Divisional analysis

Electrification Products

Effective January 1, 2017, the Group reorganized its four business divisions to bring together all businesses relating to electrification of the consumption points. In connection with this change, the scope of the Electrification Products division has been expanded to include the electric vehicle charging, solar and power quality businesses from the former Discrete Automation and Motion division. The financial information for 2016 and 2015 has been recast to reflect these organizational changes.

The financial results of our Electrification Products division were as follows:

 

 

 

 

% Change

($ in millions)

2017

2016

2015

2017

2016

Orders

10,143

9,780

10,610

4%

(8)%

Third-party base orders

9,559

9,242

9,758

3%

(5)%

Order backlog at December 31,

3,098

2,839

3,136

9%

(9)%

Revenues

10,094

9,920

10,275

2%

(3)%

Income from operations

1,349

1,091

1,247

24%

(13)%

Operational EBITA

1,510

1,459

1,520

3%

(4)%

Orders

The majority of the division’s orders are small with short delivery times; orders are usually recorded and delivered within a three month period and thus are generally considered as short-cycle. The remainder of orders is comprised of smaller projects that require longer lead times or larger solutions requiring engineering and installation. Substantially all of the division’s orders are comprised of base orders. In addition, approximately half of the division’s orders are received via third-party distributors; as a consequence, end-customer market data is based partially on management estimates.

In 2017, orders increased 4 percent (5 percent in local currencies) with stronger order growth in the second half of the year. Orders for products increased throughout the division as end market demand improved in utilities and construction, specifically non-residential construction. Increased demand for low-voltage and medium-voltage solutions was primarily driven by continued investments in light industries such as data centers as well as food and beverage. Orders in the Power and EV Infrastructure business increased driven by large order intake for electric vehicle products and systems, however the growth was partially offset by decreases in demand for solar products and systems.

In 2016, orders decreased by 8 percent (5 percent in local currencies). Orders were impacted by weak market conditions in the process industries and in particular in the oil and gas sector, as many EPC projects were delayed or cancelled. This negatively affected the Medium Voltage Products and Electrification Solutions businesses. Driven by construction and light industries, demand for our short-cycle products was stable. Product demand was weaker in the Installation Products business, with lower orders from both distributors and end-customer channels. Orders in the Protection and Connection business were lower as growth in OEM orders was offset by weakened orders from end-customer and distributor channels. Orders were higher in the Building Products business, as lower order levels from direct end-customers were more than offset by increased orders through distributors. Finally, orders in the Power and EV Infrastructure business declined, driven by a decrease in orders of customers in the solar industry.

The geographic distribution of orders for our Electrification Products division was as follows:

(in %)

2017

2016

2015

Europe

37

37

34

The Americas

27

27

28

Asia, Middle East and Africa

36

36

38

Total

100

100

100

In 2017, relative order growth was similar in all regions, leading to a stable regional distribution. In Asia, Middle East and Africa, a positive order trend was seen in China, Australia and India. The European market performed well with order growth across the majority of countries including Germany, Turkey and Sweden. Growth in the Americas was mainly supported by the United States and Canada.

In 2016, the share of orders in Europe increased, driven by growth in several countries, especially Germany. In the Americas, the share of orders decreased slightly due to order declines in the region, particularly in the United States and Canada. Asia, Middle East and Africa was relatively weak primarily due to lower orders in China and Saudi Arabia compared to 2015.

Order backlog

In 2017, the order backlog increased 9 percent (5 percent in local currencies), with strong growth in the Power and EV Infrastructure business, where there was significant order intake for electric vehicle fast-charging solutions.

In 2016, the order backlog decreased 9 percent (6 percent in local currencies), primarily because of a decreased backlog in the Medium Voltage Products business, reflecting higher execution levels of orders for Modular Systems and Primary Switchgear. The backlog also decreased due to lower orders received in the Power and EV Infrastructure business.

Revenues

In 2017, revenues increased 2 percent (2 percent in local currencies) compared to 2016. Revenues for the Protection and Connection, Building Products and Installation Products businesses increased, driven by end-market demand in utilities and construction, specifically non-residential construction. Across the division, revenue levels improved both from distributors as well as some end-customer channels. Revenues were lower in the Medium Voltage Products and Power and EV Infrastructure business as the opening order backlog was lower coming into 2017, mainly related to the solar industry.

