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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________
FORM
20-F
REGISTRATION STATEMENT
 
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________________
Commission file number:
001-16429
_________________________________________
ABB Ltd
(Exact name of registrant as specified in its charter)
Switzerland
(Jurisdiction of incorporation or organization)
Affolternstrasse 44
CH-8050
,
Zurich
,
Switzerland
(Address of principal executive offices)
Richard A. Brown
Affolternstrasse 44
CH-8050
,
Zurich
,
Switzerland
Telephone: +
41
-
43
-
317-7111
Facsimile:
+41-43-317-7992
(Name, Telephone, E-mail and/or
 
Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b)
 
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
American Depositary Shares
,
 
each representing one Registered Share
ABB
New York Stock Exchange
Registered Shares, par value CHF 0.12
N/A
New York Stock Exchange
*
_________________________________________
Securities registered or to be registered pursuant to Section 12(g)
 
of the Act: None.
Securities for which there is a reporting obligation pursuant
 
to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the
 
issuer’s classes of capital or common stock as of the close
 
of the period covered by the annual report:
1,958,344,400
 
Registered Shares
_________________________________________
Indicate by check mark if the registrant is a well-known seasoned
 
issuer, as defined in Rule 405 of the Securities
 
Act.
Yes
 
No
If this report is an annual or transition report, indicate by
 
check mark if the registrant is not required to file reports pursuant to Secti
 
on 13 or 15(d) of the Securities
Exchange Act of 1934. Yes
 
No
Note – Checking the box above will not relieve any registrant required
 
to file reports pursuant to Section 13 or 15(d) of the Securities
 
Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all
 
reports required to be filed by Section 13 or 15(d) of the Securities
 
Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
 
was required to file such reports), and (2) has been subject
 
to such filing requirements for the past
90 days.
Yes
 
No
Indicate by check mark whether the registrant has submitted
 
electronically every Interactive Data File required to be submitted
 
pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or
 
for such shorter period that the registrant was required to submit
 
such files).
Yes
 
No
Indicate by check mark whether the registrant is a large
 
accelerated filer, an accelerated filer,
 
a non-accelerated filer, or an emerging
 
growth company. See definition of
“large accelerated filer,” “accelerated
 
filer,” and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Emerging growth company
If an emerging growth company that prepares its
 
financial statements in accordance with U.S. GAAP,
 
indicate by check mark if the registrant has elected not
 
to use the
extended transition period for complying with any new or
 
revised financial accounting standards† provided pursuant to Section
 
13(a) of the Exchange Act.
 
† The term “new or revised financial accounting standard” refers
 
to any update issued by the Financial Accounting Standards
 
Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a
 
report on and attestation to its management’s
 
assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act
 
(15 U.S.C. 7262(b)) by the registered public accounting
 
firm that prepared or issued its audit report.
 
Indicate by check mark which basis of accounting the registrant
 
has used to prepare the financial statements included in this
 
filing:
 
U.S. GAAP
 
International Financial Reporting Standards as issued
 
by the International Accounting Standards Board
 
Other
If “Other” has been checked in response to the previous question,
 
indicate by check mark which financial statement item the registrant
 
has elected to follow.
 
Item 17
 
Item 18
If this is an annual report, indicate by check mark whether the registrant
 
is a shell company (as defined in Rule 12b-2 of the Exchange
 
Act). Yes
 
No
__________________________________________________
*
 
Listed on the New York
 
Stock Exchange not for trading or quotation purposes,
 
but only in connection with the registration of American Depositary Shares
 
pursuant to
the requirements of the Securities and Exchange Commission.
 
(i)
TABLE OF CONTENTS
Page
PART I
4
Item 1.
Identity of Directors, Senior Management and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 4.
Information on the Company
15
Item 4A.
Unresolved Staff Comments
35
Item 5.
Operating and
 
Financial Review and Prospects
36
Item 6.
Directors, Senior Management and Employees
78
Item 7.
Major Shareholders and Related Party Transactions
135
Item 8.
Financial Information
136
Item 9.
The Offer and Listing
137
Item 10.
Additional Information
138
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
147
Item 12.
Description of Securities Other than Equity Securities
149
PART II
150
Item 13.
Defaults, Dividend Arrearages and Delinquencies
150
Item 14.
Material Modifications to the Rights of Security Holders
 
and Use of Proceeds
150
Item 15.
Controls and Procedures
150
Item 16.
[Reserved]
151
Item 16A.
Audit Committee Financial Expert
151
Item 16B.
Code of Ethics
151
Item 16C.
Principal Accountant Fees and Services
151
Item 16D.
Exemptions from the Listing Standards for Audit Committees
152
Item 16E.
Purchase of Equity Securities by Issuer and Affiliated
 
Purchasers
152
Item 16F.
Change in Registrant’s Certifying Accountant
152
Item 16G.
Corporate Governance
153
Item 16H.
Mine Safety Disclosure
153
Item 16I.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
153
PART III
154
Item 17.
Financial Statements
154
Item 18.
Financial Statements
154
Item 19.
Exhibits
155
1
Introduction
ABB Ltd is a corporation organized under the laws of
 
Switzerland. In this Annual Report on Form 20-F
(Annual Report),
 
“the ABB Group,” “the Group,” “ABB,”
 
the “Company,”
 
“we,” “our” and “us” refer to ABB Ltd
and its consolidated subsidiaries (unless the context otherwise requires).
 
We also use these terms to refer to
ABB Asea Brown Boveri Ltd and its subsidiaries prior to the
 
establishment
 
of ABB Ltd as the holding
company for the entire ABB Group in 1999, as described in this
 
Annual Report under “Item 4. Information on
the Company—Introduction—History of the ABB Group”. Our American Depositary
 
Shares (each
representing one registered share of ABB Ltd) are referred
 
to as “ADSs”. The registered shares of ABB Ltd
are referred to as “shares”. Our principal corporate offices
 
are located at Affolternstrasse 44, CH-8050 Zurich,
Switzerland, telephone number +41-43-317-7111.
 
Our internet address is www.abb.com
 
or global.abb. The
information contained on or accessible from our Web
 
site is not incorporated into this annual report, and
 
you
should not consider it to be a part of this annual report.
Financial and other information
The Consolidated Financial Statements of ABB Ltd, including
 
the Notes thereto, as of December 31, 2021
and 2020,
 
and for each of the years in the three-year period
 
ended December 31, 2021, (our Consolidated
Financial Statements) have been prepared in accordance
 
with United States generally accepted accounting
principles (U.S. GAAP).
In this Annual Report: (i) “$,” “U.S. dollar” and “USD”
 
refer to the lawful currency of the United States
 
of
America; (ii) “CHF” and “Swiss franc” refer to the lawful currency
 
of Switzerland; (iii) “EUR” and “euro” refer to
the lawful currency of the participating member states of the
 
European Economic and Monetary Union
(Eurozone); (iv) “SEK” and “Swedish krona” refer to the
 
lawful currency of Sweden; (v) “Chinese renminbi”
and “CNY”
 
refer to the lawful currency of the People’s
 
Republic of China; and (vi) “INR” and “Indian Rupee”
refer to the lawful currency of India.
Except as otherwise stated, all monetary amounts in this
 
Annual Report are presented in U.S. dollars. Where
specifically indicated, amounts in Swiss francs have been translated
 
into U.S. dollars. These translations are
provided for convenience only,
 
and they are not representations that the Swiss
 
franc could be converted into
U.S. dollars at the rate indicated. The twelve o’clock buying
 
rate in the City of New York
 
for cable transfers as
certified for customs purposes by the Federal Reserve
 
Bank of New York
 
for Swiss francs on December 30,
2021, was $1.00 = CHF 0.9146.
 
The twelve o’clock buying rate for Swiss francs
 
on February 18, 2022,
 
was
$1.00 = CHF 0.9210.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report includes forward-looking statements
 
within the meaning of the United States Private
Securities Litigation Reform Act of 1995. We
 
intend such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements
 
contained in Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange
 
Act of 1934, as amended (Exchange Act). These
forward-looking statements can be identified by the use of forward
 
-looking terminology,
 
including the terms
“believes,” “estimates,” “anticipates,”
 
“expects,”
 
“intends,”
 
“may,”
 
“will,” or “should” or, in each case,
 
their
negative, or other variations or comparable terminology.
 
