obligations under such instruments as they fall due. The amount guaranteed under
these instruments was CHF 4,144.0 million as of December 31, 2020 and CHF 7,605.6 million as of
December 31, 2019.
Additionally, the Company has provided certain guarantees securing the performance of contracts and
undertakings of Group companies with third parties entered into in the normal course of business of an
aggregate value of CHF 70.3 million as per December 31, 2020 and CHF 77.0 million as per
December 31, 2019.
Furthermore, the Company is the guarantor in the Group’s USD 2 billion multicurrency revolving credit
facility (“Group Facility”). In December 2019, the Group Facility maturing in 2021 was replaced
with a new Group Facility maturing in 2024, with the option in 2020 and 2021 to extend the maturity to
2025 and 2026, respectively. The Company exercised its option in 2020 to extend the maturity of the
facility to 2025. No amounts were outstanding at December 31, 2020 and 2019.
The Company through certain of its direct and indirect subsidiaries is involved in various regulatory and
legal matters. The Company’s direct and indirect subsidiaries have made certain related provisions as
further described in “Note 15 Commitments and contingencies” to the Consolidated Financial
Statements of ABB Ltd. As described in the note, there is a risk of adverse outcomes beyond the
provisioned amounts.
The Company is part of a value added tax Group and therefore is jointly liable to the Swiss Federal Tax
Department for the value added tax liabilities of the other members.
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237
—
Note 6
Stockholders’ equity
Legal reserves
Free reserves
from
capital
contri-
bution
Share
capital
Other
reserves
from
retained
earnings
from
retained
earnings
Net
income
Own
shares
Total
260,178
30,430
— 1,000,000
6,690,847
1,198,371
(760,237)
8,419,589
(CHF in thousands)
Opening balance
as of January 1, 2020
Allocation to retained
earnings
Dividend payment
CHF 0.80 per share
Purchases of own shares
Delivery of own shares
Net income for the year
Closing balance as of
December 31, 2020
Release to other reserves
(30,430)
30,430
1,198,371 (1,198,371)
—
(1,343,391)
(1,343,391)
—
(2,890,725)
(2,890,725)
421,953
421,953
4,455,507
4,455,507
260,178
—
30,430 1,000,000
6,545,827 4,455,507 (3,229,009)
9,062,933
Share capital as of December 31, 2020
Issued shares
Contingent shares
Authorized shares
Share capital as of December 31, 2019
Issued shares
Contingent shares
Authorized shares
Number of
registered shares
2,168,148,264
304,038,800
200,000,000
Number of
registered shares
2,168,148,264
304,038,800
200,000,000
Par value (CHF)
Total
(CHF in thousands)
0.12
0.12
0.12
260,178
36,485
24,000
Par value (CHF)
Total
(CHF in thousands)
0.12
0.12
0.12
260,178
36,485
24,000
The own shares are valued at acquisition cost. During 2020 and 2019, a loss from the delivery of own
shares of CHF 13.9 million and CHF 2.7 million, respectively, was recorded in the Income Statement
under Finance expense.
During 2020, a bank holding call options related to ABB Group’s management incentive plan (MIP)
exercised a portion of these options. Such options had been issued in 2014 by the Group company that
facilitates the MIP at fair value and had a strike price of CHF 21.00. At issuance, the Group company had
entered into an intercompany option agreement with the Company, having the same terms and
conditions to enable it to meet its future obligations. As a result of the exercise by the bank, the
Company delivered 16,431,565 shares at CHF 21.00, out of own shares. During 2019, no call options
related to ABB Group’s management incentive plan, were exercised.
The ABB Group has an annual employee share acquisition plan (ESAP) which provides share options to
employees globally. To enable the Group company that facilitates the ESAP to deliver shares to
employees who have exercised their stock options, the Group company entered into an agreement with
the Company to acquire the required number of shares at their then market value from the Company.