In 2016, revenues decreased 3 percent (1 percent in local currencies) compared to 2015 and were mixed across the division. In local currencies, revenues increased in the Medium Voltage Products business as sales from Modular Systems more than offset lower volume coming from Primary Switchgear. The Building Products business also increased revenues driven by distribution and panel builder channels, which partially mitigated the lower revenues from direct end-customers. Revenues were lower in all other business units on lower demand from the distribution and OEM channels.

The geographic distribution of revenues for our Electrification Products division was as follows:

(in %)

2017

2016

2015

Europe

37

36

34

The Americas

27

27

27

Asia, Middle East and Africa

36

37

39

Total

100

100

100

In 2017, the share of revenues from Europe increased, supported by positive growth in Germany. The share of revenues from the Americas was stable supported by the United States, which returned to growth. The relative share of revenues from Asia, Middle East and Africa decreased slightly despite China returning to growth and mixed results in the Middle East.

In 2016, the share of revenues from Europe increased. Growth stemmed from several countries, especially Germany. The Americas maintained a stable share of revenues, although in absolute terms revenues decreased slightly. The lowered share of revenues from Asia, Middle East and Africa was driven by a reduced revenue volume from China and the Middle East.

Income from operations

In 2017, income from operations increased 24 percent mainly reflecting significantly lower warranty costs than in 2016 when the division recorded significant costs for a change in estimated warranty liabilities for certain solar inverters designed and sold by Power-One. Restructuring and restructuring-related expenses in 2017 of $28 million were $65 million lower than in 2016, partially because we recorded a reversal of the previously recorded estimated restructuring expenses in connection with the White Collar Productivity program. Acquisition-related amortization was lower in 2017 as certain intangibles from previous acquisitions had been fully amortized. During 2017, we also realized higher income due to the impact of price increases in certain businesses and the benefits from savings resulting from ongoing restructuring and cost savings programs. Partially offsetting these benefits was the impact of higher commodity prices, which affected all businesses, as well as the impacts from pricing pressures. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, positively impacted income from operations by 3 percent.

In 2016, income from operations decreased 13 percent primarily due to the impact of the significant warranty costs referred to above incurred in 2016. These warranty costs amounted to $151 million and were recorded as a charge to cost of sales, recognizing a change in the estimated warranty liability for these products. The majority of the products were delivered to customers by Power-One prior to the acquisition date in 2013. Of this charge, $131 million related to the products sold by Power-One prior to the acquisition and has been included as an adjustment, in the table below, to determine the segment profit for the division. In addition, lower gross margins were mostly offset by reductions in selling, general and administrative expenses resulting from ongoing restructuring and cost savings programs, as well as lower restructuring and restructuring-related expenses. Furthermore, changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 3 percent.

Operational EBITA

The reconciliation of Income from operations to Operational EBITA for the Electrification Products division was as follows:

($ in millions)

2017

2016

2015

(1)

Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

1,349

1,091

1,247

Acquisition-related amortization

98

121

133

Restructuring and restructuring-related expenses(1)

28

93

133

Non-operational pension cost

3

3

(3)

Changes in pre-acquisition estimates

8

131

21

Acquisition-related expenses and certain non-operational items

44

8

4

FX/commodity timing differences in income from operations

(20)

12

(15)

Operational EBITA

1,510

1,459

1,520

In 2017, Operational EBITA increased 3 percent (4 percent excluding the impacts from changes in foreign currencies) compared to 2016, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

In 2016, Operational EBITA decreased 4 percent (2 percent excluding the impacts from changes in foreign currencies) compared to 2015, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

Robotics and Motion

Effective January 1, 2017, the former Discrete Automation and Motion division was renamed as the Robotics and Motion division. In connection with this change, certain businesses were transferred to the Electrification Products division including EV charging, solar and power quality businesses. The financial information for 2016 and 2015 has been recast to reflect these organizational changes.

The financial results of our Robotics and Motion division were as follows:

 

 

 

 

% Change

($ in millions)

2017

2016

2015

2017

2016

Orders

8,468

7,858

8,272

8%

(5)%

Third-party base orders

7,654

7,029

7,234

9%

(3)%

Order backlog at December 31,

3,961

3,660

3,785

8%

(3)%

Revenues

8,401

7,906

8,188

6%

(3)%

Income from operations

1,035

1,034

1,058

0%

(2)%

Operational EBITA

1,178

1,223

1,288

(4)%

(5)%

Orders

Orders in 2017 were 8 percent higher (8 percent in local currencies). Third-party base orders in 2017 were 9 percent higher (9 percent in local currencies). The third-party base order growth was driven by increased demand for operational solutions in process and discrete industries. Growth was particularly strong in the Robotics business with strong demand from general industry sectors as well as demand for industry solutions such as motors, generators and drives. Demand from the automotive sector remained at a high level. Large orders were received for transportation-related orders and for robotics driven by ongoing investment in the automotive industry as well as investment by the electronics and semiconductor industries. The division noted rising demand for smaller robots and smaller-sized drives and motor as solutions for light industries, such as food and beverage, were in high demand. Orders from process industries such as the oil, gas and mining sectors stabilized.

