Divisional analysis

Electrification Products

The financial results of our Electrification Products division, including the operations of GEIS which was acquired on June 30, 2018, were as follows:

 

 

 

 

% Change

($ in millions)

2018

2017

2016

2018

2017

Orders

11,867

10,143

9,780

17%

4%

Third-party base orders

11,240

9,559

9,242

18%

3%

Order backlog at December 31,

4,113

3,098

2,839

33%

9%

Revenues

11,686

10,094

9,920

16%

2%

Income from operations

1,290

1,352

1,094

(5)%

24%

Operational EBITA

1,626

1,510

1,459

8%

3%

Orders

Approximately two-thirds of the division’s orders are for products 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, as well as 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 2018, orders increased 17 percent (16 percent in local currencies) with broad-based growth across business units and regions. The increase in orders was impacted by 12 percent due to acquisitions, primarily GEIS, which was acquired on June 30, 2018. Orders for products grew stronger than the orders for systems. Construction demand was robust, driven by continued investment in residential and commercial buildings. Transport & infrastructure demand was positive with continued investment in rail infrastructure and strong demand for electric vehicles infrastructure. Demand for data centers was also strong and resulted in the award of a few large orders. From an industry perspective, stronger oil prices earlier in the year contributed to a return to investment in oil and gas projects. Solar orders improved slightly from the low levels recorded in 2017.

In 2017, orders increased 4 percent (4 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. The division’s order growth was also supported by large orders for electric vehicle products and systems, while a lower order level for solar products and systems negatively impacted the order intake in 2017.

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

(in %)

2018

2017

2016

Europe

35

37

37

The Americas

32

27

27

Asia, Middle East and Africa

33

36

36

Total

100

100

100

In 2018, orders grew in all regions. The relative share of orders from the Americas increased due to strong order growth in the United States including the impact of the acquisition of GEIS, which has a significant portion of its operations in the United States. Although the share of orders from Europe decreased slightly compared with the previous year, orders in Europe developed positively with order growth in key markets such as Germany and Italy compensating for lower order volumes in Turkey. Order growth in Asia, Middle East and Africa was supported by growth in China, Taiwan and Egypt, whereas orders from Saudi Arabia and Qatar were significantly lower than in 2017.

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.

Order backlog

In 2018, the order backlog increased 33 percent (39 percent in local currencies). The acquisition of the GEIS business contributed 36 percentage points to the growth of the order backlog. The remaining order backlog increase in local currencies reflected the receipt of orders for electric vehicle charging infrastructure with deliveries scheduled to occur after 2018.

In 2017, the order backlog increased 9 percent (3 percent in local currencies), with strong growth in the Building Products business, driven by significant order intake for electric vehicle charging infrastructure.

Revenues

In 2018, revenues increased by 16 percent (16 percent in local currencies). The acquisition of the GEIS business contributed 13 percentage points of the revenue growth. Revenues grew in the short-cycle low-voltage product businesses, with growth broad-based across end-customer markets including construction, specifically non-residential construction, and industries such as oil and gas. Revenue growth from the distributor channel was strong. There was significant revenue growth in our electric vehicle charging infrastructure business, although the business remains a small portion of total revenues. Revenues from the medium-voltage systems business decreased, negatively impacted by longer lead times for the conversion of orders into revenues. Revenues decreased in solar, reflecting a lower opening order backlog and the impact of continued price pressure across the solar market.

In 2017, revenues increased 2 percent (2 percent in local currencies) compared to 2016. Revenues for low-voltage products for buildings, protection and connection and installation 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 medium voltage systems and in solar, impacted by a lower opening order backlog.

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

(in %)

2018

2017

2016

Europe

35

37

36

The Americas

32

27

27

Asia, Middle East and Africa

33

36

37

Total

100

100

100

In 2018, the relative share of revenues from the Americas increased primarily due to the impact of the acquisition of GEIS, which has a significant portion of its operations in the United States. Although the relative share of revenues from Europe decreased, revenues were higher as growth in multiple markets such as Germany, Switzerland and Netherlands helped offset a lower revenue level from Turkey. Although the share of revenues from Asia, Middle East and Africa decreased, revenues for this region were steady as a positive revenue development in China and Egypt offset lower revenue volumes from Saudi Arabia and Qatar.