Consequently, in 2020, the Company delivered, out of own shares, to the Group company
1,149,891 shares at CHF 24.91 and 237,259 shares at USD 27.27. In 2019, the Company delivered, out of
own shares, to the Group company 396,323 shares at CHF 21.92 and 78,591 at USD 22.21.
In 2020 and 2019, the Company transferred 1,389,715 and 1,063,791 own shares at an average acquisition
price per share of CHF 21.97 and CHF 21.94, respectively, to fulfill its obligations under other
share-based arrangements.
In 2020, the Company purchased 13.0 million shares, for CHF 312.4 million, to support its employee
share programs globally and 108.8 million shares, for CHF 2,578.3 million, as part of its share buyback
program for capital reduction purposes as publicly disclosed on July 22, 2020. During 2019 there was no
purchase of shares by the Company.
238
A B B A N N U A L R E P O R T 2 0 2 0
0 5 A B B Lt D S t At u to r y F I n A n C I A L S t At E M E n t S
The movement in the number of own shares during the year was as follows:
2020
2019
Average
acquisition price
Number of shares
per share (in CHF) Number of shares
Average
acquisition price
per share (in CHF)
Opening balance as of January 1
Purchases for employee share programs
Purchases for intended cancellation
Delivery for employee share programs
Closing balance as of December 31
Thereof pledged for MIP
34,647,153
13,046,013
108,829,359
(19,208,430)
137,314,095
9,866,402
21.94
23.95
23.69
21.97
23.52
36,185,858
21.94
—
—
(1,538,705)
34,647,153
11,881,394
—
—
21.94
21.94
—
Note 7
Dividend income
The Company received in 2020, dividend payments from ABB Asea Brown Boveri Ltd of CHF 1.3 billion in
cash and CHF 6.7 billion in kind (see note 2). The Company received in 2019, a dividend payment from
ABB Asea Brown Boveri Ltd of CHF 1.2 billion in cash.
—
Note 8
Other operating income
Other operating income includes mainly outgoing charges for Business Area and Division management
services, income from share deliveries and guarantee compensation fees to Group companies.
—
Note 9
Significant shareholders
Investor AB, Sweden, held 265,385,142 ABB Ltd shares as of December 31, 2020 and 254,915,142 ABB Ltd
shares as of December 31, 2019 respectively. This corresponds to 12.24 percent of ABB Ltd’s total share
capital and voting rights as registered in the Commercial Register on December 31, 2020 and 11.76 as of
December 31, 2019.
Pursuant to its disclosure notice, Cevian Capital II GP Limited, Channel Islands, announced that, on
behalf of its general partners it held 105,988,662 ABB Ltd shares as of August 30, 2020 and
115,868,333 ABB Ltd shares as of September 8, 2017 which corresponds to 4.89 and 5.34 percent of
ABB Ltd’s total share capital and voting rights as registered in the Commercial Register on
December 31, 2020 and 2019, respectively.
Pursuant to its disclosure notice, BlackRock, Inc., USA, disclosed that, as per August 31, 2017, it, together
with its direct and indirect subsidiaries, held 72,900,737 ABB Ltd shares. This corresponds to
3.36 percent of ABB Ltd’s total share capital and voting rights as registered in the Commercial Register
on December 31, 2020 and 2019, respectively.
Pursuant to its disclosure notice, The Capital Group Companies, Inc., USA, disclosed that, as per
April 4, 2020, it, together with its direct and indirect subsidiaries, held 65,680,803 ABB Ltd shares.
This corresponds to 3.03 percent of ABB Ltd’s total share capital and voting rights as registered in the
Commercial Register on December 31, 2020. The Capital Group Companies, Inc., USA did not hold
3 percent or more of ABB Ltd’s total share capital and voting rights on December 31, 2019.