Orders in 2016 were 5 percent lower (3 percent lower in local currencies) compared to 2015. Third-party base orders were 3 percent lower (flat in local currencies). Third-party base orders were driven by increased demand for traction solutions for transport customers but was offset by the decline in orders from process industries, in particular from oil and gas customers. The division benefited from strong large order intake in the Robotics business and a particularly strong order intake for traction solutions from the rail industry.

The geographic distribution of orders for our Robotics and Motion division was as follows:

(in %)

2017

2016

2015

Europe

35

37

35

The Americas

32

33

34

Asia, Middle East and Africa

33

30

31

Total

100

100

100

In 2017, the share of orders from Asia, Middle East and Africa increased on double-digit growth in China but was somewhat tempered by lower order growth from India, following the introduction of both a new Goods and Services Tax and a new tariff regime for wind renewables. The Americas performed well, with the U.S. market having increased demand for solutions for motors and drives.

In 2016, strengthened demand from Germany for Robotics helped the share of orders from Europe to rise. The share of orders from the Americas fell mainly due to decreased demand from process customers, in particular oil and gas.

Order backlog

The order backlog in 2017 increased 8 percent (1 percent in local currencies) compared to 2016. In local currencies, the backlog improved in the Motors and Generators business, while the backlog in the Drives and Robotics businesses remained stable.

The order backlog in 2016 declined 3 percent. In local currencies, the order backlog was flat. An improved backlog in the Robotics business was offset by a weakened backlog in the Drives and Motors and Generators businesses.

Revenues

In 2017, revenues were 6 percent higher compared to 2016 (6 percent in local currencies). Revenues were positively impacted by growth in deliveries of robotics solutions for the automotive and general industry sectors with stronger growth in the second half of 2017, due to execution of the strong order levels received in the first half of the year. Service revenues were higher as the division serviced more of the installed base and as customers demanded remote monitoring solutions such as ABB Ability™.

In 2016, revenues decreased 3 percent (1 percent in local currencies). Revenues were positively impacted by demand for Robotics solutions for the automotive and general industry sectors. This positive development was more than offset by lower demand for Intelligent Motion™ solutions, particularly in the process industries.

The geographic distribution of revenues for our Robotics and Motion division was as follows:

(in %)

2017

2016

2015

Europe

35

37

36

The Americas

33

33

34

Asia, Middle East and Africa

32

30

30

Total

100

100

100

In 2017, revenues grew in all regions. The relative share of revenues from Europe declined despite modest growth in the region, supported by Finland, Switzerland and Italy. The share of revenues from the Americas remained steady, supported by growth in the United States and Canada but offset partially by lower revenues in Brazil. The share of revenues from Asia, Middle East and Africa increased supported by double-digit revenue growth in China, especially in the Robotics business. This reflects ongoing strong orders from China.

In 2016, the geographical distribution of revenues was similar to 2015. The share of revenues in Europe slightly increased due to the execution of a strong order backlog, while the share of revenues in the Americas decreased due to a decline in the Motors and Generators business. The share of revenues from Asia, Middle East and Africa remained flat as higher revenues in the Robotics business offset the decline in the Drives and the Motors and Generators businesses.

Income from operations

In 2017, income from operations was stable. Income from operations benefited from positive impacts of cost reduction efforts in all businesses, including cost savings from the White Collar Productivity program. In addition, increased volumes, especially in the Robotics business, contributed positively. Income from operations also reflected the positive impact of lower amortization of intangible assets as certain acquired intangible assets were fully amortized. These positive effects were offset by negative impacts including increased commodity prices and the impact of low capacity utilization in the Motors and Generators business. The division also was impacted by project losses recorded in the turnkey full train retrofit business. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 1 percent.

Lower revenues and capacity underutilization reduced income from operations in the division by 2 percent in 2016 compared to 2015. A strong performance from the Robotics business plus decreased restructuring and restructuring-related expenses relative to 2015 proved insufficient to outweigh decreased activity levels in the other business units. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 3 percent.