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.

Income from operations

In 2018, income from operations decreased 5 percent, mainly reflecting a $145 million increase of acquisition-related expenses and post-acquisition integration costs compared with 2017, due to the acquisition of GEIS. Pricing actions across the product businesses and the benefits from savings from ongoing restructuring and cost savings programs had a positive impact on the operating margin. The division realized a gain of $81 million on the sale of a business. These benefits were offset by the negative impact of higher commodity prices and pricing pressures for distribution solutions and solar. The division also recorded significant costs for warranty liabilities for certain solar inverters. In addition, restructuring and restructuring-related expenses in 2018 of $98 million were $70 million higher than in 2017, reflecting manufacturing footprint changes as well as organizational simplification. Acquisition-related amortization was 8 percent higher than in 2017, mainly due to the GEIS acquisition. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively affected income from operations by 2 percent.

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, positively 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)

2018

2017

2016

(1)

Amounts in 2017 and 2016 also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

1,290

1,352

1,094

Acquisition-related amortization

106

98

121

Restructuring and restructuring-related expenses(1)

98

28

93

Changes in pre-acquisition estimates

19

8

131

Gains and losses on sale of businesses

(81)

Acquisition-related expenses and integration costs

168

23

Certain other non-operational items

(2)

21

8

FX/commodity timing differences in income from operations

28

(20)

12

Operational EBITA

1,626

1,510

1,459

In 2018, Operational EBITA increased 8 percent (6 percent excluding the impacts from changes in foreign currencies) compared to 2017, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above.

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.

Industrial Automation

The results of B&R, acquired in July 2017, have been included in the Industrial Automation division since the acquisition date, including for the full year 2018.

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

 

 

 

 

% Change

($ in millions)

2018

2017

2016

2018

2017

Orders

7,631

6,553

5,990

16%

9%

Third-party base orders

6,592

5,840

5,229

13%

12%

Order backlog at December 31,

5,148

5,301

5,230

(3)%

1%

Revenues

7,394

6,879

6,654

7%

3%

Income from operations

887

798

772

11%

3%

Operational EBITA

1,019

953

897

7%

6%

Orders

Orders in 2018 increased 16 percent (15 percent in local currencies) primarily reflecting the impact of including B&R for a full-year in 2018 which contributed 7 percent to the order growth. Large orders as a percent of total orders was 12 percent in 2018 compared to 9 percent in 2017, supported by selective demand for cruise ships and specialty vessels. Large capital expenditure projects in some end-markets like oil and gas, and mining continued to be selective and at low levels. Investment in maintenance activities, digitalization upgrades and other discretionary projects improved, in particular for oil, gas and chemical, and process industry customers. Demand for factory automation solutions continued to be positive. In 2018, third-party base orders improved 13 percent (12 percent in local currencies), in particular in the Measurement and Analytics and Machine and Factory Automation businesses. Demand for ABB Ability™ solutions and services contributed to positive third-party base order growth.

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 9 percent in 2017 compared to 10 percent in 2016, showing a continued low level of large capital expenditure projects in some end-markets including oil and gas, and mining. Market demand for maintenance activities and other discretionary investments improved, in particular for oil, gas and chemical customers. Demand for factory automation solutions was positive. In 2017, third-party base orders improved 12 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.

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

(in %)

2018

2017

2016

Europe

47

42

42

The Americas

22

23

21

Asia, Middle East and Africa

31

35

37

Total

100

100

100

Orders from all regions increased in 2018. The share of revenues for each region was affected primarily due to inclusion of B&R for a full-year in 2018. In Europe, the share of orders increased as the operations of B&R are more concentrated in this region as well as due to strong demand for cruise and specialty vessels. Orders in the Americas grew but the share of orders decreased as the business of B&R is more focused in the other two regions. In Asia, Middle East and Africa, growth was steady but lower than the other regions, thus reducing this region’s share.