A B B A N N U A L R E P O R T 2 0 2 0
0 5 A B B Lt D S t At u to r y F I n A n C I A L S t At E M E n t S
239
Pursuant to its disclosure notice, Artisan Partners Limited Partnership, USA, disclosed that, as per
April 10, 2019, it, together with its direct and indirect subsidiaries, held 65,721,454 ABB Ltd shares. This
corresponds to 3.03 percent of ABB Ltd’s total share capital and voting rights as registered in the
Commercial Register on December 31, 2019. Artisan Partners Limited Partnership, USA does not hold
3 percent or more of ABB Ltd’s total share capital and voting rights on December 31, 2020.
To the best of the Company’s knowledge, no other shareholder holds 3 percent or more of ABB Ltd’s
total share capital and voting rights on December 31, 2020 and 2019, respectively.
—
Note 10
Shareholdings of Board and Executive Committee
At December 31, 2020 and 2019, the members of the Board of Directors as of that date, held the
following numbers of shares (or American Depository Shares (ADSs) representing such shares):
Board ownership of ABB shares (audited)
Name
Peter Voser(1)
Jacob Wallenberg
Matti Alahuhta
Gunnar Brock
David Constable
Frederico Curado
Lars Förberg
Jennifer Xin-Zhe Li
Geraldine Matchett
David Meline(2)
Satish Pai
Total
(1) Includes 2,000 shares held by spouse.
(2) Includes 3,150 shares held by spouse.
Total number of shares held
December
31, 2020
314,648
234,246
December
31, 2019
260,175
226,021
93,408
26,951
33,978
32,382
49,992
33,721
19,800
33,774
24,618
51,466
14,635
27,581
21,298
35,499
8,319
11,919
25,463
19,047
897,518
701,423
240
A B B A N N U A L R E P O R T 2 0 2 0
0 5 A B B Lt D S t At u to r y F I n A n C I A L S t At E M E n t S
At December 31, 2020, the members of the Executive Committee, as of that date, held the following
number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under
the Long-term Incentive Plan (LTIP) and options (either vested or unvested as indicated) under the MIP
and unvested shares in respect of other compensation arrangements.
Vested at
December
31, 2020
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(vesting
2021/
2022)
(vesting
2021)
(vesting
2022)
(vesting
2023)
(vesting
2021)
(vesting
2022)
(vesting
2023)
Name
Björn Rosengren
(EC member as of
January 27, 2020, CEO
as of March 1, 2020)
Timo Ihamuotila
Theodor Swedjemark
(EC member as of
August 1, 2020)(3)
Sami Atiya
Tarak Mehta
Peter Terwiesch
Morten Wierod
Total Executive
Committee members
at December 31, 2020
5,000
171,610
—
—
—
—
Sylvia Hill
2,265
796,875
318,750
Maria Varsellona
—
—
—
—
—
37,217
49,071
49,071
36,158
37,707
—
—
—
—
41,323
41,323
40,010
40,009
—
—
131,715
—
130,150
18,904
480
102,000
250,750
—
—
6,209
42,778
179,636
142,338
1,544
—
—
—
—
—
—
—
—
23,301
49,587
41,323
34,790
44,422
46,488
37,379
41,323
41,323
15,292
36,158
38,740
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
545,651
898,875
569,500
147,979
298,042
433,899
40,010
170,159
18,904
(1) The final LTIP 2018 award and LTIP 2019 award will be settled 65 percent in shares and 35 percent in cash. This applies to both
performance factors (EPS and TSR). However, the participants have the possibility to elect to receive 100 percent of the vested
award in shares. The final LTIP 2020 award will be settled 100 percent in shares, with an automatic sell-to-cover in place for
employees who are subject to withholding taxes.
(2) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the
participants have the possibility to elect to receive 100 percent of the vested award in shares.
(3) In addition, his spouse holds unvested shares and options granted in connection with her role in the company.
A B B A N N U A L R E P O R T 2 0 2 0
0 5 A B B Lt D S t At u to r y F I n A n C I A L S t At E M E n t S
241
At December 31, 2019, the members of the Executive Committee, as of that date, held the following
number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under
the LTIP and options (either vested or unvested as indicated) under the MIP and unvested shares in
respect of other compensation arrangements.
