Power Products

The financial results of our Power Products 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

11,040

11,068

9,778

13

Order backlog at Dec. 31,

8,493

8,029

7,930

6

1

Revenues

10,717

10,869

10,199

(1)

7

Operational EBITDA

1,585

1,782

1,861

(11)

(4)

Operational EBITDA margin %(1)

14.8

16.3

18.2

n.a.

n.a.

EBIT

1,328

1,476

1,636

(10)

(10)

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

10,702

10,901

10,202

FX/commodity timing differences on revenues(1)

15

(32)

(3)

Revenues (as per Financial Statements)

10,717

10,869

10,199

Operational EBITDA

1,585

1,782

1,861

FX/commodity timing differences on EBIT(1)

18

(36)

(4)

Restructuring-related costs

(65)

(70)

(44)

Acquisition-related expenses and certain non-operational items

(1)

Depreciation and amortization

(209)

(200)

(177)

EBIT (as per Financial Statements)

1,328

1,476

1,636

Orders

In 2012, order intake was maintained at the level of 2011 (increased 3 percent in local currencies) despite challenging economic and market conditions. Order intake was driven by steady demand in the industrial and distribution sectors and selective investments in the power transmission sector.

In 2011, orders were up 13 percent (8 percent in local currencies) driven by investments in the power distribution and industry sectors. Both large and base orders grew during the year.

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

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(in %)

2012

2011

2010

Europe

33

32

35

The Americas

27

26

26

Asia

29

33

29

Middle East and Africa

11

9

10

Total

100

100

100

In 2012, the contribution of orders from MEA increased as a result of power transmission infrastructure orders. The share of the Americas was driven by grid upgrades in North America and capacity-related investments in South America. Asia’s share declined in comparison to 2011 which included a large order in China. Europe was steady despite continued economic challenges restraining large scale investments.

In 2011, the contribution of orders from the Americas remained at the same level, but volumes were higher than in 2010, mainly driven by demand for distribution- and transmission-related products. Europe’s share declined due to slowdown in investments as a result of the macroeconomic situation. We saw a growth in Asia’s contribution with significant large order wins in China as well as higher base orders. The share of MEA remained around the same level as in 2010.

Order backlog

In 2012, order backlog increased 6 percent (4 percent in local currencies) compared to 2011. The increase was mainly driven by transmission orders, which have a longer order-to-revenue conversion cycle, and steady base orders.

In 2011, order backlog increased 1 percent (4 percent in local currencies) compared to 2010. The increase in order backlog in 2011 reflects the higher order intake from the power distribution and industry sectors as well as some significant large orders in the transmission sector.

Revenues

In 2012, revenues decreased 1 percent (increased 2 percent in local currencies) reflecting the timing of order backlog conversion and market conditions. Revenues from distribution- and industry-related businesses were steady while the decrease in transmission-related volumes reflected the order backlog conversion. Service revenues grew and represented an increased share of total division revenues.

In 2011, revenues grew 7 percent (2 percent in local currencies) due to higher volumes in the short- and mid-cycle business such as medium-voltage equipment and distribution transformers. Revenues from late-cycle businesses such as large power transformers were flat partly as a result of the lower transmission-related order backlog. Service revenues saw a double-digit growth.

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

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(in %)

2012

2011

2010

Europe

32

34

34

The Americas

27

27

26

Asia

32

30

31

Middle East and Africa

9

9

9

Total

100

100

100

In 2012, Asia increased its share of revenues reflecting the timing of order execution. The share of Europe declined due to continued economic uncertainty and selective capital investments by customers. The Americas maintained its share of revenues due to higher demand in the U.S.

In 2011, the regions maintained their share of total revenues. The Americas showed a small increase due to growth in the U.S. Asia’s share was slightly lower due to a lower transmission related backlog.

Operational EBITDA

In 2012, Operational EBITDA and Operational EBITDA margin were lower, reflecting the execution of lower-margin order backlog as a result of pricing pressure. Cost saving initiatives helped to partially reduce the impact.

In 2011, Operational EBITDA and Operational EBITDA margin were lower primarily due to the execution of lower margin orders from the backlog, reflecting the continued pricing pressure in an extremely competitive market across all businesses. However, cost savings partly mitigated this price impact.

EBIT

In 2012, EBIT was lower than 2011, primarily due to the explanations in the “Operational EBITDA” section above. In part this was offset by lower restructuring-related charges and a positive effect from FX/commodity derivatives timing differences.

In 2011, EBIT was lower than 2010. In addition to the effects described in the “Operational EBITDA” section, EBIT was lower as a result of higher restructuring-related charges, depreciation and amortization and a negative effect from FX/commodity derivatives timing differences.

Fiscal year 2013 outlook

The overall investment climate remains cautious with several major geographical areas still experiencing economic challenges. Emerging markets are still growing, although at a slower pace. The outlook for China continues to be somewhat uncertain with some optimistic signs emerging. Industrial investment remains largely focused in sectors like oil and gas and mining. The power transmission utility sector is still seeing selective project investments while distribution demand seems to be leveling out in some regions driven by a deceleration in electricity consumption growth rates. Based on the current level of demand and the overall capacity situation in the transmission sector, pricing pressure persists, but is higher in some markets and leveling out in others.