These forward-looking statements include all matters
that are not historical facts. They appear in a number of
 
places throughout this Annual Report and include
statements regarding our intentions, beliefs or current
 
expectations concerning, among other things, our
results of operations, financial condition, liquidity,
 
prospects, growth, dispositions, strategies and the
countries and industries in which we operate.
2
These forward looking statements include, but are not limited to,
 
statements about our financial condition and
performance, operating results, liquidity and our ability
 
to fund our business operations and initiatives, the
impact of the COVID-19 pandemic on our business, capital
 
expenditure and debt service obligations, plans
regarding our capital structure, ability to take advantage
 
of market opportunities and drive growth, our
products and service offerings and their anticipated
 
performance and impact across various industries and
consumer segments, anticipated benefits to the shareholders,
 
planned divestments, acquisitions and
integration, and related synergies and other benefits, investment
 
and risk management strategies, volatility in
the credit markets, oil prices, foreign currency exchange rates
 
and other market conditions, trends and
opportunities, industry trends and expectations, changing consumer
 
behavior and demands, our ability to
respond to changing business and economic conditions,
 
our comparative advantages, our commitments and
contingencies, availability of raw materials, and other plans,
 
goals, strategies, priorities and initiatives related
to our business, including our brand management initiative,
 
the implementation of ABB Way,
 
and cost-saving
measures, as well as, the following:
 
statements in “Item 3. Key Information—Risk Factors”,
 
statements in “Item 5. Operating and Financial Review
 
and Prospects” regarding our
management objectives, including our outlook, as well
 
as trends in results, prices, volumes,
operations, margins and overall market trends,
 
 
statements in “Item 8. Financial Information—Legal Proceedings”
 
regarding the outcome of
certain legal and compliance matters, and
 
statements in “Item 8. Financial Information—Dividends
 
and Dividend Policy” regarding our policy
on future dividend payments.
By their nature, forward-looking statements involve risks
 
and uncertainties because they relate to events and
depend on circumstances that may or may not occur in
 
the future. We caution you that forward-looking
statements are not guarantees of future performance and that
 
our actual results of operations, financial
condition and liquidity,
 
and the development of the countries and industries in which
 
we operate, may differ
materially from those described in or suggested by the forward-looking
 
statements contained in this Annual
Report. In addition, even if our results of operations, financial condition
 
and liquidity,
 
and the development of
the countries and industries in which we operate, are consistent
 
with the forward-looking statements
contained in this Annual Report, those results or developments
 
may not be indicative of results or
developments in subsequent periods. Important factors
 
that could cause actual results to differ materially
from our expectations are contained in cautionary statements
 
in this Annual Report and include, without
limitation, the following:
Business, economic and industry risks
 
Our business is exposed to risks associated with the COVID-19
 
pandemic.
 
Our business is exposed to risks associated with the volatile
 
global economic environment and
political conditions.
 
Our operations in emerging markets expose us to risks
 
associated with conditions in those
markets.
 
We may encounter difficulty in managing
 
our business due to the global nature of our operations.
 
We operate in very competitive and rapidly changing
 
markets and could be adversely affected
 
if
we fail to keep pace with technological changes.
 
Industry consolidation could result in more powerful competitors
 
and fewer customers.
3
 
Increases in costs or limitation of supplies of raw materials
 
may adversely affect our financial
performance.
 
Our multi-national operations expose us to the risk of fluctuation
 
s
 
in currency exchange rates.
 
The uncertainties relating to the United Kingdom’s
 
new relationship with the European Union and
its potential impact on the relationship between Switzer
 
land and the European Union, may have
a negative effect on cross-border trade and our business.
Operational risks
 
Increased information technology (IT) security threats
 
and more sophisticated cyber
attacks
could pose a risk to our systems, networks, products, solutions
 
and services.
 
Our business strategy includes making strategic divestitures. There
 
can be no assurance that
any divestitures will provide business benefit.
 
Anticipated benefits of historical, existing and potential
 
future mergers, acquisitions, joint
ventures or strategic alliances may not be realized.
 
There is no guarantee that our ongoing efforts to
 
reduce costs will be successful.
 
Illegal behavior by any of our employees or agents could have
 
a material adverse impact on our
consolidated operating results, cash flows, and financial position
 
as well as on our reputation and
our ability to do business.
 
We may be the subject of product liability claims.
 
Undertaking long
term, technically complex projects or projects that are
 
dependent upon factors
not wholly within our control could adversely affect
 
our profitability and future prospects.
 
 
If we are unable to obtain performance and other guarantees
 
from financial institutions, we may
be prevented from bidding on, or obtaining, some contracts,
 
or our costs with respect to such
contracts could be higher.
 
Our hedging activities may not protect us against the consequences
 
of significant fluctuations in
exchange rates, interest rates or commodity prices on
 
our earnings and cash flows.
Legal and regulatory risks
 
An inability to protect our intellectual property rights or actual
 
or alleged infringement of a third
party’s intellectual property rights could adversely
 
affect our business.
 
Failure to comply with evolving data privacy and data
 
protection laws and regulations or to
otherwise protect personal data, may adversely impact
 
our business and financial results.
 
Examinations by tax authorities and changes in tax regulations
 
could result in lower earnings and
cash flows.
 
We are subject to environmental laws and regulations
 
in the countries in which we operate. We
incur costs to comply with such regulations, and our ongoing operations
 
may expose us to
environmental liabilities.
 
We could be affected by future laws
 
or regulations enacted to address climate change concerns
as well as the physical effects of climate change.
4
General risk factors
 
If we are unable to attract and retain qualified management
 
and personnel then our business
may be adversely affected.
 
 
Our business subjects us to considerable potential exposure to
 
litigation and legal claims and
could be materially adversely affected if we incur
 
legal liability.
We urge you to read the other important factors
 
set forth under sections of this Annual Report entitled
“Item 3. Key Information—Risk Factors,”
 
“Item 4. Information on the Company”
 
and “Item 5. Operating and
Financial Review and Prospects”
 
for a more complete discussion of the important factors that could
 
affect our
future performance and the countries and industries in
 
which we operate. In light of these risks, uncertainties
and assumptions, the forward-looking circumstances described
 
in this Annual Report and the assumptions
underlying them may not occur.
Except as required by law or applicable stock exchange rules
 
or regulations, we undertake no obligation to
update or revise publicly any forward-looking statement,
 
whether as a result of new information, future events
or otherwise. All subsequent written and oral forward-looking
 
statements attributable to us or to persons
acting on our behalf are expressly qualified in their entirety
 
by the cautionary statements referred to above
and contained elsewhere in this Annual Report.
PART I
Item 1.
 
Identity of Directors, Senior Management and Advisers
Not applicable
Item 2.
 
Offer Statistics and Expected Timetable
Not applicable
Item 3.
 
Key Information
 
Risk factors
You should
 
carefully consider all of the information set forth in
 
this Annual Report and the following
description of risks and uncertainties that exist or that
 
we currently believe may exist. Our business, financial
condition or results of operations could be adversely affected
 
by any of these risks. Additional risks of which
we are unaware or that we currently deem immaterial may
 
also impair our business operations. This Annual
Report also contains forward-looking statements that involve risks
 
and uncertainties. Our results could differ
materially from those anticipated in these forward-looking statements
 
as a result of certain factors, including
those described below and elsewhere in this Annual Report.
 