Operational EBITA

The reconciliation of Income from operations to Operational EBITA for the Robotics and Motion division was as follows:

($ in millions)

2017

2016

2015

(1)

Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

1,035

1,034

1,058

Acquisition-related amortization

66

94

96

Restructuring and restructuring-related expenses(1)

64

69

111

Non-operational pension cost

2

2

3

Acquisition-related expenses and certain non-operational items

2

18

26

FX/commodity timing differences in income from operations

9

6

(6)

Operational EBITA

1,178

1,223

1,288

In 2017, Operational EBITA decreased 4 percent (4 percent excluding the impact from changes in foreign currency exchange rates) primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

In 2016, Operational EBITA decreased 5 percent (3 percent excluding the impact from changes in foreign currency exchange rates) primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

Industrial Automation

Effective January 1, 2017, the former Process Automation division was renamed as the Industrial Automation division. The results of B&R, acquired in July 2017, have been included in the Industrial Automation division since the acquisition date.

The financial results of our Industrial Automation division were as follows:

 

 

 

 

% Change

($ in millions)

2017

2016

2015

2017

2016

Orders

6,554

5,991

7,398

9%

(19)%

Third-party base orders

5,776

5,200

5,576

11%

(7)%

Order backlog at December 31,

5,376

5,409

6,199

(1)%

(13)%

Revenues

6,880

6,654

7,219

3%

(8)%

Income from operations

782

769

793

2%

(3)%

Operational EBITA

953

897

977

6%

(8)%

Orders

Orders in 2017 increased 9 percent (9 percent in local currencies) primarily reflecting the impact of the B&R acquisition which contributed 7 percent to order growth. Large orders as a percent of total orders was 10 percent, similar to 2016, showing the continued low level of large capital expenditure projects in some end-markets including oil and gas, and mining. The market benefited from selective investment in cruise ships and specialty vessels in 2017. Market demand for maintenance activities and other discretionary investments improved, in particular for oil, gas and chemical customers. Demand for factory automation solutions continued to be positive. In 2017, third-party base orders improved 11 percent (11 percent in local currencies), in particular in the Measurement and Analytics and Process Industries businesses, aided by selective capital expenditure investments in mining. Demand for ABB Ability™ solutions and services also contributed to the positive third-party base order development.

Orders in 2016 declined 19 percent (16 percent in local currencies) compared with 2015. Orders were lower in most Industrial Automation businesses, primarily driven by lower expenditures in the process end-markets, oil and gas, mining and metals, as well as in parts of the marine business. Customers continued to defer capital expenditures for both onshore and offshore oil investments while low commodity prices affected mining companies. Large orders as a percent of divisional revenues were 9 percent compared to 23 percent in 2015. In 2016, third-party base orders declined 7 percent (4 percent in local currencies) as customers deferred service activities and reduced their spare parts inventories.

The geographic distribution of orders for our Industrial Automation division was as follows:

(in %)

2017

2016

2015

Europe

42

42

39

The Americas

23

21

22

Asia, Middle East and Africa

35

37

39

Total

100

100

100

In 2017, the share of orders from the Americas increased helped by strong base order development in the U.S., mainly in the Measurement and Analytics business. In 2017, Europe maintained its share of orders as impacts from weakness in the large German market were offset from the impacts of the inclusion of B&R, for which Europe is currently the largest market. The share of orders from the Asia, Middle East and Africa region declined as the region had only moderate growth due mainly to weak demand in China.

In 2016, orders declined in all regions. Orders in Europe declined less than other regions, thus increasing the geographic share of orders from Europe. The volume in Europe was supported by orders from marine industries, specifically for specialty vessels like cruise ships and ice-going vessels. The share of orders from the Americas fell slightly with order declines in Canada, the U.S. and Chile, where the Process Industries business was affected by low capital expenditure in mining due to low demand from China for raw materials. In the Asia, Middle East and Africa region, orders were lower in the Marine and Ports business due to weak demand for oil and gas related vessels and the lack of infrastructure projects from the ports business. In addition, the Oil, Gas and Chemicals business and the Process Industries business suffered from the lack of large orders in this geographic area.

Order backlog

Order backlog at December 31, 2017 was 1 percent lower (8 percent in local currencies) than at December 31, 2016. Although the division saw some stabilization in demand, shown by a lower decline than in 2016, the market environment remained difficult and political uncertainty weakened confidence in key markets.

