Abb Annual Report 2018 01 Introduction
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— ANNUAL REPORT 2018 Shaping a leader focused in digital industries — ABB at a glance — ABB is a pioneering technology leader with a comprehensive offering for digital industries. With a history of innovation spanning more than 130 years, ABB is today a leader in digital industries with four customer-focused, glob- ally leading businesses: Electrification, Indus- trial Automation, Motion, and Robotics & Discrete Automation, supported by its com- mon ABB Ability™ digital platform. ABB’s market-leading Power Grids business will be divested to Hitachi in 2020. ABB operates in more than 100 countries with about 147,000 employees. — abb.com Contents — Annual Report 2018 01 Introduction — 6 – 29 02 Corporate governance report — 32 – 53 03 Compensation Report — 56 – 79 04 Financial review of ABB Group — 82 – 215 05 ABB Ltd statutory financial statements — 218 – 235 06 Supplemental information — 238 – 242 01 Introduction — 6 – 29 Chairman and CEO letter — 8 – 11 New ABB — 12 – 15 Highlights 2018 — 16 – 17 ABB Ability ™ — 18 – 19 Integration of GE Industrial Solutions — 20 – 21 Shareholder returns and capital allocation — 22 – 23 People — 24 – 25 Sustainability — 26 – 27 Executive Committee — 28 – 29 8 ABB ANNUAL REPORT 2018 01 INTRODUCTION — CHAIRMAN AND CEO LETTER Dear Shareholders, Customers, Partners and Employees, Our world is changing – faster than ever. Digital Our decision to divest the Power Grids business technologies have already revolutionized the way reflects the growing difference in customer needs we communicate, shop and bank. Now they are between the large-scale infrastructure, utility and starting to transform industries and the entire industry sectors. The utility customer base is con- “B2B” space. In the years ahead, new technologies solidating, and we see a re-convergence of power will influence the way we power our societies, pro- generation and power grids. Increasing project duce our goods and services, and how we work, sizes for and changes in the commercial pattern of live and move. utility customers also often require suppliers like ABB to provide access to project financing. Over the past few years, with the execution of ABB’s strategy, we have laid the foundation for our Having turned around Power Grids over the past businesses to compete in fast-changing digital in- few years and increased its value significantly, we dustries and deliver profitable growth. In 2018, we decided that the future development of the busi- posted solid order and revenue growth: total or- ness would be best served under Hitachi’s owner- ders were up 8 percent (comparable), having risen ship, given its leading position in energy infra- in all divisions and regions, and revenues in- structure and its long-term perspective for the creased 4 percent for the full year. Our Net Pro- power business. Hitachi’s commitment to retain moter Score measure of customer satisfaction in- Power Grids’ employees and to keep its headquar- creased to 57, having tripled since 2010. Our ters in Switzerland also played a part in our deci- operational EBITA margin, our main measure of sion. Initially, ABB will retain a minority sharehold- profitability, was slightly lower (−0.3 percent), im- ing in a joint venture to ensure the smooth pacted by stranded costs due to the announced transition to Hitachi for customers, employees divestment of our Power Grids business, charges and partners alike. We intend that our sharehold- for legacy non-core projects and the expected di- ers will directly benefit through the return of the lution effect of our acquisition of GE Industrial net proceeds of the divestment. Solutions in 2018. As we focus our portfolio on digital industries, we In 2019, we are embarking on a new chapter at will simplify our organization by discontinuing our ABB, in which we will build on our technology legacy matrix structure to achieve zero-distance and talented global employee base to further to customers, increased agility in decision-making, strengthen our focus in digital industries. Our am- and a stronger entrepreneurial culture within our bition: to deliver attractive returns to our share- businesses. holders; to support our customers with innovative solutions that drive their productivity and com- Our new ABB petitiveness while helping them digitalize their Our new ABB will span a comprehensive offering businesses; and to provide our employees and covering electrification, automation, robotics and partners with new opportunities to grow, develop digitalization, positioning us to write the future as and realize their full potential. a customer-focused technology leader in digital industries. With our four leading businesses, we To focus our portfolio on digital industries and de- will address a market worth more than $410 billion liver on these ambitions, we have agreed to divest and growing by 3.5–4 percent per annum. By 2025, our Power Grids business to Hitachi, simplify our that market is expected to expand by $140 billion business model and structure, and shape four to $550 billion. leading businesses in line