See “Cautionary Note Regarding
Forward-Looking Statements”.
Business,
 
economic and industry risks
Our business is exposed to risks associated with
 
the COVID-19 pandemic.
The novel coronavirus (COVID-19) pandemic has had,
 
and continues to have, significant impacts on the
global economy including on demand for products, operational
 
predictability, the
 
movement of people and
products across borders, supply chains (including the
 
supply of semiconductors) and the cost of capital.
5
Given the global nature of our business, COVID-19
 
has had an adverse impact on our revenues and
operating margins in all of our businesses and is expected to continue
 
to have an impact at least in the short
term. In particular, our Robotics
 
and Process Industries businesses as well as our
 
service businesses have
been materially impacted. The ultimate extent to which the
 
pandemic impacts our business, liquidity,
 
results
of operations and financial condition will depend on future developments,
 
which are highly uncertain and
cannot be predicted with confidence, including the availability
 
and effectiveness of vaccines, future mutations
of the COVID-19 virus and any resulting impact on the
 
effectiveness of vaccines, the duration and
 
extent of
the pandemic and waves of infection, travel restrictions
 
and social distancing, the duration and extent of
business closures and business disruptions and the effectiveness
 
of actions taken to contain, treat and
prevent the disease. If we or our customers experience
 
prolonged shutdowns or other business disruptions,
our business, liquidity,
 
results of operations and financial condition may
 
be materially adversely affected and
our ability to access the capital markets may be limited.
Our business is exposed to risks associated with
 
the volatile global economic environment and
political conditions.
Adverse changes in economic or political conditions,
 
particularly in locations where our customers or
operations are located, as well as concerns about global trade,
 
global health crises, developments in energy
prices, and terrorist activities, could have a material adverse
 
effect on our business, financial condition,
results of operations and liquidity and may adversely impact
 
the demand for our products and services.
These and other factors may prevent our customers and
 
suppliers from obtaining the financing required to
pursue their business activities as planned, which may
 
force them to modify,
 
delay or cancel plans to
purchase or supply our products or services. In addition, if
 
our customers do not generate sufficient revenue,
or fail to timely obtain access to the capital markets, they
 
may not be able to pay,
 
or may delay payment of,
the amounts they owe us. Customers with liquidity issues
 
have delayed payments of amounts they owe us
and this had lead and may lead to additional bad debt expense for
 
us, which may adversely affect our results
of operations and cash flows. We are also subject
 
to the risk that the counterparties to our credit agreements
and hedging transactions may go bankrupt if they suffer
 
catastrophic demand on their liquidity that prevents
them from fulfilling their contractual obligations to us.
Our business environment is influenced also by numerous other
 
economic or political uncertainties which
may affect the global economy and the international
 
capital markets. In periods of slow economic growth
 
or
decline, our customers are more likely to buy less of our
 
products and services, and as a result we are more
likely to experience decreased revenues. Our businesses
 
are affected by the level of investments and
demand in the markets that we serve, principally utilities,
 
industry and transport & infrastructure. At various
times during the last several years, we also have experienced,
 
and may experience in the future, gross
margin declines in certain businesses, reflecting the effect
 
of factors such as competitive pricing pressures,
inventory write-downs, charges associated with the cancellation
 
of planned expansion and increases in
component and manufacturing costs resulting from higher
 
labor and material costs borne by our
manufacturers and suppliers that, as a result of competitive
 
pricing pressures or other factors, we are unable
to pass on to our customers. Economic downturns also
 
may lead to restructuring actions and associated
expenses. Uncertainty about future economic conditions
 
makes it difficult for us to forecast operating results
and to make decisions about future investments.
In addition, we are subject to the risks that our business
 
operations in or with certain countries may be
adversely affected by trade tariffs, trade
 
or economic sanctions or other restrictions imposed on these
countries, including the trade tensions between the United
 
States and China in recent years. These could
lead to increased costs for us or for our customers or limit
 
our ability to do business in or with certain
countries. In addition, actual or potential investors that object
 
to certain of these business operations may
adversely affect the price of our shares by disposing
 
or deciding not to purchase our shares. These countries
may from time to time include countries that are identified
 
by the United States as state sponsors of terrorism.
If any countries where or with whom we do business are
 
subject to such sanctions or restrictions, our
business, consolidated operating results, financial condition
 
and the trading price of our shares may be
adversely affected. In 2021, our total revenues
 
from business with countries identified by the U.S.
government as state sponsors of terrorism represented
 
significantly less than 1 percent of our total revenues.
Based on the amount of revenues and other relevant quantitative
 
and qualitative factors, we have determined
6
that our business in 2021 with countries identified by
 
the U.S. government as state sponsors of terrorism was
not material.
Our operations in emerging markets expose us to risks associated
 
with conditions in those markets.
A significant amount of our operations is conducted in the
 
emerging markets in South America, Asia, and the
Middle East and Africa. In 2021, approximately 40 percent of
 
our consolidated revenues were generated from
these emerging markets. Operations in emerging markets
 
can present risks that are not encountered in
countries with well-established economic and political systems,
 
including:
 
economic instability,
 
which could make it difficult for us to anticipate
 
future business conditions in
these markets, cause delays in the placement of orders
 
for projects that we have been awarded
and subject us to volatile geographic markets,
 
political or social instability,
 
which could make our customers less willing to make
 
cross-border
investments in such regions and could complicate our
 
dealings with governments regarding
permits or other regulatory matters, local businesses and workforces,
 
boycotts and embargoes that may be imposed by the international
 
community on countries in
which we do business or where we seek to do business
 
could adversely affect the ability of our
operations in those countries to obtain the materials
 
necessary to fulfill contracts and our ability
to pursue business or establish operations in those countries,
 
foreign state takeovers of our and our customers’ facilities,
 
significant fluctuations in interest rates and currency exchange
 
rates,
 
the imposition of unexpected taxes or other payments
 
on our revenues in these markets,
 
our inability to obtain financing and/or insurance coverage
 
from export credit agencies, and
 
exchange controls and other restrictions by foreign governments.
Additionally, political
 
and social instability resulting from increased violence
 
in certain countries in which we
do business has raised concerns about the safety of our
 
personnel. These concerns may hinder our ability to
send personnel abroad and to hire and retain local personnel.
 
Such concerns may require us to increase
security for personnel traveling to and working in affected
 
countries or to restrict or wind-down operations
 
in
such countries, which may negatively impact us and result
 
in higher costs and inefficiencies.
Consequently, our
 
exposure to the conditions in or affecting
 
emerging markets may adversely affect our
business, financial condition, results of operations and liquidity.
We may encounter difficulty in managing our
 
business due to the global nature of our operations.
We operate in approximately 100 countries around
 
the world and, as of December 31, 2021, employed
 
about
105,000 people, of which approximately 48 percent were
 
located in the Europe region, approximately
28 percent in the Asia, Middle East and Africa region and
 
approximately 24 percent in the Americas region.
To
 
manage our day-to-day operations, we must deal with cultural
 
and language barriers and assimilate
different business practices. Due to our global
 
nature, we deal with a range of legal and regulatory systems
some of which are less developed and less well-enforced
 
than others. The laws and regulations to which we
are subject can change rapidly and in unexpected directions. Currency
 
and other local regulatory limitations
related to the transfer of funds exist in a number of countries where
 
we operate, including: China, India, the
Russian Federation, South Africa and Turkey.
 
All of this may impact our ability to protect our contractual,
intellectual property and other legal rights. In addition,
 
we are required to create compensation programs,
employment policies and other administrative programs
 
that comply with the laws of multiple countries. We
also must communicate, monitor and uphold group-wide
 
standards and directives across our global network,
including in relation to our suppliers, subcontractors and
 
other relevant stakeholders. Our failure to manage
7
successfully our geographically diverse operations could
 
impair our ability to react quickly to changing
business and market conditions and to enforce compliance
 
with group-wide standards and procedures.
We operate in very competitive and rapidly changing
 
markets and could be adversely affected if we
fail to keep pace with technological changes.
We operate in very competitive and rapidly changi
 
ng markets where we regularly need to innovate and
develop products, systems, services and solutions that
 
address the business challenges and needs of our
customers. The nature of these challenges varies across
 
the geographic markets and product areas that we
serve. The markets for our products and services are characterized
 
by evolving industry standards, which
may require us to modify our products and systems. The continual
 
development of advanced technologies for
new products and product enhancements is an important way
 
in which we remain competitive and maintain
acceptable pricing levels. If we fail to keep pace with technological
 
changes in the industrial sectors that we
serve, we may experience lower revenues, price erosion and
 
lower margins.
Our primary competitors are sophisticated companies with significant
 
resources that may develop products
and services that are superior to our products and services or
 
may adapt more quickly than we do to new
technologies, industry changes or evolving customer requirements.
 
We are also facing increased competition
from low cost competitors in emerging markets, which may give
 
rise to increased pressure to reduce our
prices. Our failure to anticipate or respond quickly to technological
 
developments or customer requirements
could adversely affect our business, results of operations,
 
financial condition and liquidity.
Industry consolidation could result in more powerful
 
competitors and fewer customers.
Competitors in the industries in which we operate are consolidating.
 
