abb+investor+presentation 20130904

7/27/2019 ABB+Investor+Presentation 20130904

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ABB Investor PresentationSeptember 2012


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Safe-harbor statement

This presentation includes forward-looking information and statements including statements concerning theoutlook for our businesses. These statements are based on current expectations, estimates and projectionsabout the factors that may affect our future performance, including global economic conditions, the economicconditions of the regions and industries that are major markets for ABB Ltd. These expectations, estimatesand projections are generally identifiable by statements containing words such as expects, believes,estimates,targets,plans,outlook or similar expressions.There are numerous risks and uncertainties, many of which are beyond our control, that could cause our

actual results to differ materially from the forward-looking information and statements made in thispresentation and which could affect our ability to achieve any or all of our stated targets. The importantfactors that could cause such differences include, among others:

business risks associated with the with the volatile global economic environment and politicalconditions

costs associated with compliance activities

raw materials availability and prices

market acceptance of new products and services

changes in governmental regulations and currency exchange rates and

such other factors as may be discussed from time to time in ABB Ltds filings with the U.S.Securities and Exchange Commission, including its Annual Reports on Form 20-F.

Although ABB Ltd believes that its expectations reflected in any such forward-looking statement are basedupon reasonable assumptions, it can give no assurance that those expectations will be achieved.


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Introducing ABB


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ABB at a glanceABB: A company with global reach

$38 bnin revenue 2011

135 000+employees in

100countries

HQ located in

Zurich,Switzerland

Traded onSwitzerland,Sweden and

the US

Market Capitalization1

~$45 bn

1as of 31 December 2011


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Chart 5

ABB at a glanceABB operates in more than 100 countries in the world

Manufacturing sites

Sales offices


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Chart 6

Switch, protect, transform and measurepower transmission and distribution forindustries, utilities and power generation

Delivers systems for utilities, industrial andcommercial customers for the generation,transmission and distribution of electricity

ABB: A global leader in power and automationFive operating divisions: Two Power

Power Products

$10.9 billion1

Power Systems

$8.1 billion1

Market leader across most of the portfolio

12011 revenues non-consolidated

Power transmission & distributionsolutions for utilities and industry


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Chart 7

Integrated automationsolutions, movement andcontrol for industrialapplications

Products and solutions toprovide protection, controland measurement for LVelectrical installations

Products and solutions toprocess control, safety,energy and informationmanagement, plantmaintenance andperformance enhancement

ABB: A global leader in power and automationFive operating divisions: Three Automation

DiscreteAutomationand Motion

$8.8 billion1

Low VoltageProducts

$5.3 billion1

ProcessAutomation

$8.3 billion1

Among Top 3 in most markets

1 2011 revenues non-consolidated

Energy efficiency solutions for process industries (eg, oil &gas), factory automation and building & construction


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Chart 9

55% 30% 15%

Offering a diverse business mixProducts, systems & service

Systems

ServiceBusiness MixApprox. share of orders received 2011

Products

ABB engineersworking at onshoregas processing plant

Industrial robots infurniture industry

Power GenerationSolutions: SwitchyardPower Plant


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Chart 10

48%

32%

20%

A balanced portfolio across cyclesEarly, mid and late cycle businesses

Share of orders 2011Approximate; Percent

Early cycle

Late cycle

Mid cycle

Low-Voltage Products

Discrete Automation

and Motion

Process Automation

PowerProducts

PowerSystems

Industrial production(machinery, electronics)

Utility (T&D) and industrycapex, renewables

Construction, early-cycle industry (GDP)

Demand forcommodities, industrialcapex

Key macro drivers


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Chart 11

Geographically balanced portfolioTapping profitable growth opportunities wherever they arise

Orders by region% of 2011 orders (non-consolidated)

Americas

23%

Europe

38%

Middle East and Africa

9%

Asia30%


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Chart 12

A broad base of emerging market demandEmerging markets account for nearly half of total orders

Order growth 2006-11*

Mature markets 5%

Emerging markets 7%

Total ABB 6%* CAGR, local currencies

Top emerging markets by orders received in 2011

> $1 billion

> $100 million


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Chart 13

5-year performance through the cycleSteady growth and earnings

$34.4

$38.3

$31.0$32.7

$40.2

-6%

-3%

0%

3%

6%

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

2007 2008 2009 2010 2011

$29.2

$34.9$31.8 $31.6

$38.0

0.0%

10.0%

20.0%

30.0%

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

2007 2008 2009 2010 2011

ABB Orders received vs GDP growth1US$ bn,

ABB Revenues & op EBITDA marginUS$ bn,

1 Source: Global Insight


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Chart 14

The ABB investment case: Steady growth, earnings &cash generation through the cycle

A leader in attractive long-term growth markets:High-efficiency power grids and industrial automation

