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’s operating segments consist of Electrification Products, Robotics and Motion, Industrial Automation and Power Grids. The remaining operations of the Company are included in Corporate and Other.

Effective January 1, 2017, the Company re-allocated the management responsibilities for certain businesses among the four reported operating segments. The primary change was the transfer to the Electrification Products segment of the electric vehicle charging, solar, and power quality businesses from the Discrete Automation and Motion segment. In addition, the Discrete Automation and Motion segment was renamed the Robotics and Motion segment while the Process Automation segment was renamed the Industrial Automation segment.

The segment information for 2016 and 2015, and at December 31, 2016 and 2015, has been recast to reflect these organizational changes. In addition, total assets at December 31, 2016 and 2015, have been adjusted to reflect the additional netting of deferred tax assets and liabilities which resulted from the adoption of an accounting standard update on the classification of deferred taxes.

Furthermore, the results for both the Company’s high-voltage cable and cables accessories businesses which, prior to their divestment in March 2017, were included within the Power Grids operating segment, and the Company’s Oil & Gas EPC business which, prior to its divestment in December 2017, were included within the Industrial Automation segment, have been reclassified to Corporate and Other for all periods presented.

A description of the types of products and services provided by each reportable segment is as follows:

  • Electrification Products: manufactures and sells products and services including electric vehicle charging, solar inverters, modular substation packages, switchgear, UPS solutions, circuit breakers, control products, wiring accessories, enclosures and cabling systems, and intelligent home and building solutions designed to integrate and automate the lighting, heating and ventilation, and security and data communication networks.
  • Robotics and Motion: manufactures and sells robotics, motors, generators, drives, wind converters, components and systems for railways and related services and digital solutions for a wide range of applications in industry, transportation and infrastructure, and utilities.
  • Industrial Automation: develops and sells integrated automation and electrification systems and solutions, such as process and discrete control solutions, advanced process control software and manufacturing execution systems, sensing, measurement and analytical instrumentation and solutions, electric ship propulsion systems, as well as solutions for modern machine and factory automation and large turbochargers. In addition, the division offers a comprehensive range of services ranging from repair to advanced services such as remote monitoring, preventive maintenance and cybersecurity services.
  • Power Grids: offers a range of products, systems, service and software solutions across the power value chain of generation, transmission and distribution, to utility, industry, transportation and infrastructure customers. These offerings address existing and evolving grid needs such as the integration of renewables, network control, digital substations, microgrids and asset management. The division portfolio includes turnkey grid integration, transmission systems and substation solutions as well as a wide range of power, distribution and traction transformers, and an array of high-voltage products, such as circuit breakers, switchgear, capacitors.
  • Corporate and Other: includes headquarters, central research and development, the Company’s real estate activities, Group Treasury Operations, historical operating activities of certain divested businesses, and other minor business activities.

The Company evaluates the profitability of its segments based on Operational EBITA, which represents income from operations excluding:

  • amortization expense on intangibles arising upon acquisition (acquisition-related amortization),
  • restructuring and restructuring-related expenses,
  • non-operational pension cost comprising: (a) interest cost, (b) expected return on plan assets, (c) amortization of prior service cost (credit), (d) amortization of net actuarial loss, and (e) curtailments, settlements and special termination benefits,
  • changes in the amount recorded for retained obligations of divested businesses occurring after the divestment date (changes in retained obligations of 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,
  • acquisition-related expenses and certain 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).

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.

The following tables present segment revenues, Operational EBITA, the reconciliations of consolidated Operational EBITA to income from continuing operations before taxes, as well as depreciation and amortization, and capital expenditures for 2017, 2016 and 2015, as well as total assets at December 31, 2017, 2016 and 2015.