In particular, the automation
 
industry is
undergoing consolidation that is reducing the number but
 
increasing the size of companies that compete with
us. As our competitors consolidate, they likely will increase
 
their market share, gain economies of scale that
enhance their ability to compete with us and/or acquire
 
additional products and technologies that could
displace our product offerings.
Our customer base also is undergoing consolidation. Consolidation
 
within our customers’ industries (such as
the marine and cruise industry,
 
automotive, aluminum, steel, pulp and paper and pharmaceutical
 
industries
and the oil and gas industry) could affect our customers
 
and their relationships with us. If one of our
competitors’ customers acquires any of our customers, we may
 
lose that business. Additionally,
 
as our
customers become larger and more concentrated, they
 
could exert pricing pressure on all suppliers, including
us. If we were to lose market share or customers or face
 
pricing pressure due to consolidation of our
customers, our results of operations
 
and financial condition could be adversely affected.
Increases in costs or limitation of supplies of raw
 
materials may adversely affect our financial
performance.
We purchase large amounts of commodity-based raw
 
materials, including steel, copper,
 
aluminum and oil.
Prevailing prices for such commodities are subject to fluctuations
 
due to changes in supply and demand and
a variety of additional factors beyond our control, such
 
as global political and economic conditions.
Historically, prices
 
for some of these raw materials have been volatile
 
and unpredictable, and such volatility is
expected to continue. Therefore, commodity price changes may
 
result in unexpected increases in raw
material costs, and we may be unable to increase our
 
prices to offset these increased costs without suffering
reduced volumes, revenues or operating income. We
 
do not fully hedge against changes in commodity prices
and our hedging procedures may not work as planned.
We depend on third parties to supply raw materials
 
and other components and may not be able to obtain
sufficient quantities of these materials and components,
 
which could limit our ability to manufacture products
on a timely basis and could harm our profitability.
 
The risk that we may not be able to obtain raw
 
materials or
other components is increased by the COVID-19 pandemic.
 
For some raw materials and components, we
rely on a single supplier or a small number of suppliers.
 
If one of these suppliers were unable to provide
 
us
with a raw material or component we need, our ability to
 
manufacture some of our products could be
adversely affected until we are able to establish a
 
new supply arrangement. We may be unable
 
to find a
8
sufficient alternative supply channel in a reasonable
 
time period or on commercially reasonable terms,
 
if at
all.
 
In 2021, global supply chain constraints caused us to
 
experience some delays in supplier deliveries and
product shortages for various categories such as semiconductors
 
and certain other raw materials as well as
constraints in the transportation of inbound supplies. We
 
took steps to mitigate supply chain shortages,
including building up buffer stocks, approving new
 
suppliers and redesigning certain products. Although we
were able to mitigate some disruptions and support our
 
business growth, we have experienced some delays
in delivering to certain of our customers and cannot assure
 
you that our mitigation efforts will be sufficient
 
to
overcome these supply chain constraints if these continue
 
or worsen in 2022.
If our suppliers are unable to deliver sufficient
 
quantities of materials on a timely basis, the manufacture and
sale of our products may be disrupted, we may be required
 
to assume liability under our agreements with
customers and our sales and profitability could be materially
 
adversely affected.
Our multi-national operations expose us to the risk
 
of fluctuations in currency exchange rates.
Currency exchange rate fluctuations have had, and could continue
 
to have, a material impact on our
operating results, the comparability of our results between
 
periods, the value of assets or liabilities as
recorded on our Consolidated Balance Sheet and the price of
 
our securities. Volatility in exchange
 
rates
makes it harder to predict exchange rates and perform
 
accurate financial planning. Changes in exchange
rates can unpredictably and adversely affect
 
our consolidated operating results and could result
 
in exchange
losses.
Currency Translation Risk.
 
The results of operations and financial position of
 
most of our non-U.S.
companies are initially recorded in the currency of the country
 
in which each such company resides, which
we call “local currency”. That financial information is then
 
translated into U.S. dollars at the applicable
exchange rates for inclusion in our Consolidated Financial
 
Statements. The exchange rates between local
currencies and the U.S. dollar can fluctuate substantially,
 
which could have a significant translation effect
 
on
our reported consolidated results of operations and financial
 
position.
Increases and decreases in the value of the U.S. dollar versus
 
local currencies will affect the reported value
of our local currency assets, liabilities, revenues and expenses
 
in our Consolidated Financial Statements,
even if the value of these items has not changed in local currency
 
terms. These translations could
significantly and adversely affect our results of operations
 
and financial position from period to period.
Currency Transaction Risk.
 
Currency risk exposure also affects our operations
 
when our sales are
denominated in currencies that are different from
 
those in which our manufacturing or sourcing costs are
incurred. In this case, if, after the parties agree on a price, the
 
value of the currency in which the price is to be
paid were to weaken relative to the currency in which
 
we incur manufacturing or sourcing costs, there would
be a negative impact on the profit margin for any such
 
transaction. This transaction risk may exist regardless
of whether there is also a currency translation risk as described
 
above.
Currency exchange rate fluctuations in those currencies
 
in which we incur our principal manufacturing
expenses or sourcing costs may adversely affect
 
our ability to compete with companies whose costs are
incurred in other currencies. If our principal expense currencies
 
appreciate in value against such other
currencies, our competitive position may be weakened.
The uncertainties relating to the United Kingdom’s
 
new relationship with the European Union and its
potential impact on the relationship between Switzerland
 
and the European Union, may have a
negative effect on cross-border trade and our business.
The United Kingdom has withdrawn from the European
 
Union and has negotiated the terms of such
departure (the UK-EU Trade and Cooperation
 
Agreement or TCA). The TCA is subject to formal approval
 
by
the European Parliament and the Council of the European Union
 
before it comes into effect and has been
applied provisionally since January 1, 2021. Because the agreement
 
merely sets forth a framework in many
respects and will require complex additional bilateral negotiations
 
between the United Kingdom and the
9
European Union as both parties continue to work on the
 
rules for implementation, significant political and
economic uncertainty remains and this has had and may
 
continue to have a material effect on cross-border
trade with the United Kingdom and with the European
 
Union. Lack of clarity about future United Kingdom
laws and regulations, potentially divergent national laws,
 
the possibility of increased regulatory complexities,
or future developments in the European Union could depress
 
economic activity,
 
reduce demand for our
products and services, restrict our access to capital, and
 
diminish or eliminate barrier-free access between
the United Kingdom and other European Union member
 
states or among the European economic area
overall. Furthermore, the TCA may influence discussions
 
on open trade and political matters between
Switzerland and the European Union. Any of these factors
 
could have an adverse effect on our business,
financial condition and results of operations.
Operational risks
Increased information technology (IT) security threats and
 
more sophisticated cyber-attacks could
pose a risk to our systems, networks, products, solutions
 
and services.
We have observed a global increase in IT security
 
threats and more sophisticated cyber-attacks, which pose
a risk to the security of systems and networks and the
 
confidentiality, availability
 
and integrity of data stored
and transmitted on those systems and networks. Despite our efforts,
 
we have experienced, and may in the
future experience, cyber-attacks against us and we have incurred
 
and will continue to incur substantial costs
to reduce the cyber risks to our systems, networks,
 
products, solutions and services. Similarly,
 
we have
observed a continued increase in attacks generally against
 
industrial control systems as well as against our
customers and the systems we supply
 
to them, which pose a risk to the security of those systems
 
and
networks. Future attacks could potentially lead to the compromising
 
of confidential information, disruption of
our business, improper use or downtime of our systems
 
and networks or those we supplied to our customers,
manipulation, corruption,
 
inaccessibility and destruction of data, defective products
 
or services, production
downtimes and supply shortages.
 