Product and geographic scope allows us to captureprofitable growth opportunities wherever they arise

Strength in fast-growing emerging markets ensures bothgrowth and long-term competitiveness

Proven track record in quickly adjusting costs andproduction footprint to changing market demands

Solid balance sheet and credit rating provide a foundation

for both organic and inorganic growth Steady dividend payout through the cycle


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Strategy 2011-2015


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Chart 16

2011-2015 strategyCompetitiveness today underpins future growth

1

Drive competitivenessand stay relevant in our current markets

2

Capitalize onmegatrends

3

Aggressivelyexpand corebusiness

4

DisciplinedM&A

5

Exploitdisruptiveopportunities


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Chart 17

Drive competitiveness and stay relevant in our markets

Strengthen the base

Continue to drive cost and qualitycompetitiveness

Invest in technology leadership

Use assets efficiently: cash,

intellectual property and brand Invest in people development

Execution is top priority

To develop, produce, source and sell optimally to matchmarket needs, profitability growing the business while

increasing levels of productivity and quality

Our ambition

1

Drive competitiveness


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Chart 18

75% 74% 70%50%

25% 26% 30%50%

2009 2010 2011 2015F

Annual R&D spend as % of sales Share of total employees by market

Drive competitiveness and stay relevant in our marketsTechnology development: In country for country

Moving closer to customers and markets allows ABB tomove at local speeds and develop products for local

markets

In country for country

Emergingmarkets

Maturemarkets

2.9%3.3% 3.4%

3.6%4.0%

2008 2009 2010 2011 2015F


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Chart 19

Processes & systems

Improved quality processes

Proactive risk management

Common ERP structure

People

Training & certification

Supportive organizational structure

Strategic vs. transactional thinking

Collaboration with suppliers

Drive competitiveness and stay relevant in our marketsReducing costs while improving quality

Strategy

Glocalized strategic commoditymanagement

Maximum efficiency in logistics

Cost savings

Supply Chain ManagementLeverage volumes, Boost supply chain competences

Operational ExcellenceQuality improvements, on-time delivery

Global FootprintOptimize geographic footprint

50%

45%

5%


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Chart 20

Capitalize on mega trends

Focus on industries growing faster than world GDP

Traditional mature markets still with significant opportunity

Anticipate, participate and lead in key markets

ResourceEconomies Green

Urbanization

Emerging economiesand power shift

DigitalinformationElectrification

Transportationmobility (people,

goods)

Global megatrends will mitigate short-term volatility

2

Capitalize onmegatrends


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Chart 21

Aggressively expand core business

Key drivers

Tap leading installed base

Integrate service into productdesign

Optimize software businessmodel

Invest in service sales

Secure next level of growth

Drivecompetitiveness

Integration IT and OT2010 2011 2012 2013 2014 2015

Grow service to ~25% of revenues

InformationTechnology

OperationsTechnology

EnergyManagementInfrastructure

3

Aggressivelyexpand corebusiness


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Chart 22

Disciplined M&A

Key drivers for a successfulacquisition

Deeply grounded in strategy

Disciplined approach to valuation

Rigorous due diligence

Integration planning from Day One

Across products, markets and geographies

Increase NorthAmerican exposure

Increase softwareexposure

4

DisciplinedM&A


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Chart 23

Exploit disruptive opportunitiesAddressing major developments

# 9 ABBs Technology FACTs

An enabler for a smarter grid

Increase transmission capacity Improve system stability Improve power quality

ABB position

Worlds leading supplier Delivered >50% of world total

installations Pioneer and technology leader

#1 Smart Phone

#2 SocialNetworking

#3 Voice OverIP

Top technologies of the decade

1

5

Exploitdisruptiveopportunities

1Institute of Electricaland Electronics Engineers
http://stage-www.abb.com/global/gad/gad02008.nsf/vwImages/29F62E90A97FCC09C1257634004D9B3A/$File/ABB-StatNett_087_2.jpg


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Chart 24

Key drivers for market growth to 2015

2010 2015

KeyDrivers Aging network in North America and

Europe

Remote renewable integration andinterconnections

Emerging market grid and generationbuild-out

Wind and solar to reach grid parity inmany markets by 2015

Smart grids to manage powersystem volatility

Power

Estimated total market sizes and expected growth ratesUS$ bn and percent change

$100 bn

$130 bn

6% CAGR

Assumes average annual global GDP growth of 3-4%


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Chart 25

Key drivers for market growth to 2015

2010 2015

KeyDrivers

Energy efficiency

Commodity demand

Use of energy (oil & gas)

