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 is organized into operating segments based on products and services and the operating segments consist of Electrification Products, Industrial Automation and Robotics and Motion. The remaining operations of the Company are included in Corporate and Other. As the Power Grids business is reported as discontinued operations, it no longer is reported as an operating segment. In addition, certain real estate assets previously included in Corporate and Other are included in this planned business divestment and have also been reported in discontinued operations (see Note 3).

Effective January 1, 2018, management responsibility and oversight of certain remaining engineering, procurement and construction (EPC) businesses, previously included in the Industrial Automation and Robotics and Motion operating segments as well as the former Power Grids business, were transferred to a new non-core operating business within Corporate and Other. During 2018, the Company also changed the presentation of Cash and cash equivalents within the reported total segment assets such that all amounts are now considered as part of Corporate and Other.

The segment information for 2017 and 2016, and at December 31, 2017 and 2016, has been recast to reflect these changes.

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

  • Electrification Products: manufactures and sells products and solutions which are designed to provide smarter and safer electrical flow from the substation to the socket. The portfolio of increasingly digital and connected solutions includes electric vehicle charging infrastructure, solar power solutions, modular substation packages, distribution automation products, switchboard and panelboards, switchgear, UPS solutions, circuit breakers, measuring and sensing devices, control products, wiring accessories, enclosures and cabling systems and intelligent home and building solutions, designed to integrate and automate lighting, heating, ventilation, security and data communication networks.
  • 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.
  • 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.
  • 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 non-core operating activities.

The primary measure of profitability on which the operating segments are evaluated is Operational EBITA, which represents income from operations excluding:

  • amortization expense on intangibles arising upon acquisition (acquisition-related amortization),
  • restructuring and restructuring-related expenses,
  • changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to 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- and divestment-related expenses and integration costs,
  • certain other 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).

Certain other non-operational items generally includes: certain regulatory, compliance and legal costs, certain asset write downs/impairments as well as other items which are determined by management on a case-by-case basis.

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 for 2018, 2017 and 2016.

 

2018

($ in millions)

Electrification Products

Industrial Automation

Robotics and Motion

Corporate and Other

Total

(1)

Intersegment revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total revenues.

Geographical markets

 

 

 

 

 

Europe

3,881

3,145

2,929

58

10,013

The Americas

3,650

1,544

2,788

21

8,003

Asia, Middle East and Africa

3,680

2,565

2,922

236

9,403

 

11,211

7,254

8,639

315

27,419

End Customer Markets

 

 

 

 

 

Utilities

2,452

1,168

749

176

4,545

Industry

4,395

4,447

6,529

98

15,469

Transport and infrastructure

4,364

1,639

1,361

41

7,405

 

11,211

7,254

8,639

315

27,419

Product type

 

 

 

 

 

Products

9,679

2,391

6,206

118

18,394

Systems

617

1,853

1,062

197

3,729

Services and software

915

3,010

1,371

5,296

 

11,211

7,254

8,639

315

27,419

 

 

 

 

 

 

Third-party revenues

11,211

7,254

8,639

315

27,419

Intersegment revenues(1)

475

140

508

(880)

243

Total Revenues

11,686

7,394

9,147

(565)

27,662

 

2017

($ in millions)

Electrification Products

Industrial Automation

Robotics and Motion

Corporate and Other

Total

(1)

Intersegment revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total revenues.

Geographical markets

 

 

 

 

 

Europe

3,514

2,773

2,613

132

9,032

The Americas

2,613

1,381

2,721

116

6,831

Asia, Middle East and Africa

3,464

2,570

2,543

493

9,070

 

9,591

6,724

7,877

741

24,933

End Customer Markets

 

 

 

 

 

Utilities

2,597

1,270

633

575

5,075

Industry

4,022

3,796

5,991

155

13,964

Transport and infrastructure

2,972

1,658

1,253

11

5,894

 

9,591

6,724

7,877

741

24,933

Product type

 

 

 

 

 

Products

8,322

1,796

5,661

169

15,948

Systems

614

2,089

959

565

4,227

Services and software

655

2,839

1,257

7

4,758

 

9,591

6,724

7,877

741

24,933

 

 

 

 

 

 

Third-party revenues

9,591

6,724

7,877

741

24,933

Intersegment revenues(1)

503

155

519

(914)

263

Total Revenues

10,094

6,879

8,396

(173)

25,196

 

2016

($ in millions)

Electrification Products

Industrial Automation

Robotics and Motion

Corporate and Other

Total

(1)

Intersegment revenues include sales to the Power Grids business which is presented as discontinued operations and are not eliminated from Total revenues.