Such attacks may also expose us to loss of business, claims
 
or regulatory
action. Any such impact in turn could adversely affect
 
our reputation, competitiveness and results of
operations. Our insurance coverage may not be adequate
 
to cover all the costs related to cyber security
attacks or disruptions
 
resulting from such events. Due to the nature of these security
 
threats, the nature and
scope of the impact of any future incident cannot be predicted.
Our business strategy includes
 
making strategic divestitures. There can be
 
no assurance that any
divestitures will provide business benefit.
Our strategy includes divesting certain businesses. The divestiture
 
of an existing business could reduce our
future profits and operating cash flows and make our financial
 
results more volatile. We may also retain
certain obligations or grant indemnities in connection with
 
a divestment. We may not find suitable purchasers
for our non-core businesses and may continue to pay operating
 
costs associated with these businesses.
Failed attempts to divest non-core businesses may distract
 
management’s attention from other business
activities, erode employee morale and customers’ confidence,
 
and harm our business. A divestiture could
also cause a decline in the price of our shares and increased reliance
 
on other elements of our core business
operations. Whether we realize the anticipated benefits
 
of a divestment, including our divestment in 2020 of
80.1 percent of the Power Grids business and the divestment
 
in 2021 of our Mechanical Power Transmission
business,
 
depends on whether we successfully manage the related risks.
 
If we do not successfully manage
the risks associated with a divestiture, our business, financial
 
condition, and results of operations could be
adversely affected.
Anticipated benefits of historical, existing and potential
 
future mergers, acquisitions, joint ventures
or strategic alliances may not be realized.
As part of our overall strategy,
 
we may, from time
 
to time, acquire businesses or interests in businesses,
including noncontrolling interests, or form joint ventures
 
or create strategic alliances. Whether we realize the
anticipated benefits, including operating synergies and cost
 
savings, from these transactions, depends, in
part, upon the integration between the businesses involved,
 
the performance and development of the
10
underlying products, capabilities or technologies, our correct
 
assessment of assumed liabilities and the
management of the operations in question. Accordingly,
 
our financial results could be adversely affected by
unanticipated performance and liability issues, transaction-related
 
charges, amortization related to
intangibles, charges for impairment of long-term assets
 
and partner performance.
There is no guarantee that our ongoing efforts to reduce
 
costs will be successful.
We seek continued cost savings through operational
 
excellence and supply chain management. Lowering our
cost base is important for our business and future competitiveness.
 
However, there is no guarantee
 
that we
will achieve this goal. If we are unsuccessful and the shortfall
 
is significant, there could be an adverse effect
on our business, financial condition, and results of operations.
Illegal behavior by any of our employees or agents
 
could have a material adverse impact on our
consolidated operating results, cash flows, and financial position
 
as well as on our reputation and
our ability to do business.
Certain of our employees or agents have taken, and may
 
in the future take, actions that violate or are alleged
to violate the U.S. Foreign Corrupt Practices Act of 1977
 
(FCPA), legislation
 
promulgated pursuant to the
1997 Organisation for Economic Co-operation and Development
 
(OECD) Convention on Combating Bribery
of Foreign Public Officials in International Business
 
Transactions, applicable antitrust
 
laws, other applicable
laws or regulations or our Code of Conduct. For more information
 
regarding investigations of past actions
taken by certain of our employees, see “Item 8. Financial
 
Information—Legal Proceedings”. Such actions
have resulted, and in the future could result, in governmental
 
investigations, enforcement actions, civil and
criminal penalties, including monetary penalties and other sanctions,
 
and civil litigation. It is possible that any
governmental investigation or enforcement action arising
 
from such matters could conclude that a violation
 
of
applicable law has occurred, and the consequences of
 
any such investigation or enforcement action may
have a material adverse impact on our consolidated
 
operating results, cash flows and financial position. In
addition, such actions, whether actual or alleged, could
 
damage our reputation and ability to do business.
Further, detecting, investigating
 
and resolving such actions could be expensive and
 
could consume
significant time and attention of our senior management.
 
While we are committed to conducting business in a
legal and ethical manner, our
 
internal control systems at times have not been, and in
 
the future may not be,
completely effective to prevent and detect such
 
improper activities by our employees and agents.
 
We are
subject to certain ongoing investigations by governmental agencies.
We may be the subject of product liability claims.
We may be required to pay for losses or injuries
 
purportedly caused by the design, manufacture or operation
of our products and systems. Additionally,
 
we may be subject to product liability claims for the improper
installation of products and systems designed and manufactured
 
by others.
Product liability claims brought against us may be based
 
in tort or in contract, and typically involve claims
seeking compensation for personal injury or property damage. Claims
 
brought by commercial businesses are
often made also for financial losses arising from interruption to
 
operations. Depending on the nature and
application of many of the products we manufacture, a defect
 
or alleged defect in one of these products could
have serious consequences. For example:
 
If the products produced by our electricity-related businesses
 
are defective, there is a risk of fire,
explosions and power surges, and significant damage
 
to electricity generating, transmission and
distribution facilities as well as electrical shock causing injury
 
or death.
 
If the products produced by our automation-related businesses
 
are defective, our customers
could suffer significant damage to facilities and
 
equipment that rely on these products and
systems to properly monitor and control their manufacturing
 
processes. Additionally,
 
people
could be exposed to electrical shock and/or other harm causing
 
injury or death.
11
 
If any of our products contain hazardous substances, then there
 
is a risk that such products or
substances could cause injury or death.
 
If any of our protective products were to fail to function
 
properly, there is a risk
 
that such failure
could cause injury or death.
If we were to incur a very large product liability claim, our
 
insurance protection might not be adequate or
sufficient to cover such a claim in terms of paying
 
any awards or settlements, and/or paying for our
 
defense
costs. Further, some claims
 
may be outside the scope of our insurance coverage.
 
If a litigant were successful
against us, a lack or insufficiency of insurance coverage
 
could result in an adverse effect on our business,
financial condition, results of operations and liquidity.
 
Additionally, a well
 
-publicized actual or perceived issue
relating to us or our products could adversely affect
 
our market reputation, which could result in a decline
 
in
demand for our products and reduce the trading price
 
of our shares. Furthermore, if we were required or we
otherwise determined to make a product recall, the costs
 
could be significant.
Undertaking long-term, technically complex projects or projects
 
that are dependent upon factors not
wholly within our control could adversely affect our profitability
 
and future prospects.
 
We derive a portion of our revenues from long-term,
 
fixed price and turnkey projects and from other
technically complex projects that can take many months,
 
or even years, to complete. Such contracts typically
involve substantial risks, including the possibility that
 
we may underbid and consequently have no means
 
of
recouping the actual costs incurred, and the assumption
 
of a large portion of the risks associated with
completing related projects, including the warranty obligations.
 
Some projects involve technological risks,
including in cases where we are required to modify our
 
existing products and systems to satisfy the technical
requirements of a project, integrate our products and systems
 
into the existing infrastructure and systems at
the installation site, or undertake ancillary activities such
 
as civil works at the installation site. Our revenue,
cost and gross profit realized on such contracts can vary,
 
sometimes substantially,
 
from our original
projections for numerous reasons, including:
 
unanticipated issues with the scope of supply,
 
including modification or integration of supplied
products and systems that may require us to incur incremental
 
expenses to remedy such issues,
 
 
the quality and efficacy of our products and services
 
cannot be tested and proven in all situations
and environments and may lead to premature failure or
 
unplanned degradation of products,
 
changes in the cost of components, materials or labor,
 
difficulties in obtaining required governmental permits
 
or approvals,
 
delays caused by customers, force majeure or local weather
 
and geological conditions, including
the ongoing COVID-19 pandemic and natural disasters,
 
shortages of construction equipment,
 
changes in law or government policy,
 
supply bottlenecks, especially of key components,
 
 
suppliers’, subcontractors’ or consortium partners’ failure
 
to perform or delay in performance,
 
 
diversion of management focus due to responding to unforeseen
 
issues, and
 
loss of follow-on work.
These risks are exacerbated if a project is delayed because
 
the circumstances upon which we originally bid
and quoted a price may have changed in a manner that
 
increases our costs or other liabilities relating to the
project. In addition, we sometimes bear the risk of delays
 
caused by unexpected conditions or events. Our
project contracts often subject us to penalties or damages
 
if we cannot complete a project in accordance with
12
the contract schedule. In certain cases, we may be required
 
to pay back to a customer all or a portion of the
contract price as well as potential damages (which may
 
significantly exceed the contract price), if we fail to
meet contractual obligations.
If we are unable to obtain performance and other guarantees
 