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. 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.

Order backlog

The order backlog at end of 2018 was 3 percent lower (2 percent higher in local currencies) than at the end of 2017. The backlog continued to benefit from orders for cruise and specialty vessels which are executed over multiple years. In addition, the division continued to see recovery in demand for oil, gas and chemical, and the process industries as well as strong demand for shorter cycle products.

The order backlog at end 2017 was 1 percent higher (6 percent lower in local currencies) than at the end of 2016. Although the division saw some stabilization in demand, shown by a lower decline in the backlog than in previous year, the market environment was difficult while political uncertainty weakened confidence in key markets.

Revenues

In 2018, revenues increased 7 percent (7 percent higher in local currencies) primarily reflecting the impact of including B&R for a full-year in 2018 which contributed 6 percent to the revenue growth. The majority of the other businesses in the division also recorded higher revenues, especially the Process Industries, Measurement and Analytics and Turbocharging businesses. Revenues were lower in the Oil and Gas, and Power Generation businesses. During the year, the division realized higher revenues from book-and-bill business and good execution of the backlog. Notwithstanding, the lower order backlog at the beginning of 2018 dampened revenue growth.

In 2017, revenues increased 3 percent (3 percent in local currencies) compared to 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 a 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.

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

(in %)

2018

2017

2016

Europe

44

42

37

The Americas

21

20

22

Asia, Middle East and Africa

35

38

41

Total

100

100

100

In 2018, revenues improved in Europe and the Americas primarily benefiting from a selective recovery in Process Industries and the inclusion of B&R for a full-year in 2018. The share of revenues from Europe increased due to the inclusion of B&R. The Americas increased their share of revenues benefitting from an upturn in mining as well as continued demand for Measurement and Analytics and Turbocharging products. The share of revenues from Asia, Middle East and Africa was lower as the region recorded lower revenue growth compared to the other regions, impacted by the lower opening backlog and lower book-and-bill orders.

In 2017, revenues continued to decline in the Americas and in Asia, Middle East and Africa while Europe benefited from the acquisition 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 the increase was offset by revenue declines in other countries in the region.

Income from operations

In 2018, income from operations increased 11 percent compared to 2017. Of this increase, B&R contributed approximately 8 percent which included both the inclusion of the operations for a full-year as well as the negative comparative impact in 2017 of purchase price adjustments (primarily for inventories) which reduced income in 2017. In addition, income from operations benefitted from an improved revenue mix, ongoing progress in the division’s rationalization efforts and benefits realized from cost savings measures, productivity improvements and solid project execution. Income from operations was also higher due to a reduction of restructuring and restructuring-related expenses compared to 2017. The impact from changes in foreign currencies, including the impacts from changes in FX/commodity timing differences summarized in the table below which, combined, negatively impacted income from operations by 4 percent.

In 2017, income from operations increased 3 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 7 percent. Restructuring and restructuring-related expenses in 2017 of $85 million were $9 million higher than in 2016. Restructuring expenses recorded for the White Collar Productivity program were $57 million lower compared to 2016 because 2017 included a net reversal of $23 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.

Operational EBITA

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

($ in millions)

2018

2017

2016

(1)

Amounts in 2017 and 2016 also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

887

798

772

Acquisition-related amortization

86

47

11

Restructuring and restructuring-related expenses(1)

35

85

76

Changes in pre-acquisition estimates

(11)

Gains and losses on sale of businesses

3

(2)

Acquisition-related expenses and integration costs

4

52

4

Certain other non-operational items

3

1

5

FX/commodity timing differences in income from operations

12

(28)

29

Operational EBITA

1,019

953

897

In 2018, Operational EBITA increased 7 percent (7 percent excluding the impacts from changes in foreign currencies) compared to 2017. 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 inclusion of B&R for a full year increased Operational EBITA by 5 percent after consideration of the related adjustments in the table above relating to that business.