Geographical markets

 

 

 

 

 

Europe

3,309

2,398

2,571

541

8,819

The Americas

2,571

1,420

2,588

182

6,761

Asia, Middle East and Africa

3,457

2,673

2,227

692

9,049

 

9,337

6,491

7,386

1,415

24,629

End Customer Markets

 

 

 

 

 

Utilities

2,568

1,236

657

1,189

5,650

Industry

4,083

3,625

5,351

200

13,259

Transport and infrastructure

2,686

1,630

1,378

26

5,720

 

9,337

6,491

7,386

1,415

24,629

Product type

 

 

 

 

 

Products

8,042

1,355

5,366

434

15,197

Systems

656

2,364

853

957

4,830

Services and software

639

2,772

1,167

24

4,602

 

9,337

6,491

7,386

1,415

24,629

 

 

 

 

 

 

Third-party revenues

9,337

6,491

7,386

1,415

24,629

Intersegment revenues(1)

583

163

502

(948)

300

Total Revenues

9,920

6,654

7,888

467

24,929

Revenues by geography reflect the location of the customer. Approximately 22 percent, 20 percent and 19 percent of the Company’s total revenues in 2018, 2017 and 2016, respectively, came from customers in the United States. Approximately 15 percent, 15 percent and 14 percent of the Company’s total revenues in 2018, 2017 and 2016, respectively, were generated from customers in China. In 2018, 2017 and 2016 more than 98 percent of the Company’s total revenues were generated from customers outside Switzerland.

The following tables present Operational EBITA, the reconciliations of consolidated Operational EBITA to Income from continuing operations before taxes, as well as Depreciation and amortization, and Capital expenditure for 2018, 2017 and 2016, as well as Total assets at December 31, 2018, 2017 and 2016.

($ 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.

Operational EBITA:

 

 

 

Electrification Products

1,626

1,510

1,459

Industrial Automation

1,019

953

897

Robotics and Motion

1,447

1,260

1,232

Corporate and Other:

 

 

 

– Non-Core and divested businesses

(291)

(163)

(30)

– Stranded corporate costs

(297)

(286)

(252)

– Corporate costs and other intersegment elimination

(499)

(457)

(378)

Consolidated Operational EBITA

3,005

2,817

2,928

Acquisition-related amortization

(273)

(229)

(245)

Restructuring and restructuring-related expenses(1)

(172)

(300)

(442)

Changes in obligations related to divested businesses

(106)

(94)

Changes in pre-acquisition estimates

(8)

(8)

(131)

Gains and losses on sale of businesses

57

252

(10)

Acquisition- and divestment-related expenses and integration costs

(204)

(81)

(9)

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

(1)

56

(19)

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

(23)

8

(1)

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

(9)

(30)

(8)

Certain other non-operational items:

 

 

 

Regulatory, compliance and legal costs

(34)

(102)

(10)

Asset write downs/impairments

(25)

(16)

Gain on liquidation of foreign subsidiary

31

Corporate re-branding and marketing costs

(30)

Losses and other (costs) recoveries on Korea fraud

8

(40)

(73)

Other non-operational items

(20)

(19)

5

Income from operations

2,226

2,230

1,929

Interest and dividend income

72

73

71

Interest and other finance expense

(262)

(234)

(201)

Non-operational pension cost

83

33

(38)

Income from continuing operations before taxes

2,119

2,102

1,761

 

Depreciation and amortization

Capital expenditure(1)

Total assets(1),(2)
at December 31,

($ in millions)

2018

2017

2016

2018

2017

2016

2018

2017

2016

(1)

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

(2)

Assets held for sale of $8,591 million, $8,603 million and $8,504 million are included in Corporate and Other at December 31, 2018, 2017 and 2016, respectively (see Note 3).

Electrification Products

355

315

348

244

218

215

12,049

8,881

8,343

Industrial Automation

160

112

71

104

71

53

6,669

6,961

4,294

Robotics and Motion

208

216

249

123

118

112

8,397

8,416

7,870

Corporate and Other

193

193

202

301

345

252

17,326

19,200

18,884

Consolidated

916

836

870

772

752

632

44,441

43,458

39,391

Other geographic information

Geographic information for long-lived assets was as follows:

 

Long-lived assets
at December 31,

($ in millions)

2018

2017

Europe

2,110

2,040

The Americas

1,168

934

Asia, Middle East and Africa

855

830

Total

4,133

3,804

Long-lived assets represent “Property, plant and equipment, net” and are shown by location of the assets. At December 31, 2018, approximately 22 percent, 11 percent and 11 percent of the Company’s long-lived assets were located in the U.S., Switzerland and China, respectively. At December 31, 2017, approximately 19 percent, 13 percent and 10 percent of the Company’s long-lived assets were located in the U.S., Switzerland and China, respectively.

2019 Realignment of segments

On December 17, 2018, the Company announced a planned reorganization of its operating segments into four customer-focused, entrepreneurial businesses. With effect from April 1, 2019:

  • the Electrification Products segment will be renamed the Electrification segment,
  • the Industrial Automation segment will remain unchanged except that it will now exclude the Machine and Factory Automation business, which will be transferred to the new Robotics & Discrete Automation segment,
  • the new Robotics & Discrete Automation segment will include the combined businesses of the Machine and Factory Automation business, previously included in the Industrial Automation segment, and the Robotics business from the former Robotics and Motion segment, and
  • the new Motion segment will contain the remaining businesses of the former Robotics and Motion segment.