Vested at
December
31, 2019
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f
Name
Timo Ihamuotila
Sylvia Hill
(EC member as of
June 1, 2019)
Maria Varsellona
(EC member as of
November 1, 2019)
Frank Duggan
Chunyuan Gu
Sami Atiya
Tarak Mehta
Claudio Facchin
Peter Terwiesch
Morten Wierod
(EC member as of
April 1, 2019)
Total Executive
Committee members at
December 31, 2019 (5)
(vesting
2020/2021)
(vesting
2020)
(vesting
2021)
(vesting
2022)
(vesting
2020)
(vesting
2021/2022
64,572
—
—
41,000
37,217
49,071
76,628
2,265
743,750
584,375
—
269,846
45,577
24,435
212,869
163,219
122,242
—
—
—
—
—
—
—
1,064
398,440
—
—
—
—
—
—
—
—
—
—
34,984
31,196
34,735
34,494
39,076
37,147
—
36,158
—
31,756
33,981
23,301
34,790
26,214
37,379
41,323
41,323
36,158
49,587
44,422
41,839
41,323
—
15,292
36,158
—
—
—
—
—
—
—
—
—
—
—
80,019
—
—
—
—
—
—
—
906,089 1,142,190
584,375
252,632
239,930
417,362
76,628
80,019
(1) The LTIP 2017 foresees that 70 percent are settled in shares and 30 percent in cash for the performance components (P1 and P2). However,
participants have the possibility to elect to receive 100 percent of the vested award in shares.
(2) It is expected that the LTIP 2018 and 2019 will be settled 65 percent in shares and 35 percent in cash for the performance factors (EPS and
TSR). However, the participants have the possibility to elect to receive 100 percent of the vested award in shares.
(3) The replacement share grant was settled 100 percent in shares.
(4) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participant has the
possibility to elect to receive 100 percent of the vested award in shares.
(5) Departing Executive Committee members are not included in this table.
—
Note 11
Full time employees
During 2020 and 2019, the Company employed on average 19 and 23 employees, respectively.
242
A B B A N N U A L R E P O R T 2 0 2 0
0 5 A B B Lt D S t At u to r y F I n A n C I A L S t At E M E n t S
—
Proposed appropriation of
available earnings
Proposed appropriation of retained earnings (CHF in thousands)
Net income for the year
Carried forward from previous year
Retained earnings available to the Annual General Meeting
Gross dividend of CHF 0.80 per share on
total number of registered shares(1)
Balance to be carried forward
2020
4,455,507
6,545,827
11,001,334
(1,734,519)
9,266,815
2019
1,198,371
6,690,847
7,889,218
(1,343,391)
6,545,827
(1) No dividend will be paid on own shares held by ABB Ltd. Shareholders who are resident in Sweden participating in the established dividend
access facility will receive an amount in Swedish kronor from ABB Participation AB which corresponds to the dividend resolved on a regis-
tered share of ABB Ltd without deduction of the Swiss withholding tax. This amount however is subject to taxation according to Swedish
law.
On February 4, 2021, the Company announced that the Board of Directors will recommend for approval
at the March 25, 2021, Annual General Meeting that a dividend of CHF 0.80 per share be distributed out
of the retained earnings available, to be paid in March 2021 and in April 2021 for residents in Sweden
participating in the dividend access facility.