from financial institutions, we may be
prevented from bidding on, or obtaining, some contracts,
 
or our costs with respect to such contracts
could be higher.
In the normal course of our business and in accordance
 
with industry practice, we provide a number of
guarantees including bid bonds, advance payment bonds
 
or guarantees, performance bonds or guarantees
and warranty bonds or guarantees, which guarantee our
 
own performance. These guarantees may include
guarantees that a project will be completed on time or that a
 
project or particular equipment will achieve other
defined performance criteria. If we fail to satisfy any defined criteria,
 
we may be required to make payments
in cash or in kind. Performance guarantees frequently are requested
 
in relation to large projects.
Some customers require that performance guarantees
 
be issued by a financial institution. In considering
whether to issue a guarantee on our behalf, financial institutions
 
consider our credit ratings. If, in the future,
we cannot obtain such a guarantee from a financial
 
institution on commercially reasonable terms or at all, we
could be prevented from bidding on, or obtaining, some contracts,
 
or our costs with respect to such contracts
could be higher, which would reduce
 
the profitability of the contracts. If we cannot obtain
 
guarantees on
commercially reasonable terms or at all from financial institutions
 
in the future, there could be a material
impact on our business, financial condition, results of operations
 
or liquidity.
Our hedging activities may not protect us against the
 
consequences of significant fluctuations in
exchange rates, interest rates or commodity prices
 
on our earnings and cash flows.
Our policy is to hedge material currency exposures by entering
 
into offsetting transactions with third-party
financial institutions. Given the effective horizons
 
of our risk management activities and the anticipatory
nature of the exposures intended to be hedged, there
 
can be no assurance that our currency hedging
activities will fully offset the adverse financial impact
 
resulting from unfavorable movements in foreign
exchange rates. In addition, the timing of the accounting
 
for recognition of gains and losses related to a
hedging instrument may not coincide with the timing of
 
gains and losses related to the underlying economic
exposures.
As a resource-intensive operation, we are exposed to
 
a variety of market and asset risks, including the
effects of changes in commodity prices and interest rates.
 
We monitor and manage these exposures
 
as an
integral part of our overall risk management program, which recognizes
 
the unpredictability of markets and
seeks to reduce the potentially adverse effects
 
on our business. As part of our effort to manage
 
these
exposures, we may enter into commodity price and interest
 
rate hedging arrangements. Nevertheless,
changes in commodity prices and interest rates cannot
 
always be predicted or hedged.
If we are unable to successfully manage the risk of changes
 
in exchange rates, interest rates or commodity
prices or if our hedging counterparties are unable to perform
 
their obligations under our hedging agreements
with them, then changes in these rates and prices could
 
have an adverse effect on our financial condition
 
and
results of operations.
Legal and regulatory risks
An inability to protect our intellectual property rights
 
or actual or alleged infringement of a third
party’s intellectual property rights could
 
adversely affect our business.
Our intellectual property rights are fundamental to all of
 
our businesses. We generate, maintain, utilize and
enforce a substantial portfolio of trademarks, trade dress,
 
patents and other intellectual property rights
globally. Intellectual
 
property protection is subject to applicable laws in
 
various local jurisdictions where
interpretations and protections vary or can be unpredictable
 
and costly to enforce. We use our intellectual
property rights to protect the goodwill of our products,
 
promote our product recognition, protect our
13
proprietary technology and development activities, enhance our
 
competitiveness and otherwise support our
business goals and objectives. However,
 
there can be no assurance that the steps we take to obtain,
maintain and protect our intellectual property rights will be adequate.
 
Our intellectual property rights may fail
to provide us with significant competitive advantages, particularly
 
in foreign jurisdictions that do not have, or
do not enforce, strong intellectual property rights. The weakening
 
of protection of our trademarks, trade
dress, patents and other intellectual property rights coul
 
d
 
adversely affect our business. In addition, there
exist risks around actual or alleged infringement of third-party
 
intellectual property rights, which could – even
with mitigation processes in place - lead to claims against
 
us that require significant resources to resolve. We
also may engage in legal action to protect our own intellectual property
 
rights, and enforcing our rights may
require considerable time, money and oversight, and existing
 
laws in the various countries in which we
provide services or solutions may offer only limited
 
protection.
Failure to comply with evolving data privacy and data
 
protection laws and regulations or to otherwise
protect personal data, may adversely impact our business
 
and financial results.
We are subject to many rapidly evolving privacy
 
and data protection laws and regulations around the world
including the General Data Protection Regulation (GDPR)
 
in Europe as well as the California Data Privacy
Act and the California Privacy Rights Act (effective
 
in January 2023) in the United States. This requires us to
operate in a complex environment where there are significant
 
constraints on how we can process personal
data across our business. The GDPR, which became
 
effective in May 2018, has established stringent data
protection requirements for companies doing business in or
 
handling personal data of individuals in the
European Union. The GDPR imposes obligations on data
 
controllers and processors including the
requirement to maintain a record of their data processing and
 
to implement policies and procedures as part of
their mandated privacy governance framework. Breaches
 
of the GDPR could result in substantial fines, which
in some cases could be up to four percent of our worldwide
 
revenue. In addition, a breach of the GDPR or
other data privacy or data protection laws or regulations
 
could result in regulatory investigations, reputational
damage, orders to cease/change our use of data, enforcement
 
notices, as well as potential civil claims
including class action type litigation. We have invested,
 
and continue to invest, human and technology
resources in our data privacy and data protection compliance
 
efforts. There can be no assurance that
 
any
such actions will be sufficient to prevent cybersecurity
 
breaches, disruptions, unauthorized release of
sensitive information or corruption of data. Despite such
 
actions, there is a risk that we may be subject to
fines and penalties, litigation and reputational harm if we fail
 
to properly process or protect the data or privacy
of third parties or comply with the GDPR or other applicable
 
data privacy and data protection regimes.
Examinations by tax authorities and changes in tax regulations
 
could result in lower earnings and
cash flows.
We operate in approximately 100 countries and
 
therefore are subject to different tax
 
regulations. Changes in
tax laws could result in a higher tax expense and higher
 
tax payments. Furthermore, this could materially
impact our tax-related receivables and liabilities as well
 
as deferred income tax assets and liabilities. In
addition, the uncertainty of the tax environment in some
 
regions could limit our ability to enforce our rights. As
a globally operating organization, we conduct business
 
in countries subject to complex tax rules, which may
be interpreted in different ways. Future interpretations
 
or developments of tax regimes may affect our tax
liabilities, returns on investments and business operations. We
 
are regularly examined by tax authorities in
various jurisdictions. An adverse decision by a tax authority
 
could cause a material adverse effect
 
on our
business, financial condition and results of operations.
We are subject to environmental laws and regulations
 
in the countries in which we operate. We incur
costs to comply with such regulations, and our ongoing
 
operations may expose us to environmental
liabilities.
Our operations are subject to U.S., European and other
 
laws and regulations governing the discharge of
materials into the environment or otherwise relating to
 
environmental protection. Our manufacturing facilities
use and produce paint residues, solvents, metals, oils and related
 
residues. We use petroleum-based
insulation in transformers and chloroparaffins
 
as a flame retardant. We have manufactured
 
and sold, and we
are using in some of our factories, certain types of transformers
 
and capacitors containing polychlorinated
biphenyls (PCBs). These are considered to be hazardous
 
substances in many jurisdictions in which we
14
operate. We may be subject to substantial liabilities
 
for environmental contamination arising from the use of
such substances. All of our manufacturing operations are
 
subject to ongoing compliance costs in respect of
environmental matters and the associated capital expenditure
 
requirements.
In addition, we may be subject to significant fines and
 
penalties if we do not comply with environmental laws
and regulations, including those referred to above. Some environmental
 
laws provide for joint and several or
strict liability for remediation of releases of hazardous
 
substances, which could result in us incurring a liability
for environmental damage without regard to our negligence
 
or fault. Such laws and regulations could expose
us to liability arising out of the conduct of operations or
 
conditions caused by others, or for our acts which
were in compliance with all applicable laws at the time
 
the acts were performed. Additionally,
 
we may be
subject to claims alleging personal injury or property damage
 
as a result of alleged exposure to hazardous
substances. Changes in the environmental laws and regulations,
 
or claims for damages to persons, property,
natural resources or the environment, could result in substantial
 
costs and liabilities to us.
We could be affected by future laws or regulations
 
enacted to address climate change concerns as
well as the physical effects of climate change.
Existing or pending laws and regulations intended to address
 
climate change concerns could affect us in the
future. We have incurred, and may need to incur
 
additional costs to comply with these laws and regulations
and any non-compliance could adversely affect
 
our reputation and result in significant fines. We could
 
also be
affected indirectly by increased prices for goods
 
or services provided to us by companies that are directly
affected by these laws and regulations and pass
 
their increased costs through to their customers. At this
time, we cannot estimate what impact such costs may
 
have on our business, results of operations or financial
condition. We could also be affected by the
 
physical consequences of climate change itself, although
 
we
cannot estimate what impact those consequences might have
 
on our business or operations. Any such
changes could also impact our ability to achieve our 2030 Sustainability
 
targets as well as the related costs
and resources necessary to do so.
General risk factors
If we are unable to attract and retain qualified management
 
and personnel then our business may be
adversely affected.
Our success depends in part on our continued ability to hire,
 
assimilate and retain highly qualified personnel,
particularly our senior management team and key employees.
 