Factory automation

Transportation and mobility

Automation

Estimated total market sizes and expected growth ratesUS$ bn and percent change

$285 bn

$380 bn

6% CAGR

Assumes average annual global GDP growth of 3-4%


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Chart 26

2011 2015 new targetsOverview

2 Organic incl. acquisitions closed as of end-Oct. 2011; CAGR = Compound annual growth rate, base year 2010

+3% to 4%

Within the same corridor

+3%

Same conversion rate

Depends on acquisition timing,steady over the long term

Group targets1

7 10%

13 19%

10 15%

Annual average>90%

>20% by 2015

1 See Appendix for definition of non-GAAP measures

Organic revenuegrowth (CAGR2)

Operational EBITDAmargin corridor

Organic EPS growth(CAGR2)

Free cash flowconversion

Cash flow return oninvested capital

2011-15Targets2

Metric Potential Impact from M&A


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Chart 27

0

2

4

6

2009.520102010.520112011.520122012.520132013.520142014.520152015.5

2011 2015 plan assumptions

Key assumptions

Economic slowdown in next 18 months,not a deep recession

World GDP to grow 34%1, emerging market

(EM) growth >2x developed markets

Global industrial capex to grow 56%1,EM capex share growing to 65% from 2x GDP

1 Compound annualgrowth rate, baseyear 2010;

2 Source: Global Insight

3% CAGR

4% CAGR

2010 20152011 20142012 2013


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Chart 28

Market assumptions

Emerging markets keep commodity prices high good for business,challenge for input costs

Plan assume stable forex, changes compensated by hedging policy andbalanced footprint

Price pressure and emerging market competition are a fact of lifecontinuous cost savings required to incrementally improve gross margin

Strategic parameters

Portfolio remains focused on Power and Automation no divestmentsplanned

M&A capacity to potentially increase top line CAGR1 by 3 4 % (notincluded in targets)

2011 2015 plan assumptionsExecution to balance cost AND growth remains key

1 Compound annualgrowth rate, baseyear 2010


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Chart 29

Clearly defined credit and investment targetsSolid single A rating remains our standard

Long-termrating

Outlook

Standard and Poors* A Stable

Moodys* A2 Stable

1 Organic growth, R&D, and capex

2 Paying annual dividend in line with policy

3 Value-creating acquisitions

4 Returning additional cash to shareholders

Investment priorities

Cash return > WACC within 3 years

IRR > WACC + specific hurdles

M&A Investments criteria

Net debt /EBITDA

GrossGearing

ABB Target ~1.5-2x < 40%

ABB at end-June 2012 0.7x 37%

Key debt ratios

* As of March 31, 2012

Credit Rating by Agency


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Chart 30

R&D locations to grow regional marketswith locally developed products

Location of ABBs corporate research centers, 2011

RaleighUSA

LadenburgGermany

BadenSwitzerland

VsterasSweden

KrakowPoland

BangaloreIndia

BeijingChina

ShanghaiChina

>$1.3 bninvested

annually in R&D

7,500R&D scientists

Collaboration with 70 universities MIT (US) Tsinghua (China) KTH Royal Institute of Technology (Sweden) Indian Institute of Science (Bangalore)

ETH (Switzerland) Karlsruhe (Germany) AGH University of Science and Technology

(Poland)


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Chart 31

Technology: Our competitive advantageLocalized R&D: New products for new markets

Examples of new products launched in 2011

Gas Insulated Switchgeartype ELK-14

Space saver for high-voltagesubstations

Highly modular, easy to

customize

Electric Vehicle

fast-chargerOperating in Europe, Asia

Full charge


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Chart 32

Sustainability one of highest business prioritiesBalancing economic success, environmentalstewardship and social progress

Offer eco-friendly products that minimize waste andreduce environmental impact

Helping customers in implementing environmentallysound processes and technologies

Complying with all applicable environmental, health,safety standards and social legislation

Working to achieve best practices in occupationalhealth, safety for employees and our customers

Integrity embedded in ABB DNA, e.g. zero toleranceto fraud, bribery and corruption

Code of Conduct followed by all ABB employees

No business with sensitive countries such asSomalia and North Korea

Completed withdrawal from Sudan in 2009

Not pursuing new business in Iran since 2007 andcompleted our withdrawal from oil and gas in Iran in2011


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Chart 33

Press ReleaseJune 11, 2012

Making a more efficient worldOur products are inherently sustainable

ABB electric drives save 310million megawatt hours in 2011

Equivalent to the output of 41 nuclear reactors


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Chart 34

Sustainability in productdevelopment

Focus on resource and energyefficiency over product lifecycle

Independently verifiedEnvironmental Product

Declarations for main products

Sustainability in operations

Reduce use of energy, rawmaterials, hazardous substances

Example: China

63% lower energy use per unitof revenue from 2002 to 2010

Developing sustainability of products and operationsLowering environmental impact and costs


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Chart 35

ABBs vision and culture

Global leader in power and automationtechnologies that enable utility and industrycustomers to improve performance whilelowering environmental impact.

