Restructuring and other cost savings initiatives

White Collar Productivity program

In September 2015, we announced a two-year program aimed at making ABB leaner, faster and more customer-focused. Productivity improvements include the rapid expansion and use of regional shared service centers as well as the streamlining of global operations and head office functions, with business units moving closer to their respective key markets. In the course of this program, we implemented and executed various restructuring initiatives across all operating segments and regions. As of December 31, 2017, ABB has incurred substantially all costs related to the White Collar Productivity program.

The program was originally expected to generate cost savings of approximately $1.0 billion and be realized from 2016 and increasing through the end of 2017. During 2016, we re-assessed the expected amount of cost savings and increased the expected total annual rate of cost savings from the program by 30 percent to approximately $1.3 billion. The program’s final cost savings realized amount to approximately $1.4 billion. During 2017, cost savings of approximately $0.5 billion were realized. These savings are primarily being realized as reductions in cost of sales, selling, general and administrative expenses and non-order related research and development expenses.

The following table outlines the costs incurred in 2017, 2016 and 2015 and the cumulative amount of costs incurred under the program.

 

Costs incurred in

Cumulative costs incurred up to December 31, 2017(1)

($ in millions)

2017

2016(1)

2015(1)

(1)

Total costs have been recast to reflect the reorganization of the Company’s operating segments as outlined in Note 23 to our Consolidated Financial Statements.

Electrification Products

(17)

15

74

72

Robotics and Motion

(14)

26

44

56

Industrial Automation

(22)

36

96

110

Power Grids

(38)

33

70

65

Corporate and Other

(34)

30

86

82

Total

(125)

140

370

385

During the course of the restructuring program total expected costs were reduced mainly due to the realization of significantly higher than originally expected attrition and internal redeployment rates. The reductions were made across all operating divisions as well as for corporate functions.

In 2017, net restructuring reversals of $125 million was recorded mainly due to higher than expected rates of attrition and internal redeployment. In 2016, net restructuring costs of $140 million were recorded based on the anticipated number of personnel to be impacted by the program and a country-specific average severance cost per person. Various functions including marketing and sales, supply chain management, research and development, engineering, service, and certain other support functions were impacted in various phases commencing in 2015 and continuing in 2016 and in 2017.

In 2017 and 2016, we experienced a significantly higher than expected rate of attrition and redeployment and a lower than expected severance cost per employee for the employee groups affected by the restructuring programs initiated in 2015 and 2016. As a result, in 2017, we adjusted the amount of our estimated liability for restructuring which was recorded in 2016 and 2015. This change in estimate of $164 million during 2017 resulted in a reduction primarily in cost of sales of $90 million and in selling, general and administrative expenses of $63 million in the year. In 2016, we adjusted the amount of our estimated liability for restructuring which was recorded in 2015. This change in estimate of $103 million during 2016 resulted in a reduction primarily in cost of sales of $49 million and in selling, general and administrative expenses of $38 million for the year.

At December 31, 2017, we have substantially completed the White Collar Productivity program and incurred total restructuring charges of $385 million under this program.

The majority of the remaining cash outlays, primarily for employee severance benefits, are expected to occur in 2018. We expect that our cash flow from operating activities will be sufficient to cover any obligations under this restructuring program.

For details of the nature of the costs incurred and their impact on the Consolidated Financial Statements, see “Note 22 Restructuring and related expenses” to our Consolidated Financial Statements.

Other restructuring-related activities and cost savings initiatives

In 2017, 2016 and 2015, we also executed other restructuring-related and cost saving measures to sustainably reduce our costs and protect our profitability. Costs associated with these other measures amounted to $249 million, $171 million and $256 million in 2017, 2016 and 2015, respectively.