243
Report of the Statutory Auditor To the General Meeting of ABB Ltd, Zurich Report of the Statutory Auditor on the Financial Statements As statutory auditor, we have audited the accompanying financial statements of ABB Ltd, which comprise the balance sheet, income statement and notes to financial statements (pages 231 to 241) for the year ended December 31, 2020. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended December 31, 2020 comply with Swiss law and the company’s articles of incorporation. 244
Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight AuthorityKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. We have determined that there are no key audit matters to communicate in our report.Report on Other Legal RequirementsWe confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 COand article 11 AOA)and that there are no circumstances incompatible with our independence.In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.KPMG AGHans-Dieter KraussMohammad NafeieLicensed Audit ExpertAuditor in ChargeZurich,February 25,2021KPMG AG, Räffelstrasse 28, PO Box, CH-8036 Zurich© 2021 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. A B B A N N U A L R E P O R T 2 0 2 0
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Supplemental
information
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246 – 250
248
Supplemental information
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Supplemental information
The following are definitions of key financial
measures used to evaluate ABB’s operating
performance. These financial measures are re-
ferred to in this Annual Report and are not defined
under United States generally accepted account-
ing principles (U.S. GAAP).
While ABB’s management believes that the
non-GAAP financial measures herein are useful in
evaluating ABB’s operating results, this informa-
tion should be considered as supplemental in
nature and not as a substitute for the related
financial information prepared in accordance with
U.S. GAAP.
For a full reconciliation of ABB’s non-GAAP mea-
sures, please refer to Supplemental
Reconciliations and Definitions, ABB Q4 2020
Financial Information on global.abb/group/en/
investors/results-and-reports/2020.
Comparable growth rates
Growth rates for certain key figures may be
presented and discussed on a “comparable” basis.
The comparable growth rate measures growth
on a constant currency basis. Since we are a global
company, the comparability of our operating
results reported in U.S. dollars is affected by
foreign currency exchange rate fluctuations. We
calculate the impacts from foreign currency
fluctuations by translating the current-year
periods’ reported key figures into U.S. dollar
amounts using the exchange rates in effect for
the comparable periods in the previous year.
Comparable growth rates are also adjusted for
changes in our business portfolio. Adjustments to
our business portfolio occur due to acquisitions,
divestments, or by exiting specific business
activities or customer markets. The adjustment
for portfolio changes is calculated as follows:
where the results of any business acquired or
divested have not been consolidated and reported
for the entire duration of both the current and
comparable periods, the reported key figures of
such business are adjusted to exclude the relevant
key figures of any corresponding quarters which
are not comparable when computing the compa-
rable growth rate. Certain portfolio changes
which do not qualify as divestments under U.S.
GAAP have been treated in a similar manner to
divestments. Changes in our portfolio where we
have exited certain business activities or cus-
tomer markets are adjusted as if the relevant
business was divested in the period when the
decision to cease business activities was taken.
We do not adjust for portfolio changes where the
relevant business has annualized revenues of less
than $50 million.
Operational EBITA margin
Operational EBITA margin
Operational EBITA margin is Operational EBITA
as a percentage of Operational revenues.
Operational EBITA
Operational earnings before interest, taxes and
acquisition-related amortization (Operational
EBITA) represents Income from operations
excluding:
• acquisition-related amortization (as defined
below),
• restructuring, related and implementation costs
(as defined below),
• changes in the amount recorded for obligations
related to divested businesses occurring after
the divestment date (changes in obligations
related to divested businesses),
• changes in estimates relating to opening
balance sheets of acquired businesses (changes
in pre-acquisition estimates),
• 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,
• other income/expense relating to the Power
Grids joint venture,
• 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).
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249
Certain other non-operational items generally
includes: certain regulatory, compliance and legal
costs, certain asset write downs/impairments
(including impairment of goodwill) and certain
other fair value changes, as well as other items
which are determined by management
on a case-by-case basis.
Operational EPS
Operational EPS
Operational EPS is calculated as Operational net
income divided by the weighted-average number
of shares outstanding used in determining basic
earnings per share.
Operational EBITA is our measure of segment
profit but is also used by management to evaluate
the profitability of the Company as a whole.
Operational net income
Acquisition-related amortization
Amortization expense on intangibles arising upon
acquisitions.
Restructuring, related and implementation costs
Restructuring, related and implementation costs
consists of restructuring and other related ex-
penses, as well as internal and external costs
relating to the implementation of group-wide
restructuring programs.