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.

Robotics and Motion

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

 

 

 

 

% Change

($ in millions)

2018

2017

2016

2018

2017

Orders

9,570

8,465

7,857

13%

8%

Third-party base orders

8,560

7,651

7,029

12%

9%

Order backlog at December 31,

4,016

3,823

3,514

5%

9%

Revenues

9,147

8,396

7,888

9%

6%

Income from operations

1,346

1,126

1,048

20%

7%

Operational EBITA

1,447

1,260

1,232

15%

2%

Orders

In 2018, orders increased 13 percent (12 percent in local currencies). Third-party base orders grew 12 percent (11 percent in local currencies). Order growth was driven by demand from process industries such as oil, gas, and mining and metals as well as demand from discrete industries such as automotive and food and beverage. The division noted rising demand from light industries for smaller robots and smaller-sized drives and motor solutions. The division benefited from solid large order intake for robot systems from the automotive sector, including for new electric vehicle manufacturing lines, and for traction solutions from the rail industry.

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.

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

(in %)

2018

2017

2016

Europe

36

35

37

The Americas

30

32

33

Asia, Middle East and Africa

34

33

30

Total

100

100

100

In 2018, orders grew in all regions. The relative share of orders from Asia, Middle East and Africa increased on double-digit growth in China and India. The European market performed well with order growth across the majority of countries including Germany, Italy and Switzerland. The relative share of orders from the Americas declined despite solid growth in the United States.

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 exhibiting increased demand for solutions for motors and drives.

Order backlog

The order backlog in 2018 increased 5 percent (10 percent in local currencies) compared to 2017. The backlog improved in all business units on strong order growth in 2018.

The order backlog in 2017 increased 9 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.

Revenues

In 2018, revenues increased 9 percent (8 percent in local currencies) compared to 2017. Revenues grew in all business units driven by steady execution of the order backlog as well as book-and-bill business. Service revenues continued to improve as the division leveraged its installed base and increased customer demand for ABB Ability™ solutions.

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™.

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

(in %)

2018

2017

2016

Europe

35

35

36

The Americas

31

33

34

Asia, Middle East and Africa

34

32

30

Total

100

100

100

In 2018, revenues were higher in all regions. The relative share of revenues from Asia, Middle East and Africa increased on double-digit revenue growth in China and India. The share of revenues from Europe remained steady despite revenue growth across the majority of countries including Germany, Italy and Switzerland. The relative share of revenues from the Americas declined despite generating higher revenues including moderate growth in the United States.

In 2017, revenues grew in all regions. The relative share of revenues from Europe declined despite modest growth in the region, supported by Finland, Germany and Sweden. The share of revenues from the Americas decreased slightly with growth in the United States and 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 reflected ongoing strong orders from China.

Income from operations

In 2018, income from operations increased 20 percent compared to 2017, driven by positive volumes and continued cost discipline. Restructuring and restructuring-related expenses were lower in 2018 than in 2017, positively impacting income from operations. Acquisition-related amortization was slightly lower as certain acquired intangible assets were fully amortized in early 2018. These positive effects were partly offset by the effects of increased commodity prices and 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 2 percent.

In 2017, income from operations increased 7 percent compared to 2016. 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. There was no significant impact on income from operations from changes in foreign currencies.

Operational EBITA

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

($ in millions)

2018

2017

2016

(1)

Amounts in 2017 and 2016 also include the incremental implementation costs in relation to the White Collar Productivity program.

Income from operations

1,346

1,126

1,048

Acquisition-related amortization

63

66

94

Restructuring and restructuring-related expenses(1)

21

64

69

Gains and losses on sale of businesses

4

Acquisition-related expenses and integration costs

2

2

Certain other non-operational items

11

18

FX/commodity timing differences in income from operations

2

3

Operational EBITA

1,447

1,260

1,232

In 2018, Operational EBITA increased 15 percent (14 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 2017, Operational EBITA increased 2 percent (2 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.