with the way our cus- tomers operate. Our businesses will be designed Our Electrification business offers a portfolio of to tap the opportunities of emerging technolo- products, digital solutions and services, from gies such as artificial intelligence and will be given substation to socket. In 2018, we strengthened the maximum amount of entrepreneurial freedom the business’ #2 market position through the ac- to compete in fast-changing markets. quisition of GE Industrial Solutions, GE’s global electrification solutions business, which will con- tribute to our growth and competitiveness in key ABB ANNUAL REPORT 2018 01 INTRODUCTION 9 PETER VOSER ULRICH SPIESSHOFER CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER 10 ABB ANNUAL REPORT 2018 01 INTRODUCTION markets, particularly North America. Our Electrifi- Investing in technology… cation business has strong exposure to rapidly Including amounts in our Power Grids business, growing customer segments, including e-mobility, ABB invests approximately $1.4 billion in research data centers and smart buildings. and development every year, corresponding to around 4 percent of our revenues. In 2018, thanks Our Industrial Automation business offers a range to our focus on innovation, we launched several of solutions for process and hybrid industries, in- new solutions and technologies that strengthened cluding our industry-specific integrated automa- our ABB Ability™ digital offering and contributed tion, electrification and digital solutions, control to further improving the efficiency, productivity technologies, software and advanced services, as and security of our customers’ operations. well as measurement & analytics, marine and tur- bocharging offerings. Industrial Automation is #2 We advanced our leading position in the charging in the market globally. technology for electric vehicles (EVs) with the launch of our Terra High Power charger, which at Our Motion business provides customers with full power, 350 kilowatts, can add up to 200 kilo- a range of electrical motors, generators, drives meters of range to an EV in just eight minutes, and services, as well as integrated digital power- making it ideally suited for use at highway rest train solutions. Motion is the #1 player in the stops and filling stations. market globally. We continued to extend our global network of Our Robotics & Discrete Automation business ABB Ability™ Collaborative Operations Centers combines our machine and factory automation with a new center for mining customers in solutions, mainly from B&R, which we acquired in Västerås, Sweden, which monitors the health, per- 2017, with a comprehensive robotics solutions formance and location of equipment in mines, al- and applications suite. The business is #2 globally, lowing engineers to quickly diagnose potential is- with a #1 position in robotics in the important, sues, advise on preventive maintenance, and high-growth Chinese market, where we are ex- recommend measures to improve performance. panding our innovation and production capacity by investing in a new robotics factory in Shanghai. In December we achieved a breakthrough in au- tonomous shipping when our new intelligent au- Sound financial profile topilot, ABB Ability™ Marine Pilot Control, allowed Our new ABB has a sound financial profile with a ferry captain to remotely pilot a passenger ferry significant long-term growth possibilities. It through a test area in Helsinki harbor. would have generated revenues of approximately $29 billion in 2018. Going forward, we will pursue a growth strategy — based on the following medium-term financial framework: With the execution of • 3–6 percent annual comparable revenue growth ABB’s strategy, we • operational EBITA margin of 13–16 percent • return on capital employed (ROCE) of 15–20 per- have laid the founda- cent • cash conversion to net income of approximately tion for our business 100 percent • basic EPS growth above revenue growth to deliver profitable Our company’s capital allocation priorities growth. The new ABB are to fund organic growth, R&D, capex and value-creating acquisitions. We remain commit- is positioned to write ted to delivering a rising, sustainable dividend – the Board of Directors will propose a dividend of the future as a custo- CHF 0.80 per share to shareholders at the Annual General Meeting on May 2 – and to returning addi- mer-focused techno- tional cash to shareholders. Following the divest- ment of 80.1 percent of Power Grids, ABB intends logy leader in digital to return the net cash proceeds of $7.6–7.8 billion to shareholders in an expeditious and efficient industries. manner. ABB ANNUAL REPORT 2018 01 INTRODUCTION 11 In robotics, we launched several new solutions, Our focus on our people has made ABB a pre- including a single-arm YuMi® robot and a new ferred employer in key markets. For the past two modular product platform design, allowing us to years, we have been ranked in key countries as offer customers more types of robots which we one of the most attractive employers among can combine into an almost infinite number of engineering students, ahead of many other tech- tailored solutions.