Order backlog at December 31, 2016 was 13 percent lower (11 percent in local currencies) than at December 31, 2015. The lower backlog was a result of the lower order intake during the year and the continued execution from the existing backlog.

Revenues

In 2017, revenues increased 3 percent (3 percent in local currencies) compared with 2016 due to the acquisition of B&R, which contributed 6 percent to revenue growth. The majority of the division’s other businesses recorded lower revenues as the project business units suffered from weaker opening order backlog and the market environment dampened the book-to-bill ratio. However, revenues were higher in the Measurement and Analytics and Turbocharging businesses. During the year, the division realized higher revenues from faster turning orders in short-cycle businesses which reduced the impact of the lower order backlog at the beginning of 2017.

In 2016, revenues declined 8 percent (5 percent in local currencies) compared with the previous year. The largest decline was in the Process Industries business due to the lower opening order backlog and the continued low level of order activity from the mining and metals sector. A continued lack of orders from the oil and gas industry negatively impacted revenues in the Oil, Gas and Chemicals business. The overall decrease in revenues was mitigated by some stabilization in the Marine and Ports business which was supported by a strong opening order backlog for ice-going and cruise vessels. Revenues were also steady in the Power Generation business due to solid execution from the order backlog. Of the product businesses, Control Technologies had revenue levels similar to the previous year, but the Measurement and Analytics and Turbocharging businesses were slightly lower due to lower order intake.

The geographic distribution of revenues for our Industrial Automation division was as follows:

(in %)

2017

2016

2015

Europe

42

37

35

The Americas

20

22

24

Asia, Middle East and Africa

38

41

41

Total

100

100

100

In 2017, revenues continued to decline in the Americas and in Asia, Middle East and Africa while Europe benefited from the inclusion of B&R as well as higher revenues from the Marine and Ports business. In the Americas region, revenues were higher in the U.S., especially in the Measurement and Analytics, and Turbocharging businesses, though were offset by revenue declines in other countries in the region.

In 2016, revenues declined in the Americas and in Asia, Middle East and Africa, while Europe was stable. This resulted in an increase in the share of revenues from Europe. Except for the Marine and Ports business, revenues in the Americas declined in all businesses, especially the Oil, Gas and Chemicals, Process Industries and Measurement and Analytics businesses. Revenues in Asia, Middle East and Africa were especially impacted by the weak demand from the Process Industries business, particularly mining.

Income from operations

In 2017, income from operations increased 2 percent compared to 2016. The inclusion of B&R reduced income from operations by 4 percent driven by the related charges for amortization of intangible assets and the higher charges in cost of sales resulting from recording the opening balance of inventory at fair value. Offsetting this was the impact from changes in foreign currencies, including the impacts from changes in FX/commodity timing differences summarized in the table below which, combined, positively impacted income from operations by 5 percent. Restructuring and restructuring-related expenses in 2017 of $87 million were $8 million higher than in 2016. Restructuring expenses recorded for the White Collar Productivity program were $58 million lower compared to 2016 because 2017 included a net reversal of $22 million of estimated amounts recorded in previous years. This benefit was more than offset by an increased amount of restructuring expenses for specific initiatives to align the cost structure and footprint of the operations to reflect changing market conditions. Excluding these impacts, higher income from operations reflects an improved mix, ongoing progress in the division’s rationalization efforts and benefits secured from the implementation of the White Collar Productivity program.

In 2016, income from operations decreased 3 percent compared with 2015. Operating margins were maintained as the division reduced overhead costs, removing organizational costs at the local division level and downsizing operations in areas with low order backlog and low market demand. Key actions included closing warehouses and consolidating operations to fewer locations, but mainly included reducing the number of personnel. Restructuring programs were implemented in all businesses due to a continued weak market outlook. Overall, the number of employees in the Industrial Automation division was reduced by approximately 1,300 during 2016. However, as revenues declined by 8 percent, the aforementioned actions were not enough to maintain previous year level of income from operations. In addition, changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by 3 percent.