Corporate and Other

Net loss from operations for Corporate and Other was as follows:

($ in millions)

2018

2017

2016

Corporate headquarters and stewardship

(496)

(430)

(347)

Corporate research and development

(170)

(128)

(133)

Corporate real estate

75

45

47

Net gain (loss) from sale of businesses

(17)

250

(10)

White Collar Productivity program costs

(107)

(199)

Misappropriation loss, net

18

(9)

(73)

Stranded corporate costs

(297)

(286)

(252)

Other corporate costs

(99)

(83)

(29)

Divested businesses and other non-core activities

(316)

(304)

7

Total Corporate and Other

(1,302)

(1,052)

(989)

In 2018, the net loss from operations within Corporate and Other was $1,302 million compared to $1,052 million in 2017. The primary reason was that 2017 included a significant net gain on sales of businesses, primarily a gain of $338 million for the sale of the high-voltage cables business. In addition, lower White Collar Productivity costs were offset by an increase in corporate headquarters and stewardship costs. In 2017, the loss from operations within Corporate and Other was $1,052 million, $63 million higher than in 2016. The increase was primarily due to significant losses in divested businesses and other non-core activities. In addition, higher corporate headquarters and stewardship costs offset lower White Collar Productivity program costs. 2017 also included the gain on the sale of the cables businesses.

In 2018, corporate headquarters and stewardship costs were $496 million, an increase of $66 million from 2017. Higher costs were due to higher costs relating to ABB Digital and the sponsorship of the ABB FIA Formula E Championship. In 2017, corporate headquarters and stewardship costs increased to $430 million from $347 million in 2016, mainly due to higher costs for information technology and costs relating to ABB Digital.

Corporate real estate primarily includes income from property rentals and gains from the sale of real estate properties. In 2018, 2017 and 2016, income from operations in Corporate real estate included gains from the sale of real estate properties of $49 million, $28 million and $33 million, respectively.

As of December 31, 2017, we had incurred substantially all costs related to the White Collar Productivity program. In 2017 and 2016, costs incurred in connection with this program amounted to $107 million and $199 million, respectively, including program implementation costs. In 2017, the amount decreased as 2017 included the impact of a change in estimated costs and the related reversal of the previously recorded liability. The program costs relate mainly to employee severance 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” below.

In 2017 and 2016, we recorded a loss of $9 million and $73 million, respectively, net of expected insurance recoveries, for the misappropriation of cash by the treasurer of our subsidiary in South Korea. In 2018, recoveries relating to this loss totaled $18 million.

Stranded corporate costs includes the amount of allocated general and administrative and other overhead costs previously included in the measure of segment profit (Operational EBITA) for the Power Grids business which has been reclassified to discontinued operations. These allocated costs do not qualify for being reported as costs within the discontinued operation.

Other corporate costs consists of operational costs of our Global Treasury Operations and certain other charges such as costs and penalties associated with legal cases, environmental expenses and impairment charges related to investments. Other corporate costs in 2017 were higher than the previous year as 2016 included the positive impact of a reduction in certain insurance-related provisions for self-insured risks.

Divested businesses and other non-core activities

The results of operations for certain divested businesses and other non-core activities are presented in Corporate and Other. Divested businesses include the high-voltage cables business, which was divested in March 2017. Also, certain EPC contracts relating to the oil & gas industry were divested to an unconsolidated joint venture at the end of 2017. In addition, in September 2018, we commenced transferring certain projects in our EPC business for turnkey electrical AC substations to a new unconsolidated joint venture, Linxon, which is controlled by the SNC-Lavalin Group. Other non-core activities includes amounts relating to the execution and wind-down of certain legacy EPC and other contracts.