 

2017

($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

9,591

503

10,094

Robotics and Motion

7,882

519

8,401

Industrial Automation

6,725

155

6,880

Power Grids

9,904

490

10,394

Corporate and Other

210

1,535

1,745

Intersegment elimination

(3,202)

(3,202)

Consolidated

34,312

34,312

 

2016

($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

9,337

583

9,920

Robotics and Motion

7,404

502

7,906

Industrial Automation

6,490

164

6,654

Power Grids

10,097

563

10,660

Corporate and Other

500

1,785

2,285

Intersegment elimination

(3,597)

(3,597)

Consolidated

33,828

33,828

 

2015

($ in millions)

Third-party revenues

Intersegment revenues

Total revenues

Electrification Products

9,634

641

10,275

Robotics and Motion

7,597

591

8,188

Industrial Automation

7,075

144

7,219

Power Grids

10,510

735

11,245

Corporate and Other

665

1,768

2,433

Intersegment elimination

(3,879)

(3,879)

Consolidated

35,481

35,481

($ in millions)

2017

2016

2015

(1)

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

Operational EBITA:

 

 

 

Electrification Products

1,510

1,459

1,520

Robotics and Motion

1,178

1,223

1,288

Industrial Automation

953

897

977

Power Grids

972

998

810

Corporate and Other and Intersegment elimination

(483)

(386)

(386)

Consolidated Operational EBITA

4,130

4,191

4,209

Acquisition-related amortization

(264)

(279)

(310)

Restructuring and restructuring-related expenses(1)

(363)

(543)

(674)

Non-operational pension cost

42

(38)

(19)

Changes in retained obligations of divested businesses

(94)

Changes in pre-acquisition estimates

(8)

(131)

(21)

Gains and losses on sale of businesses

252

(10)

(20)

Acquisition-related expenses and certain non-operational items

(322)

(163)

(100)

Foreign exchange/commodity timing differences in income from operations:

 

 

 

Unrealized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

126

(65)

67

Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized

32

(5)

(68)

Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities)

(97)

30

(15)

Income from operations

3,434

2,987

3,049

Interest and dividend income

74

73

77

Interest and other finance expense

(277)

(261)

(286)

Income from continuing operations before taxes

3,231

2,799

2,840

 

Depreciation and amortization

Capital expenditure(1)

Total assets(1)
at December 31,

($ in millions)

2017

2016

2015

2017

2016

2015

2017

2016

2015

(1)

Capital expenditure and Total assets are after intersegment eliminations and therefore reflect third-party activities only.

Electrification Products

315

348

364

218

215

228

10,278

9,881

9,955

Robotics and Motion

216

249

246

118

112

126

8,061

7,943

8,600

Industrial Automation

114

76

80

71

53

57

7,239

4,184

4,586

Power Grids

239

242

259

171

172

150

9,017

8,623

9,032

Corporate and Other

217

220

211

371

279

315

8,667

8,571

8,899

Consolidated

1,101

1,135

1,160

949

831

876

43,262

39,202

41,072

Geographic information

Geographic information for revenues and long-lived assets was as follows:

 

Revenues

Long-lived assets
at December 31,

($ in millions)

2017

2016

2015

2017

2016

Europe

11,840

11,315

11,602

3,195

2,768

The Americas

9,713

9,741

10,554

1,151

1,100

Asia, Middle East and Africa

12,759

12,772

13,325

1,017

875

Total

34,312

33,828

35,481

5,363

4,743

Revenues by geography reflect the location of the customer. Approximately 20 percent, 19 percent and 20 percent of the Company’s total revenues in 2017, 2016 and 2015, respectively, came from customers in the United States. Approximately 15 percent, 14 percent and 14 percent of the Company’s total revenues in 2017, 2016 and 2015, respectively, were generated from customers in China. In 2017, 2016 and 2015, more than 98 percent of the Company’s total revenues were generated from customers outside Switzerland.

Long-lived assets represent “Property, plant and equipment, net” and are shown by location of the assets. At December 31, 2017, approximately 16 percent, 15 percent and 10 percent of the Company’s long-lived assets were located in the U.S., Switzerland and Sweden, respectively. At December 31, 2016, approximately 17 percent, 17 percent and 10 percent of the Company’s long-lived assets were located in Switzerland, the U.S. and Sweden.

The Company does not segregate revenues derived from transactions with external customers for each type or group of products and services. Accordingly, it is not practicable for the Company to present revenues from external customers by product and service type.

EPC business model change

On December 20, 2017, the Company announced a planned change to the management and oversight of the remaining activities of its engineering, procurement and construction (EPC) businesses. Effective January 1, 2018, management responsibility and oversight of certain remaining EPC businesses, currently included in the Power Grids and Robotics and Motion operating segments, will be transferred outside of the respective former operating divisions. The new management structure will result in these businesses being included in Corporate and Other starting in 2018.