Operational EBITA

The reconciliation of Income from operations to Operational EBITA for the Industrial Automation division was as follows:

($ in millions)

2017

2016

2015

(1)

Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

782

769

793

Acquisition-related amortization

47

11

12

Restructuring and restructuring-related expenses(1)

87

79

135

Non-operational pension cost

7

2

6

Gains and losses on sale of businesses

(2)

Acquisition-related expenses and certain non-operational items

52

9

14

FX/commodity timing differences in income from operations

(20)

27

17

Operational EBITA

953

897

977

In 2017, Operational EBITA increased 6 percent (5 percent excluding the impacts from changes in foreign currencies) compared to 2016. The change is due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above. The acquisition of B&R increased Operational EBITA by 5 percent after consideration of the related adjustments in the table above relating to that business.

In 2016, Operational EBITA decreased 8 percent (6 percent excluding the impacts from changes in foreign currencies) compared to 2015, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

Power Grids

In 2017, we divested our high-voltage cable and cables accessories businesses which were previously part of the Power Grids division. The financial results relating to these divested businesses have been reclassified to Corporate and Other for all periods presented.

The financial results of our Power Grids division were as follows:

 

 

 

 

% Change

($ in millions)

2017

2016

2015

2017

2016

Orders

9,600

10,844

11,425

(11)%

(5)%

Third-party base orders

7,421

7,268

7,492

2%

(3)%

Order backlog at December 31,

11,330

11,638

11,707

(3)%

(1)%

Revenues

10,394

10,660

11,245

(2)%

(5)%

Income from operations

797

830

554

(4)%

50%

Operational EBITA

972

998

810

(3)%

23%

Orders

In 2017, orders decreased 11 percent (11 percent in local currencies) compared to 2016. The decrease mainly reflects fewer large orders from India and China as the demand for ultra-high voltage transmission projects in those markets was lower than in the previous year. Consequently, large orders as a percentage of total orders was 18 percent, 11 percentage points lower than in 2016. Significant large orders awarded in 2017 included an order for $290 million from National Grid and Réseau de Transport d’Electricité (RTE), the British and French grid operators, to provide HVDC technology that will help interconnect the electricity networks of France and the United Kingdom, a $137 million order relating to the Hinkley Point C nuclear power station in the United Kingdom and a $71 million traction substations order in connection with the Bangkok metro project. Third-party base orders increased 2 percent (2 percent in local currencies), driven by continued investment into renewables, ongoing electrification of society and the increasing complexity and digitization of the grid (the energy revolution) as well as growing demand from the industry sector. Geographically, the increase in third-party base orders was driven by the Americas and the Asia, Middle East and Africa regions which more than offset a slight decline in Europe. Through the Power Up transformation program, the Power Grids division is refocusing its business model on solutions and services to improve grid control and automation. Consequently, service orders grew 10 percent (9 percent in local currencies) with growth in all business units. In addition, demand continued to grow for digital solutions, specifically for ABB Ability™ digital substations, ABB Ability™ grid control systems, energy storage and service solutions.

In 2016, orders decreased 5 percent (2 percent in local currencies) compared to 2015, due to general macro-economic uncertainty which led to a reduction in spending by utilities and sluggishness in certain geographic markets such as Saudi Arabia and the U.S. The lower pull-through of orders from other ABB divisions, primarily the Industrial Automation division, reduced orders by 3 percent. Large orders as a percentage of total orders were 29 percent, 2 percent above 2015 levels. Large orders in 2016 included a $640 million UHVDC transmission link in India and two UHVDC orders for China, each worth more than $300 million. In 2016, third-party base orders decreased 3 percent (steady in local currencies) with order growth in the Grid Automation, Grid Integration and High Voltage Products businesses offset by market-driven base order weakness in the Transformers business. Service orders decreased 2 percent (flat in local currencies) as increases in the Grid Automation service business were offset by the other businesses.

The geographic distribution of orders for our Power Grids division was as follows:

(in %)

2017

2016

2015

Europe

31

24

32

The Americas

30

28

29

Asia, Middle East and Africa

39

48

39

Total

100

100

100

In 2017, the share of orders in Europe increased from 24 percent to 31 percent, mainly due to the impact of large orders in the United Kingdom as described above. In 2016, ABB received several large HVDC orders from China and India, resulting in a high percentage of orders from the Asia, Middle East and Africa region in that year. The decrease in large orders in Asia, Middle East and Africa during 2017 was not offset by the increase in third-party base orders in the region. As a result, the proportion of orders from the Asia, Middle East and Africa region in 2017 reverted back to a similar level as 2015. Positive base order development in the Americas supported the increase in the share of orders from the region, with base orders in the U.S. and Brazil returning to growth.

