Discrete Automation and Motion

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

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% Change

($ in millions, except Operational EBITDA margin %)

2012

2011

2010

2012

2011

(1)

Operational EBITDA margin % is calculated as Operational EBITDA divided by Operational revenues.

Orders

9,625

9,566

5,862

1

63

Order backlog at Dec. 31,

4,426

4,120

3,350

7

23

Revenues

9,405

8,806

5,617

7

57

Operational EBITDA

1,735

1,664

1,026

4

62

Operational EBITDA margin %(1)

18.4

18.9

18.3

n.a.

n.a.

EBIT

1,469

1,294

911

14

42

Reconciliation to Financial Statements

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($ in millions)

2012

2011

2010

(1)

For further details of FX/commodity derivative timing differences, see “Note 23 Operating segment and geographic data.

Operational revenues

9,405

8,817

5,613

FX/commodity timing differences on revenues(1)

(11)

4

Revenues (as per Financial Statements)

9,405

8,806

5,617

Operational EBITDA

1,735

1,664

1,026

FX/commodity timing differences on EBIT(1)

1

(19)

(2)

Restructuring-related costs

4

(10)

(35)

Acquisition-related expenses and certain non-operational items

(8)

(90)

Depreciation and amortization

(263)

(251)

(78)

EBIT (as per Financial Statements)

1,469

1,294

911

Orders

In 2012, orders were flat due to slower industrial growth globally in a more challenging macroeconomic environment. Lower demand from the renewable energy sector was offset by increased volumes from large orders in other sectors. The highest growth was achieved in the Robotics business due to several larger automotive orders. Our Motors and Generators business as well as our Power Electronics and Medium Voltage Drives business recorded single-digit growth, while orders in our Low Voltage Drives business were lower as a result of weaker demand in renewables.

In 2011, orders increased 63 percent (57 percent in local currencies) reflecting both increased demand for energy-efficient automation solutions, as well as the contribution from the U.S.-based industrial motor manufacturer Baldor, acquired in January 2011 (approximately half of the division’s order growth related to Baldor). The highest order growth was achieved in Motors and Generators due to the Baldor integration while Robotics orders increased due to improving demand in automotive and general industry sectors.

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

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(in %)

2012

2011

2010

Europe

37

37

46

The Americas

34

32

16

Asia

26

28

34

Middle East and Africa

3

3

4

Total

100

100

100

In 2012, the share of orders in the Americas increased due to double-digit growth in South America, as well as due to single-digit growth in North America. The share of orders in Europe was unchanged compared to 2011, as double-digit growth in the U.K. and Finland was offset by a decline in Germany and Spain. The share in Asia declined due to slower industrial growth and the weakening of the renewable energy business. Orders from MEA showed double-digit growth while its share of total orders remained at the same level, compared to 2011, as orders in other regions also increased.

All regions increased orders in 2011, with the highest growth in the Americas due to Baldor. With Baldor’s substantial presence in the U.S., the Americas’ share of the division’s total orders doubled in 2011, compared to 2010, and therefore all other regions’ shares declined, resulting in a more balanced global presence with three equally strong regions – Europe, the Americas and Asia.

Order backlog

Order backlog in 2012 grew 7 percent (6 percent in local currencies) as the order intake from large orders increased in our Robotics and Motors and Generators businesses, which have a longer execution time. The backlog for the Power Electronics and Medium Voltage Drives business was 3 percent higher, compared to 2011.

Order backlog in 2011 increased as orders were higher than revenues during the year. The highest increase came from the Robotics business, due to the high level of orders to be delivered in 2012 or later.

Revenues

In 2012, revenues grew due to higher execution from the backlog in the Robotics business as well as in the Power Electronics and Medium Voltage Drives business. Motors and Generators business reported single-digit growth in revenues compared to 2011, while revenues in the Low Voltage Drives business were lower, as orders declined due to weakening market demand.

Revenues in 2011 increased at a similar pace to orders, on the solid execution of the strong order backlog and due to the Baldor acquisition (which accounted for approximately 60 percent of the division’s revenue growth). The highest growth was achieved in Motors and Generators business, due to Baldor, and the Robotics business as a result of the strong order growth.

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

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(in %)

2012

2011

2010

Europe

37

38

48

The Americas

33

32

14

Asia

27

27

34

Middle East and Africa

3

3

4

Total

100

100

100

In 2012, the share of revenues from the Americas increased due to higher orders. Revenues in Europe grew due to the solid execution of the order backlog but Europe’s share was lower as revenues in the other regions grew faster. Asia achieved single-digit revenue growth but its share remained at the same level as 2011, as the revenues in other regions grew faster.

The geographic distribution of revenues changed substantially in 2011 with the integration of Baldor causing the share of the Americas to more than double compared to 2010. All regions increased revenues on higher orders as demand increased in most markets.

Operational EBITDA

In 2012, Operational EBITDA increased 4 percent while the Operational EBITDA margin was 18.4 percent compared to 18.9 percent in 2011. The improved Operational EBITDA was due to higher revenues. The margin was slightly lower mainly due to changes in the business mix as the share of high-margin businesses such as Low Voltage Drives was lower than in 2011. All businesses, except Low Voltage Drives, increased their Operational EBITDA, with the highest increase in the Robotics business. Revenue growth supported an increase in Operational EBITDA in the Motors and Generators business while the Power Electronics and Medium Voltage Drives business benefited from solid execution of the order backlog. Operational EBITDA in the Low Voltage Drives business was lower than in 2011, due to a decline in revenues caused by the weakening market conditions, as well as higher sales expenses and research and development spending.

In 2011, Operational EBITDA increased 62 percent (54 percent in local currencies) while the Operational EBITDA margin of 18.9 percent increased compared to 18.3 percent in 2010. The increase is based on a combination of higher revenues and the positive contribution from Baldor (approximately 23 percent of the division’s Operational EBITDA). All businesses, except Power Electronics and Medium Voltage Drives, improved, with the largest increase in the Robotics business due to the continued turnaround from the low level of 2009. The Motors and Generators business benefited from the Baldor integration, while higher revenues in the Low Voltage Drives business further increased Operational EBITDA.

EBIT

In 2012, EBIT grew 14 percent compared to 2011. Acquisition-related expenses and certain non-operational items were mainly transaction costs relating to the acquisition of Newave in Switzerland. Such acquisition-related expenses were substantially lower than in 2011, which included expenses related to the acquisition of Baldor. Depreciation and amortization increased mainly due to the acquisition of Newave.

In 2011, the difference between Operational EBITDA and EBIT was substantially higher than in 2010 due to acquisition-related expenses and certain non-operational items related to the acquisition of Baldor. These costs primarily included additional cost of sales resulting from the fair value adjustments of acquired inventories and transaction costs. Depreciation and amortization was substantially higher in 2011, compared to 2010, impacted by the acquisition of Baldor.

Fiscal year 2013 outlook

The uncertainty around the short-term prospects for Western Europe, the U.S. and China, which has influenced the short-cycle business growth in the latter part of 2012, is also likely to impact demand during 2013. We expect most markets to continue on lower growth rates in 2013. Despite this, we expect growth in orders and revenues, especially in emerging markets in Asia and South America. Furthermore, the need for improved energy efficiency and productivity in a wide range of industries will support the demand for automation solutions and energy efficient products provided by the Discrete Automation and Motion division.