Competition for highly qualified management
and technical personnel remains intense in the industries
 
and regions in which we operate. If we are unable
to attract and retain members of our senior management team
 
and key employees, including in connection
with our ongoing organizational transformation, this could
 
have an adverse effect on our business.
Our business subjects us to considerable potential exposure
 
to litigation and legal claims and could
be materially adversely affected if we incur legal liability.
We are subject to, and may become a party to, a variety
 
of litigation or other claims. Our business is subject
to the risk of claims involving current and former employees,
 
customers, partners, subcontractors, suppliers,
competitors, shareholders, government regulatory agencies
 
or others through private actions, class actions,
whistleblower claims, administrative proceedings, regulatory
 
actions or other proceedings. Our acquisition
activities have in the past and may in the future be subject
 
to litigation or other claims. While we maintain
insurance for certain potential liabilities, such insurance does
 
not cover all types and amounts of potential
liabilities and is subject to various exclusions as well as
 
caps on amounts recoverable.
15
Item 4.
 
Information on the Company
Introduction
About ABB
ABB is a leading global technology company that energizes
 
the transformation of society and industry to
achieve a more productive, sustainable future. By connecting
 
software to its electrification, robotics,
automation and motion portfolio, ABB pushes the boundaries
 
of technology to drive performance to new
levels. With a history of excellence stretching back more
 
than 130 years, ABB’s success is driven by about
105,000 talented employees.
Our business is international in scope and we generate
 
revenues in numerous currencies. We operate
 
in over
100 countries across three regions: Europe, the Americas,
 
and Asia, Middle East and Africa. We are
headquartered in Zurich, Switzerland.
We manage our company through our four
 
Business Areas: Electrification, Motion, Process Automation,
 
and
Robotics & Discrete Automation. For a breakdown of
 
our consolidated revenues (i) by Business Area,
 
(ii) by
geographic region, and (iii) by product type, see “Item
 
5. Operating and Financial Review and Prospects—
Analysis of results of operations—Revenues” and “Note
 
23 - Operating segment and geographic data” to
 
our
Consolidated Financial Statements.
 
Until June 30, 2020, we also operated the Power Grids business,
 
which
is reported as discontinued operations in the Consolidated Financial
 
Statements (see “Discontinued
operations” section below). On July 1, 2020, we completed
 
the divestment of 80.1 percent of the Power Grids
business to Hitachi Ltd (Hitachi). We retain a 19.9
 
percent ownership interest through our investment in
Hitachi Energy Ltd, formerly Hitachi ABB Power Grids
 
Ltd (Hitachi Energy) which beneficially owns or
controls all the subsidiaries of the Power Grids business
 
.
Our principal corporate offices are located at
 
Affolternstrasse 44, CH 8050 Zurich, Switzerland, telephone
number +41 43 317 7111.
 
Our agent for U.S. federal securities law purposes is ABB
 
Holdings Inc., located at
305 Gregson Drive, Cary,
 
North Carolina 27511.
 
Our internet address is www.abb.com
 
or global.abb.
 
The
information contained on or accessible from our Web
 
site is not incorporated into this annual report, and
 
you
should not consider it to be a part of this annual report.
 
The United States Securities and Exchange
Commission (SEC) maintains a website at www.sec.gov
 
which contains in electronic form each of the reports
and other information that we have filed electronically with
 
the SEC.
History of the ABB Group
The ABB Group was formed in 1988 through a merger
 
between Asea AB and BBC Brown Boveri AG. Initially
founded in 1883, Asea AB was a major participant in the introduction
 
of electricity into Swedish homes and
businesses and in the development of Sweden’s railway
 
network. In the 1940s and 1950s, Asea AB
expanded into the power,
 
mining and steel industries. Brown Boveri and Cie. (later
 
renamed BBC Brown
Boveri AG) was formed in Switzerland in 1891 and initially
 
specialized in power generation and turbines. In
the early to mid
1900s, it expanded its operations throughout Europe and
 
broadened its business operations
to include a wide range of electrical engineering activities.
In January 1988, Asea AB and BBC Brown Boveri AG each contributed
 
almost all of their businesses to the
newly formed ABB Asea Brown Boveri Ltd, of which they
 
each owned 50 percent. In 1996, Asea AB was
renamed ABB AB and BBC Brown Boveri AG was renamed
 
ABB AG. In February 1999, the ABB Group
announced a group reconfiguration designed to establish
 
a single parent holding company and a single class
of shares. ABB Ltd was incorporated on March 5, 1999,
 
under the laws of Switzerland. In June 1999,
ABB Ltd became the holding company for the entire ABB Group.
 
This was accomplished by having ABB Ltd
issue shares to the shareholders of ABB AG and ABB AB, the
 
two companies that formerly owned the ABB
Group. The ABB Ltd shares were exchanged for the shares
 
of those two companies, which, as a result of the
share exchange and certain related transactions, became wholly
owned subsidiaries of ABB Ltd.
16
As described above, on July 1, 2020, we divested 80.1
 
percent of our ownership in the Power Grids business
to Hitachi.
ABB Ltd shares are currently listed on the SIX Swiss Exchange,
 
the NASDAQ OMX Stockholm Exchange
and the New York
 
Stock Exchange (in the form of American Depositary Shares).
ABB Today
As a global leader in resource efficiency,
 
excelling in electrification and automation, our offering
 
is relevant for
the global energy transition, increased energy efficiency,
 
and the transition to more adaptive manufacturing
and automation, putting us right in the center of long-term
 
secular trends.
The ABB Purpose
The ABB Purpose captures what we do, and the ABB
 
Way describes how we do it. With
 
our Purpose at the
core, ABB strives to create superior value for customers,
 
employees and shareholders. The ABB Purpose is
summarized as:
 
We succeed by creating superior value.
 
We push the boundaries of technology to drive performance
 
to new levels.
 
We energize the transformation of society and
 
industry to achieve a more productive, sustainable
future.
Our core competencies
Our leadership in resource efficiency is based on our
 
core competencies, each of which constitutes a barrier
to entry: decades-long domain expertise, cutting-edge
 
technology and innovation as well as the ability to
scale operations and distribution.
With its long history,
 
ABB not only invented or pioneered many power and automation
 
technologies but has
retained technology and market leadership in many of
 
these areas. Being present in various vertical markets
for decades with close long-term relationships with customers
 
and channel partners has resulted in our
unique deep domain expertise, enabling a thorough understanding
 
of customers’ needs and operations.
We continuously evolve our offering to remain
 
a relevant and trusted partner to our customers. Our annual
non-order related research and development spending
 
in 2021 amounted to approximately 4.2 percent of
revenues. We focus our research and development
 
expenditures on key areas of innovation and have spent
approximately $7 billion since the beginning of 2016, focusing
 
on developing best-in-class products and
services in the fields of electrification and automation with
 
the goal of helping our customers to increased
productivity and lower their ecological footprint.
All our four Business Areas are market leaders in their respective
 
areas being in either the number 1 or 2
positions. Our global reach along with our extensive local
 
presence assists us in scaling innovations to
achieve stronger returns, which supports higher absolute investments
 
for future growth. Active globally,
 
our
revenues are well-balanced across regions with customers
 
served directly and through a strong channel
partner network.
The ABB Way
The ABB Way is the glue that unites
 
our Group and comprises a select number of common processes
covering our business model, our people and culture, the ABB
 
brand and our governance framework. It
facilitates accountability,
 
transparency and speed in ABB.
17
In our operating model, the Divisions represent the highest
 
level of operating decisions. They are closest to
their respective markets and customer needs. Each Division
 
progresses through the strategic mandates and
priorities of stability and profitability before growth. Meaning, in
 
order to deploy full focus on organic and
acquired growth to the extent of consolidating the market, the
 
business’ structure should be robust and
profitability should be at least in line with industry peers.
 