In 2016, the share of orders from Asia, Middle East and Africa increased from 39 percent to 48 percent, supported by exceptional order intake in China and India. The share of orders from the Americas declined slightly as both the U.S. and Brazilian markets saw challenging market conditions as the presidential election in the U.S. and a political corruption crisis in Brazil affected order decisions of large utility customers. The share of orders from Europe decreased to 24 percent, compared with 32 percent in 2015, mainly due to the high amount of large orders received from Europe in 2015.

Order backlog

Order backlog at December 31, 2017, decreased by 3 percent (8 percent in local currencies). In 2017, the transmission market experienced decreased activity and the division realized fewer large order opportunities compared to the prior year. Additionally, the strategic repositioning of the business through the Power Up program and the exit from certain business activities also reduced order opportunities, particularly for large EPC projects. The growth in base orders did not offset the decline in large orders, resulting in a decreased order backlog.

Order backlog at December 31, 2016, decreased 1 percent (increased 3 percent in local currencies). The local currency increase in the order backlog was mainly driven by the Transformers business, resulting from a significantly higher share of large orders with long lead times.

Revenues

Revenues in 2017 decreased 2 percent (3 percent in local currencies) compared with 2016. Revenues were impacted by a low opening order backlog and the timing of execution of orders which were not offset by stronger short-cycle orders, specifically in the Grid Automation and Grid Integration businesses. Lower revenues in the Grid Integration business reflects the exit from certain business activities, as well as the de-risking and strategic repositioning of this business. Revenues in the Transformers business were flat, on steady execution of the order backlog. Service revenues grew by 3 percent (1 percent in local currencies) as a result of the continued focus on the service business.

Revenues in 2016 decreased 5 percent (3 percent in local currencies) compared with 2015. The revenue volume in 2016 mainly reflected the scheduled execution of the order backlog. The revenue decrease was mainly attributable to the Grid Integration business as revenues were negatively impacted by the exit from the EPC Solar business and the wind-down of the plant electrification business. In addition, the Grid Integration business revenues were lower due to a strong comparable in 2015 from the offshore wind projects which were either finalized or nearing completion. A lower level of revenues in the Transformers business primarily resulted from order weakness in the U.S. Service revenues increased 4 percent (6 percent in local currencies) compared with 2015.

The geographic distribution of revenues for our Power Grids division was as follows:

(in %)

2017

2016

2015

Europe

30

28

30

The Americas

29

30

31

Asia, Middle East and Africa

41

42

39

Total

100

100

100

In 2017, the large portion of revenues generated from Asia, Middle East and Africa was supported by the increase in the share of orders from Asia, Middle East and Africa in 2016. The share of revenues in Europe increased due to solid execution of the order backlog. As a result of these developments the relative share of revenues from the Americas decreased to 29 percent.

In 2016, the share of revenues from Asia, Middle East and Africa increased to 42 percent, supported by significantly higher revenues from the Transformer business in China. The share of revenues from Europe decreased to 28 percent, mainly due to a lower level of revenues from the Grid Integration business, related to lower revenues in the offshore wind projects described above. The share of revenues from the Americas was lower, mainly driven by lower volumes from the U.S. and Brazil.

Income from operations

In 2017, income from operations was $797 million, compared with $830 million in the prior year. In 2017, income from operations was impacted by charges recorded in the EPC business to account for project-related penalties and to reflect the decrease in realized profitability of certain long-term contracts. This was partially offset by the impact of higher gross margins despite lower revenue levels. Margin improvements were driven by continued productivity improvements, cost savings and improved project execution. In 2017, the division increased the amounts spent for sales and research and development under the Power Up transformation program, resulting in increased expenses compared to the prior year. This program commenced at the end of 2016 and aims to accelerate the transformation of the Power Grids division, driving higher margins and revenue growth. Restructuring and restructuring-related expenses in 2017 of $80 million were $21 million lower than in 2016, as we recorded a reversal of the previously recorded estimated restructuring expenses in connection with the White Collar Productivity program. This was partially offset by higher restructuring ongoing expenses which relate to footprint changes and capacity adjustments. Acquisition-related expenses and certain non-operational items increased to $79 million, primarily driven by the charges recorded for certain legal claims as well as a portion of the costs relating to the Power Up program. Income from operations also benefited from changes in foreign currencies, including changes in FX/commodity timing differences in income from operations, which, combined, increased the division’s income from operations by 4 percent compared to the prior year.

