Driving profitable growth The ABB Group Annual Report 2013 Driving profitable growth The ABB Group Annual

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  • Driving profitable growth The ABB Group Annual Report 2013

  • Contents

    02 This is ABB . 04 Chairman and CEO letter .

    08 Highlights . 10 What ABB does .

    14 Our three focus areas . 20 Key achievements of 2013 .

    24 Faces of ABB . 28 Executive Committee .

    29 Regional and country managers . 31 Corporate governance report

    47 Remuneration report . 61 Financial review of ABB Group .

    157 ABB Ltd Statutory Financial Statements 177 Investor information .

  • 02 This is ABB | ABB Annual Report 2013

    This is ABB

    ABB is one of the world’s leading power and automation technology companies.

    We provide solutions for secure, energy-efficient generation, transmission and distribution of electricity, and for increa sing productivity in industrial, commercial and utility operations.

    We are present throughout the entire renewables value chain, from power generation to transmission, distribution and electric mobility.

    Our portfolio ranges from switches and sockets to robots, and from large transformers to control systems that manage entire power networks and factories.

    We help our customers meet their challenges with minimum environmental impact. That’s why ABB stands for “Power and productivity for a better world.”

  • ABB Annual Report 2013 | This is ABB 03

    company delivering power and productivity for a better world1

    150,000 employees

    150 nationalities

    8,000 technologists in R&D

    Operations in around

    100 countries

    More than

    300 manufacturing sites

    More than

    1.5 million products shipped per day

    30,000 distributors

    61 billion market capitalization at December 31, 2013


    1.5 billion invested in R&D in 2013


    115 million page views to abb.com in 2013

    1 million followers on social networks

    500,000 raised for Philippines typhoon relief


    8 million spent on community projects in 2013


    42 billion revenues in 2013


  • 04 Chairman and CEO letter | ABB Annual Report 2013

    We are pleased to present ABB’s Annual Report 2013, which has been expanded to help our shareholders, other stakeholders and potential investors to better understand what ABB does and what makes us successful. We’ve also included new sections to highlight ABB’s achievements and to introduce you to some ABB people from our businesses around the world, including our acquired companies. We hope you enjoy reading the new Annual Report.

    Record revenues, higher operating profits ABB turned in a solid performance in a challenging market in 2013. We achieved record revenues, higher operating profits and met our cost-reduction targets. We accomplished this during a year of mixed markets and continued economic uncertainty, as well as internal management transitions, demonstrating the company’s underlying strength and ability to exe cute. For the fifth year in a row, we will be proposing a dividend increase at our annual general meeting.

    Four of our five divisions performed well, with Power Products continuing to lead the sector in profitability. Our expanded product and geographic scope enabled us to increase profitability in automation across our Low Voltage Products, Discrete Automation and Motion and our Process Automation divisions. We are confident that our Power Systems division will deliver higher, more consistent returns under new leadership once certain legacy projects have been executed and actions to improve risk and project management are complete.

    On the order side, demand from early-cycle industry customers was higher in the second half of 2013, reflecting some improvement in business confidence, which gives us reason to be cautiously optimistic for the year ahead. Large orders, however, were significantly lower, primarily because utilities and industrial customers were still hesitant to make big invest- ments given the continuing economic and regulatory uncertainty, and this weighed on our order book. We were also more selective about accepting orders in Power Systems in line with the reset of this division.

    Chairman and CEO letter

    Dear shareholders,

    Video: Ulrich Spiesshofer comments on the 2013 results. To view the clip, install QR code reader on your mobile device, scan the code and see more.

  • Among our best-performing businesses were low-voltage circuit breakers and switches as well as drives. The robotics business had an extremely successful year and continued its successful penetration of the general industry sector. All divisions posted revenue increases, which meant we ended the year with record revenues of nearly $42 billion overall, 7 percent higher than the previous year, in local currencies. Operational EBITDA for the Group was up a healthy 9 percent at $6 billion, even after the $260-million charge related to project delays and operational issues in Power Systems.

    Well-positioned for the future As in previous years, we did not let the economic uncertainty distract us from strengthening our competitive position and preparing our company for the future. We stayed focused on tech nology innovation with an investment of $1.5 billion in R&D, and we continued to see the fruits of our previous investments in products such as the Emax 2, the world’s first circuit breaker that not only protects electrical circuits but also adapts energy consumption to actual needs. In 2013, we made significant inroads into new markets and segments, such as electric- vehicle charging and renewable energy generation, and we continued our disciplined actions on savings, taking out $1.2 billion in costs for the year, and cash conversion. More customers than ever tell us that they are satisfied working with us; the number saying they would be highly likely to recommend ABB to a colleague rose to 35 percent in 2013 com- pared with 29 percent in 2012.

    We made substantial progress on the integration of our two biggest acquisitions, Baldor and Thomas & Betts, and we are pleased to report that both are well on target in terms of cost synergies and overall returns on our investments. Business integration will be an important focus in 2014 and in the future, and to strengthen our institutional capability in this area we have appointed one of our Executive Committee members, Greg Scheu, to steer the integration of our acquired companies across all businesses and regions. He will also drive forward our service business, which had another successful year, accounting for an increasing share of overall orders, and he will be based in and in charge of North America, our largest single geographical market.

    Last year, we continued to expand our portfolio through strategic acquisitions, the most significant of which was solar inverter maker, Power-One, which makes ABB the number 2 global player in the most intelligent part of the solar photovoltaic value chain. Through other acquisitions, we expanded our presence in building automation (Newron), low-voltage products in Turkey and eastern Europe (ELBI Elektrik), measurement products (Los Gatos) and service offering for drives and motors (Dynamotive).

    Finally, 2013 was a year of internal transition and we are pleased to share with you that this was achieved smoothly and without any impact on the business, another indication of the underlying strength and robustness of our organization. The CEO transition from Joe Hogan to Ulrich Spiesshofer was seamless, as was the CFO handover from Michel Demaré to Eric Elzvik and the changes in leadership in the Discrete Automation and Motion division, from Ulrich Spiesshofer to Pekka Tiitinen, and in the Power Systems division from Brice Koch to Claudio Facchin. We were also very pleased to welcome on board a highly experienced human resources leader, Jean-Christophe Deslarzes, to succeed Gary Steel, who retired after a long and successful career.

    “We continue to see the fruits of our investments in technology.”

    ABB Annual Report 2013 | Chairman and CEO letter 05

  • 06 Chairman and CEO letter | ABB Annual Report 2013

    We look back on a solid year in 2013 and say with confidence that, despite weaker than expected economic growth and lower industrial capital spending, ABB is well-positioned to drive future growth. We also are humble enough to realize that there is still tremendous potential to improve and do better in serving our customers around the world.

    Taking ABB to the next level In 2014, a key focus will be to set and implement the direction for the next phase of growth and improvement on returns. We have already started this process by conducting a rigorous navigation check on our position in key markets. We now have “heat maps” of customer sectors and geographies ready, so we know where our growth opportunities are and where our investments should be prioritized.

    At the same time, we defined three focus areas to provide us with a systematic and robust approach for value creation, enhanced earnings per share (EPS) and cash return on invested capital (CROI):

    1. The first is profitable growth, which we are targe