Income from operations for divested businesses and other non-core activities in 2018 primarily reflects losses incurred in legacy substations and plant electrification EPC contracts and were driven by project cost overruns and contractual costs relating to delayed project completion. The amount in 2018 also reflects project cost overruns in the full train retrofit business. In 2017, the loss includes charges of $94 million recorded for certain retained liabilities associated with the divested cables businesses and losses for project cost overruns in the full train retrofit business. In 2017, the amount also includes losses incurred in legacy substations and plant electrification EPC contracts driven by cost overruns, credit losses and contractual costs for delayed project completion.

At December 31, 2018, our remaining non-core activities primarily include the completion of the remaining EPC contracts for substations and plant electrification and the completion of the remaining obligations for the full train retrofit business. Of the open order backlog at December 31, 2018, approximately 40 percent relates to contracts which are planned to be transferred to the Linxon joint venture and the majority of the remaining amounts are expected to be fulfilled in 2019.

Restructuring and other cost savings initiatives

White Collar Productivity program

From September 2015 to December 2017, we executed a restructuring program to make ABB leaner, faster and more customer-focused. The program involved the rapid expansion and use of regional shared service centers as well as a streamlining of global operations and head office functions, with business units moving closer to their respective key markets. The program involved various restructuring initiatives across all operating segments and regions.

The restructuring program resulted in total annual cost savings of $1.2 billion in continuing operations. The savings were realized as reductions in cost of sales, selling, general and administrative expenses and non-order related research and development expenses.

As of December 31, 2017, we had incurred substantially all costs related to the White Collar Productivity program.

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

 

Net costs incurred in

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

($ in millions)

2017(1)

2016(1)

(1)

Total costs have been recast to reflect the reorganization of our operating segments as outlined in “Note 23 Operating segment and geographic data” to our Consolidated Financial Statements.

Electrification Products

(17)

15

72

Industrial Automation

(23)

34

106

Robotics and Motion

(14)

26

56

Corporate and Other

(32)

32

91

Total

(86)

107

325

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 $86 million were recorded mainly due to higher than expected rates of attrition and internal redeployment. In 2016, net restructuring costs of $107 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 $118 million during 2017 resulted in a reduction primarily in cost of sales of $53 million and in selling, general and administrative expenses of $55 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 $86 million during 2016 resulted in a reduction primarily in cost of sales of $38 million and in selling, general and administrative expenses of $35 million for the year.

The remaining cash outlays as of December 31, 2018, primarily for employee severance benefits, are expected to occur in 2019.

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.

OS program

In December 2018, ABB announced a two-year restructuring program with the objective to simplify its business model and structure through the implementation of a new organizational structure driven by its businesses. The program includes the elimination of the country and regional structures within the current matrix organization, including the elimination of the three regional Executive Committee roles. The operating businesses will each be responsible for both their customer-facing activities and business support functions, while the remaining Group-level corporate activities will primarily focus on Group strategy, portfolio and performance management, capital allocation and core technologies.

Over the course of the program, we will execute a number of restructuring activities across all operating segments and functions. The following table outlines the cumulative amount of costs incurred to date and the total amount of costs expected under the program:

 

Costs incurred in 2018

Cumulative costs incurred up to December 31, 2018

Total expected costs

Electrification Products

32

32

40

Industrial Automation

21

21

60

Robotics and Motion

1

1

50

Corporate and Other

11

11

200

Total

65

65

350

By the completion of the program, we expect to realize annual cost savings of approximately $500 million. These savings are expected to impact cost of sales, selling, general and administrative expenses and non-order related research and development expenses.

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

We expect the majority of the cash payments, primarily for employee severance benefits, to be in 2019 and 2020. We expect that our cash provided by operating activities will be sufficient to cover any expenditures for this restructuring program.

Other restructuring-related activities and cost savings initiatives

In 2018, 2017 and 2016, we also executed other restructuring-related and cost savings measures to sustainably reduce our costs and protect our profitability. Costs associated with these other measures amounted to $116 million, $181 million and $133 million in 2018, 2017 and 2016, respectively.