In 2016, income from operations increased by $276 million to $830 million compared with $554 million in 2015. The impact from lower revenues was more than offset by a higher gross margin, driven by solid project execution, improved productivity and continued cost savings. For 2016, the division also had lower research and development expenses. Restructuring and restructuring-related expenses in 2016 of $101 million were $58 million lower than in 2015 and included additional charges for the White Collar Productivity program, as well as initiatives to align the cost structure and footprint of certain operations to reflect changing market conditions. Acquisition-related amortization in 2016 was lower compared to 2015. In addition, changes in foreign currencies, including the changes in FX/commodity timing differences in income from operations decreased the division’s income from operations by 6 percent compared to 2015.

Operational EBITA

The reconciliation of income from operations to Operational EBITA for the Power Grids division was as follows:

($ in millions)

2017

2016

2015

(1)

Amounts also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

797

830

554

Acquisition-related amortization

36

35

52

Restructuring and restructuring-related expenses(1)

80

101

159

Non-operational pension cost

3

(2)

3

Gains and losses on sale of businesses

24

Acquisition-related expenses and certain non-operational items

79

20

17

FX/commodity timing differences in income from operations

(23)

14

1

Operational EBITA

972

998

810

In 2017, Operational EBITA decreased 3 percent (3 percent excluding the impacts from changes in foreign currencies) compared to 2016, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

In 2016, Operational EBITA increased 23 percent (25 percent excluding the impacts from changes in foreign currencies) compared to 2015, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

Corporate and Other

Income (loss) from operations for Corporate and Other was as follows:

($ in millions)

2017

2016

2015

Corporate headquarters and stewardship

(374)

(380)

(355)

Corporate research and development

(128)

(133)

(144)

Corporate real estate

45

47

50

Net gain (loss) from sale of businesses

250

(10)

4

White Collar Productivity program costs

(107)

(199)

(130)

Misappropriation loss, net

(9)

(73)

Divested businesses

(129)

36

(10)

Other

(83)

(29)

(32)

Total Corporate and Other

(535)

(741)

(617)

In 2017, the net loss from operations within Corporate and Other was $535 million, a decrease of $206 million compared to 2016. The decrease was primarily due to the recognition of the gain for the sale of the cables businesses and lower restructuring and implementation costs related to While Collar Productivity program. In 2016, the net loss from operations was higher than in 2015 primarily due to higher costs related to the White Collar Productivity program and the misappropriation loss described below.

Corporate headquarter and stewardship costs were $374 million in 2017, slightly lower than the $380 million reported in 2016, primarily due to the costs in 2016 associated with the new ABB branding and cost related to the Next Level Strategy program. This also is the reason that corporate headquarters and stewardship costs increased in 2016 compared to 2015.

Corporate real estate primarily includes income from property rentals and gains from the sale of real estate properties. In 2017, 2016 and 2015, income from operations in Corporate real estate included gains from the sale of real estate properties of $28 million, $33 million and $26 million, respectively.

The net gain recorded from sale of businesses in 2017 related to the sales of the cables businesses and the Oil & Gas EPC business.

In 2017, ABB recorded a total of $107 million in Corporate and Other for both restructuring and related expenses as well as program implementation costs for the White Collar Productivity program. In 2016 and 2015, costs incurred in connection with this program amounted to $199 million and $130 million, respectively. These costs relate mainly to employee severance costs and both external and internal costs relating to the execution of the program. For further information on the White Collar Productivity program see “Restructuring and other cost savings initiatives”.

In 2016, we recorded a loss of $73 million, net of expected insurance recoveries, for the misappropriation of cash by the treasurer of our subsidiary in South Korea. In 2017, additional losses of $9 million were recorded.

The historical results of operations for certain divested businesses are presented in Corporate and Other. In 2017, 2016 and 2015, this primarily includes the income and loss from operations of the cables businesses, which were disposed in March 2017 and the Oil & Gas EPC business, which was transferred to a new joint venture with Arkad in December 2017. The amount in 2017 also includes charges of $94 million for changes (after divestment) in the amount recorded for certain retained liabilities associated with the divested cables businesses.

“Other” consists of operational costs of our Global Treasury Operations, operating income or loss in other non-core businesses and certain other charges such as costs and penalties associated with legal cases, environmental expenses and impairment charges related to investments. “Other” costs were higher in 2017 as compared to 2016 as the costs a year earlier included the impact of a reduction in certain insurance-related provisions for self-insured risks offset by amounts recorded for certain pension curtailment costs. In 2015, “Other” also included a reduction of insurance-related provisions for self-insured risks.