Other income/expense relating to the Power
Grids joint venture
Other income/expense relating to the Power
Grids joint venture consists of amounts recorded
in Income from continuing operations before
taxes relating to the divested Power Grids busi-
ness including the income/loss under the equity
method for the investment in Hitachi ABB Power
Grids Ltd. (Hitachi ABB PG), amortization of
deferred brand income as well as changes in value
of other obligations relating to the divestment.
Operational revenues
We present Operational revenues solely for the
purpose of allowing the computation of Opera-
tional EBITA margin. Operational revenues are
total revenues adjusted for foreign exchange/
commodity timing differences in total revenues
of: (i) unrealized gains and losses on derivatives,
(ii) realized gains and losses on derivatives where
the underlying hedged transaction has not yet
been realized, and (iii) unrealized foreign ex-
change movements on receivables (and related
assets). Operational revenues are not intended to
be an alternative measure to Total revenues,
which represent our revenues measured in accor-
dance with U.S. GAAP.
Operational net income is calculated as Net
income attributable to ABB adjusted for the
following: (i) acquisition-related amortization,
(ii) restructuring, related and implementation
costs, (iii) non-operational pension cost (credit),
(iv) gains/losses from extinguishment of debt
(v) changes in obligations related to divested
businesses, (vi) changes in pre-acquisition esti-
mates, (vii) gains and losses from sale of
businesses (including fair value adjustment on
assets and liabilities held for sale), (viii) acquisi-
tion- and divestment-related expenses and
integration costs, (ix) other income/expense
relating to the Power Grids joint venture, (x) cer-
tain other non-operational items, (xi) foreign
exchange/commodity timing differences in
income from operations consisting of: (a) unreal-
ized 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), (xii) the amount of income tax
on operational adjustments either estimated
using the Adjusted Group effective tax rate or in
certain specific cases, computed using the actual
income tax effects of the relevant item in (i) to
(xi) above, and (xiii) certain other non-operational
amounts recorded within income tax expense.
Adjustment for certain non-operational amounts
recorded within Income tax expense
Adjustments are made for certain amounts re-
corded within Income tax expense primarily when
the amount recorded has no corresponding
underlying transaction recorded within income
from continuing or discontinued operations
before taxes. This would include the amounts
recorded in connection with internal reorganiza-
tions of the corporate structure of the Company.
250
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Adjusted Group effective tax rate
The Adjusted Group effective tax rate is com-
puted by dividing a combined adjusted income
tax expense (for both continuing and discontin-
ued operations) by a combined adjusted pre-tax
income (from both continuing and discontinued
operations). Certain amounts recorded in income
before taxes and the related income tax expense
(primarily gains and losses from sale of busi-
nesses) are excluded to arrive at the computation.
Amounts recorded in income tax expense for
certain non-operational items are also excluded
from the computation of the Adjusted Group
effective tax rate.
Constant currency Operational EPS adjustment
and Operational EPS growth rate (constant
currency)
We compute the constant currency operational
net income using the relevant monthly exchange
rates which were in effect during 2019 and any
difference in computed Operational net income is
divided by the relevant weighted-average number
of shares outstanding to identify the constant
currency Operational EPS adjustment.
Free cash flow conversion to net
income
Free cash flow conversion to net income
Free cash flow conversion to net income is calcu-
lated as free cash flow divided by Adjusted net
income attributable to ABB.
Adjusted net income attributable to ABB
Adjusted net income attributable to ABB is calcu-
lated as net income attributable to ABB adjusted
for: (i) impairment of goodwill, (ii) losses from
extinguishment of debt, and (iii) gain on the sale
of the Power Grids business included in discontin-
ued operations.
Free cash flow
Free cash flow is calculated as net cash provided
by operating activities adjusted for: (i) purchases
of property, plant and equipment and intangible
assets, and (ii) proceeds from sales of property,
plant and equipment.