We have made good progress on the transition
through these priorities with two thirds of our Divisions,
 
representing approximately 60 percent of Group
revenues, now on a growth mandate.
Each Division has full accountability for its results and
 
carries the responsibility for business development,
and research and development for leading technology
 
to secure a number 1 or 2 market position. To
 
fully
complete the decentralized way of working at ABB, our
 
focus area in 2022 will be to make sure that we also
have accountability, transparency
 
and speed within all of the Divisions. Strong performance
 
management is
key in a decentralized business model. We apply a
 
monthly scorecard system for the Divisions and Business
Areas, based on a standardized set of Key Performance
 
Indicators, to support full transparency of
performance. It is accompanied by a mandatory target
 
to make annual productivity improvements of at least
3 percent each year.
The corporate functions focus on necessary strategic, financial
 
and governance activities, with a lean
headcount of approximately 800 employees.
Enhanced growth profile
Over the past several years, we have taken significant
 
organic and inorganic actions to align our business
portfolio to more attractive growth markets, increasing
 
our focus on discrete industries, as well as transport
and infrastructure, that offer better growth opportunities.
 
Additionally, we
 
have increased the proportion of
sales stemming from short-cycle businesses, meaning
 
a reduced proportion from project-related activities,
which should reduce the risk and volatility in our earnings.
 
This ongoing shift towards better quality of
revenues is part of ABB’s DNA which centers
 
around resource-efficiency in electrification
 
and automation.
The responsibility for growth has been fully transferred
 
to the Divisions,
 
as they are closest to customers.
This includes both organic and acquired growth. The Divisions
 
have the best insights into current and future
customer needs and are accountable for building their
 
respective business accordingly.
 
With more Divisions
transitioning over time from stability and profitability to
 
growth, we expect to see a continuous shift in our
growth profile.
Finally, the underlying
 
demand for our products, systems and services
 
is supported by strong sustainability
megatrends with more favorable regulations, improved technology
 
and changing consumer patterns all being
positive drivers. An example of such a megatrend is sustainable
 
transport. We estimate that approximately
10 percent of our order intake comes from this area and that
 
we have outgrown the market in recent years.
The related segments have different commercial
 
maturity, including
 
more mature technologies which already
generate significant orders, including traction systems in rail
 
or hybrid ships using Azipod® propulsion.
Segments that are in commercial take-off (i.e. currently
 
see very high growth rates) include electric vehicle
charging solutions or robotic solutions for electric
 
vehicle manufacturing. There are also very early-stage
segments which are still emerging and which might offer
 
a high potential in the future such as fully electric
mines (“eMines”) or alternative fuels such as hydrogen.
Businesses
Our markets
ABB is a leading global technology company with a comprehensive
 
and increasingly digitalized offering of
electrification, motion and automation solutions. Our
 
exposure to customers is geographically balanced while
catering to multiple end-markets and segments. We
 
believe that our portfolio is well positioned to benefit from
secular growth drivers, including urbanization, labor shortage,
 
shift to electrification, automation and
robotization, as well as other data and digitalization trends.
18
We are focused on creating superior customer value
 
through our comprehensive, modular offering,
combining traditional products and services with software
 
-enabled products and systems as well as digital
services and software that we sell both separately and
 
combined as scalable solutions. Superior software is
 
a
key differentiation of our digital offering
 
and about 60 percent of our approximately 7,000 employees
 
in
research and development are active in software development.
The majority of our businesses are market leaders within their respective
 
segments. We believe market
leadership is critical, as it provides the opportunity for
 
price leadership, which in turn supports profitability,
enabling us to invest in further research and development to
 
sustain our technological leadership. For a
discussion of the geographic distribution of our total revenues,
 
see “Item 5. Operating and Financial Review
and Prospects—Analysis of results of operations—Revenues.”
Industry market
Approximately half of our customers are industrial customers.
 
We serve production facilities and factories
 
all
around the world, from process industries such as oil and
 
gas, pulp and paper as well as mining, to discrete
industries including automotive, food and beverage and
 
consumer electronics. Automation, software and
digital services that help customers achieve improved
 
safety, uptime, energy
 
efficiency and productivity are
key to the success of our offerings in this market. The
 
ongoing COVID-19 pandemic has served as a
prominent reminder for companies of the importance of simplicity
 
and flexibility in automated production and
has accelerated customer demand for the digital services
 
and solutions we offer.
Industrial end-markets recovered from the initial pandemic-related
 
impacts. In discrete industries, end-
markets such as food and beverage, consumer electronics,
 
machine builders and general industry grew
strongly. Investments
 
in robotics by the automotive industry recovered
 
and we applied a strategic selective
order approach aimed at improving long-term profitability
 
in the segment.
Later-cycle process industries segments picked up especially
 
during the second half of 2021, benefiting from
a rebound in commodity prices and generally easing
 
international travel restrictions. This was particularly
 
the
case for the oil and gas segment, while the recovery in
 
segments such as pulp and paper,
 
mining or water
and wastewater had already started earlier.
Transport & infrastructure
 
market
Approximately one-third of our customers operate in the transport
 
& infrastructure market. Our expertise
provides efficient, reliable and sustainable solutions
 
for these customers, with a focus on energy efficiency
and reduced operating costs.
Transport & infrastructure markets were strong
 
in 2021. Buildings activity rebounded from the widespread
lockdowns of the previous year.
 
Data center markets continued to expand,
 
with ABB successful in offering
bundled solutions to hyperscale and co-location customers
 
in particular. Underlying demand
 
in rail for
electrification and traction solutions was also high, while
 
modest growth rates were impacted by the strong
order intake in 2020. In the marine sector,
 
we saw continued strong order demand
 
for our market-leading
electric propulsion systems. Services in the cruise segment started
 
to pick-up in the second half of 2021 in
anticipation of a recovery in cruising activities. EV charging
 
markets also continued to see very strong growth
rates.
Utilities market
ABB delivers solutions mainly for distribution utilities
 
and renewables customers, while continuing to service
conventional power generation customers with our control
 
and automation solutions. Following the
divestment of our Power Grids business to Hitachi in July
 
2020, our exposure to the utilities market has
decreased significantly.
During 2021, the renewables markets saw very strong
 
growth after a challenging, pandemic-impacted 2020.
Business levels in the conventional power generation
 
market improved, albeit from a low level. Demand from
electrical distribution utilities was strong, with ongoing investments
 
to increase grid reliability and resilience
with integrating increased renewables.
19
We serve industry,
 
transport & infrastructure and utilities through our
 
operating Divisions which are included
in our Business Areas. Developments in these Business
 
Areas are discussed in more detail below.
 
Revenue
figures presented in this Businesses section are before
 
intersegment eliminations.
Electrification Business Area
Overview
The products of the Electrification Business Area portfolio
 
are designed to enable safe, smart, and
sustainable electrification, with a full range of low- and
 
medium-voltage products and solutions, along with
pre-engineered packaged services and tailored solutions
 
for intelligent protection and connection.
The Electrification Business Area delivers products through
 
a global network of channel partners and end
customers. Most of the Business Area’s revenue
 
is derived from distributors and approximately a quarter
 
is
derived from direct sales to end-users. The remaining
 
revenues are generated from original equipment
manufacturers (OEMs), engineering, procurement, construction
 
(EPC) contracting companies, system
integrators, utilities and panel builders. The proportion of direct
 
compared to channel partner sales varies by
segment, product technology and geographic markets.
The Electrification Business Area had approximately
 
50,800 employees on December 31, 2021, and