Vision

Demonstrate personal, professional and

corporate responsibility, showing respect forthe views and needs of others and applyingour shared determination to win.

Business Principles

Committed to high moral and ethical standardsand conduct business with integrity and in fullcompliance with regulations, local laws andour own corporate policies.

Integrity

Balance economic success, environmentalstewardship and social progress to benefit allour stakeholders.

Sustainability


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2011 Financial Performance


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Chart 37

Full-year 2011: Financial highlights

Record orders and revenues

Net income up $600 million vs. 2010

Cash from operations close to 2010record

Cash return on invested capitalreflects initial impact of Baldoracquisition

Outstanding results in a tough environment

2011 Chang e vs 2010

Orders 40,210+18%1

(organic. +11%)

Revenues 37,990+15%1

(organic +9%)

Operational EBITDA 6,014+25%

Operational EBITDA % 15.8%+0.5 percentage

points

Net income 3,168 +24%

EPS (basic) 1.38 +23%Dividend per share(CHF)

0.65 +8%

Cash from operations 3,612 -14%

Cash return on investedcapital

14%-7 percentage

points

Financial highlightsUS$ mill unless otherwise stated


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Chart 38

55%

5%

40%

ABBs cost-out focus embedded in its DNA

Over $4 bn in savings since in 2009

Continued commitment to cost-out for 2012 at 3-5 % of cost of sales

Cost savings:

Offset price pressure (in 2011, $970 mill)

Fund M&A activities

1.5 1.5

1.1

2009 2010 2011

Exceeded 2011 cost savings targetSavings continued to outpace negative market impact

Savings by category, 2011Percent

OperationalExcellence

Sourcing

Globalfootprint

$1.1 bn

Historical savings, 2009-2011US$ bn


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Chart 39

0.24

0.48 0.480.51

0.600.65

2006 2007 2008 2009 2010 2011

Ensuring steady cash flows forinvestors over the cycle

2011 dividend up 8% vs. 2010

2011 dividend paid: CHF 0.65 per shareEquivalent to 47% payout ratio, 3.3% yield1

Dividend payout 2005-2011CHF per share

A steadily rising, sustainable annual dividend over time

Dividend policy

1as of 15 February 2012


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Chart 40

2011-2015 New targetsFirst-year performance against our targets

Group targets1

2 Organic incl. acquisitions closed as of end-Oct. 2011; CAGR = Compound annual growth rate, base year 2010

Starting well above the range

Still a good buffer thanks to costprograms

A strong first year

High capital spending; to normalizeover time

1st year show impact of Baldoracquisition

7 10%

1319%

10 15%

Annual average>90%

>20% by 2015

1 See Appendix for definition of non-GAAP measures

Organic revenuegrowth (CAGR2)

Operational EBITDAmargin corridor

Organic EPS growth(CAGR2)

Free cash flowconversion

Cash flow return oninvested capital

15%

15.8%

23%

82%

14%

2011Perfomance2

2011-15Targets2

Metric Comment


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Chart 42

Appendix

Definitions of non-GAAPmeasures


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Chart 43

Appendix: Definitions of non-GAAP measures (1)

Operational EBITDA: Earnings before interest and taxes (EBIT) excluding depreciation andamortization, adjusted for i) unrealized gains and losses on derivatives (FX, commodities,embedded derivatives), ii) realized gains and losses on derivatives where the underlyinghedged transaction has not yet been realized, iii) unrealized foreign exchange movementson receivables/payables (and related assets/liabilities), iv) restructuring and restructuring-related expenses, and v) acquisition-related expenses and certain non-operational items

Operational EBITDA margin: Operational EBITDA as a percentage of Operational revenues

Gross gearing: Total debt divided by total debt plus total stockholders equity (including non-controlling interests)

Net cash (Net debt): Cash and equivalents plus marketable securities and short-terminvestments, less total debt

Free cash flow (FCF): Net cash provided by operating activities adjusted for i) changes infinancing and other non-current receivables; ii) purchases of property, plant and equipmentand intangible assets; and iii) proceeds from sales of property, plant and equipment


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Appendix: Definitions of non-GAAP measures (2)

Free cash flow conversion: Free cash flow as a percentage of net income attributable to ABB

CROI: Cash return on capital invested, calculated as i) cash provided by operating activitiesplus interest paid, divided by ii) capital employed plus accumulated amortization anddepreciation

f


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For more information, call ABB Investor Relationsor visit our website at www.abb.com/investorrelations

Telephone e-mail

Alanna Abrahamson(Zurich)

+41 43 317 3804 [email protected]

John Fox(Zurich) +41 43 317 3812 [email protected]

Tatyana Dubina(Zurich)


Annatina Tunkelo(Zurich)


abb+investor+presentation 20130904

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