Return on Capital employed
(ROCE)
Return on Capital employed (ROCE)
Return on Capital employed is calculated as
Operational EBITA after tax, divided by the aver-
age of the period’s opening and closing Capital
employed, adjusted to reflect impacts from
significant acquisitions/divestments occurring
during the same period.
Capital employed
Capital employed is calculated as the sum of
Adjusted total fixed assets and Net working
capital (as defined below).
Adjusted total fixed assets
Adjusted total fixed assets is the sum of (i) prop-
erty, plant and equipment, net, (ii) goodwill, (iii)
intangible assets, net, (iv) investments in
equity-accounted companies, and (v) operating
lease right-of-use assets, less (vi) deferred tax
liabilities recognized in certain acquisitions.
Net working capital
Net working capital is the sum of (i) receivables,
net, (ii) contract assets, (iii) inventories, net, and
(iv) prepaid expenses; less (v) accounts payable,
trade, (vi) contract liabilities, and (vii) other
current liabilities (excluding primarily: (a) income
taxes payable, (b) current derivative liabilities,
and (c) pension and other employee benefits),
(d) payables under the share buyback program
and (e) liabilities related to the divestment of the
Power Grids business); and including the amounts
related to these accounts which have been pre-
sented as either assets or liabilities held for sale
but excluding any amounts included in discontin-
ued operations.
Notional tax on Operational EBITA
The Notional tax on Operational EBITA is com-
puted using an Adjusted Group effective tax rate
applicable to continuing operations. The rate
applied is computed as described above in Opera-
tional EPS and excludes any impacts from
discontinued operations.
Book-to-bill ratio
Book-to-bill ratio is calculated as Orders received
divided by Total revenues.
Parts of the ABB annual report 2020 have been
translated into German. Please note that the
English-language version of the ABB annual report
is the binding version.
Caution concerning forward-looking statements
The ABB annual report 2020 includes “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking
statements largely on current expectations, estimates and
projections about the factors that may affect our future
performance, including global economic conditions as well
as the economic conditions of the regions and the industries
that are major markets for ABB. The words “believe,” “may,”
“will,” “estimate,” “continue,” “target,” “anticipate,” “intend,”
“expect”, “plan” and similar words and the express or implied
discussion of strategy, plans or intentions are intended
to identify forward-looking statements. These forward-
looking statements are subject to risks, uncertainties and
assumptions, including among other things, the following:
(i) business risks related to the global volatile economic
environment; (ii) costs associated with compliance activities;
(iii) difficulties encountered in operating in emerging markets;
(iv) risks inherent in large, long term projects served by parts
of our business; (v) the timely development of new products,
technologies, and services that are useful for our customers;
(vi) our ability to anticipate and react to technological change
and evolving industry standards in the markets in which we
operate; (vii) changes in interest rates and fluctuations in
currency exchange rates; (viii) changes in raw materials prices
or limitations of supplies of raw materials; (ix) the weakening
or unavailability of our intellectual property rights; (x) industry
consolidation resulting in more powerful competitors and
fewer customers; (xi) effects of competition and changes
in economic and market conditions in the product markets
and geographic areas in which we operate; (xii) effects of,
and changes in, laws, regulations, governmental policies,
taxation, or accounting standards and practices and (xiii)
other factors described in documents that we may furnish
from time to time with the US Securities and Exchange
Commission, including our Annual Reports on Form 20-F.
Although we believe that the expectations reflected in any
such forward-looking statements are based on reasonable
assumptions, we can give no assurance that they will be
achieved. We undertake no obligation to update publicly
or revise any forward-looking statements because of new
information, future events or otherwise. In light of these
risks and uncertainties, the forward-looking information,
events and circumstances might not occur. Our actual
results and performance could differ substantially from
those anticipated in our forward-looking statements.
—
ABB Ltd
Corporate Communications
Affolternstrasse 44
8050 Zurich
Switzerland
Tel: +41 (0)43 317 71 11
Fax: +41 (0)43 317 79 58
www.abb.com
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