ABB India Annual Report 2009

Driving sustainable growth ABB India Annual Report 2009

Contents

01 Board of directors and other information 02 5 year highlights 07 Corporate Management Committee 11 Notice to members 12 Directors report 26 Managements discussion and analysis 31 CEO / CFO certification 32 Auditors report 36 Balance sheet, profit & loss account and schedules 47 Notes to accounts 65 Cash flow statement 67 Balance sheet abstract and companys general business profile

ABB Limited

Board of Directors Gary Steel, Chairman Biplab Majumder, Vice Chairman & Managing Director N.S. Raghavan Nasser Munjee D. E. Udwadia A. K. Dasgupta Peter Leupp Francis Duggan (w.e.f. 26.02.2010) Bernhard Jucker (upto 20.03.2009) Veli-Matti Reinikkala (upto 31.03.2009) K. Rajagopal, Whole-time Director (upto 31.07.2009)

Bankers Canara Bank Citibank N.A. DBS Bank Limited Deutsche Bank AG HDFC Bank Limited ICICI Bank Limited IDBI Bank Limited State Bank of India The Hongkong & Sanghai Banking Corporation Limited The Royal Bank of Scotland N.V. Union Bank of India Yes Bank Limited

Company Secretary B. Gururaj Corporate Management Committee Biplab Majumder Amlan Datta Majumdar S. Ramesh Shankar N. Venu B. Gururaj Prakash Nayak Madhav Digraskar R. Narayanan Venkatesh Prasad G.N.V. Subba Rao Madhav Vemuri Ranjan K. De S. Karun

Auditors S.R. BATLIBOI & CO. Chartered Accountants

Registered Office 2nd Floor, East Wing, Khanija Bhavan, 49, Race Course Road, Bengaluru- 560 001.

Registrar & Share Transfer Agents Karvy Computershare Private Limited No. 51/2, T.K.N.Complex, Vanivilas Road, Opp. National College, Basavanagudi, Bengaluru - 560 004.

ABB Limited, India, Annual Report 2009

1

5 Year highlights

(Rs in Millions) Description 2009 2008 2007 2006 2005

Sources of Funds Share Capital Reserves Net Worth Borrowings Funds Employed 423.8 23,673.5 24,097.3 24,097.3 423.8 20,622.9 21,046.7 0.2 21,046.9 423.8 15,694.2 16,118.0 5.6 16,123.6 423.8 11,386.5 11,810.3 15.5 11,825.8 423.8 8,466.7 8,890.5 27.3 8,917.8

Income and Prots Sales & Other Income Operating Prot Before Interest and Depreciation Prot Before Tax Tax Prot After Tax Dividend / Dividend Tax Retained Earnings 63,097.7 6,012.9 5,274.0 1,727.6 3,546.4 495.8 3,050.6 69,674.5 9,024.6 8,332.4 2,858.3 5,474.1 545.4 4,928.7 60,013.6 8,005.7 7,564.6 2,647.9 4,916.7 558.0 4,358.7 43,477.0 5,504.0 5,232.1 1,829.0 3,403.1 483.3 2,919.8 30,141.4 3,692.6 3,394.8 1,208.0 2,186.8 389.4 1,797.4

Other Data Gross Fixed Assets Debt Equity Ratio Net Worth Per Equity Share - Rs Earnings Per Equity Share - Rs Dividend Per Equity Share - Rs Prot After Taxes as % to Average Net Worth 9,754.6 0.00:1 113.7 16.7 2.0 15.7 8,838.5 0.00:1 99.3 25.8 2.2 29.5 6,627.1 0.00:1 76.1 23.2 2.2 35.2 5,190.0 0.01:1 55.7 16.1 2.0 32.9 4,324.4 0.01:1 42.0 10.3 1.6 27.4

Excludes revaluation of xed assets and revaluation reserve.

2


5 year Highlights

Revenues (Rs in Millions) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 05 06 07 08 0930,141 43,477 60,014 69,675 63,098

Profit after tax (Rs in Millions) 8,000 7,000 6,0005,474.1

5,000 4,0003,403.1

4,916.7

3,546.4

3,000 2,000 1,000 0 05 06 07 08 092,186.8

Return on capital employed (%)54.6

Employees and Productivity 12,50046.6Number of employees Revenue per employee (Rs in Thousands)

5043.2

50.5

10,000 8,000 6,000 4,000 2,000 0

40 3024.5

10,0008,382

10,842

10,726 6,496

10,141 6,222

7,500 5,000 2,500 0 05 06 07 08 09

7,439 5,187 4,052

5,535

20 10 0

05

06

07

08

09

Excludes revaluation of fixed assets and revaluation reserve.

This is ABB

ABB is one of the worlds leading power and automation engineering companies. We provide solutions for secure, energy-efficient generation, transmission and distribution of electricity and for increasing productivity in industrial, commercial and utility operations. Our portfolio ranges from light switches to robots and from huge electrical transformers to control systems that manage entire power networks and factories. We help our customers meet their challenges with minimum environmental impact. Thats why ABB stands for Power and productivity for a better world.

ABB in India

ABB operations in India are in excess of one billion US dollars and the company has 14 manufacturing facilities and over 6,000 employees in the country. ABB has an extensive countrywide presence with around 18 marketing offices, 8 service centers, 3 logistic warehouses and a network of over 850 channel partners. ABB continues to bring value to customers in India through leading edge technologies, domain expertise and project execution abilities. India is the largest engineering design and R&D resource base for ABB Group worldwide. The companys technology strengths, wide offering portfolio and unique ability to package solutions and provide a single window approach to verticals continue to be a key differentiator. While the topline grows as we create value for customers, focus on productivity, operational efficiencies and working capital management continues to ensure profitability.

ABB India corporate management team

Biplab Majumder Vice Chairman & Managing Director

Amlan Datta Majumdar Chief Financial Officer

Ramesh Shankar Head Human Resources

N Venu Head Sales and Marketing

B Gururaj Head - Legal & Compliance and Company Secretary

Prakash Nayak Head Power Systems

Madhav Digraskar Head Power Products

R Narayanan Head Discrete Automation and Motion

Venkatesh Prasad Head Low Voltage Products

G N V Subbarao Head Process Automation

Madhav Vemuri Head Corporate Research

Ranjan K De Head Institutional Sales

S Karun Head Service and EHS

Our business Ensuring grid reliabilityPower products Power products are the key components to transmit and distribute electricity. The division incorporates the ABB manufacturing network for transformers, switchgear, circuit breakers, cables and associated equipment. It also offers all the services needed to ensure products performance and extend their lifespan. The division is subdivided into three business units. Power systems Power systems offer turnkey systems and services for power transmission and distribution grids and for power plants. Substations and substation automation systems are key areas. Additional highlights include flexible alternating current transmission systems (FACTS), high-voltage direct current (HVDC) systems and network management systems. In power generation, power systems offer instrumentation, control and electrification of power plants. The division is subdivided into four business units.

Improving industrial productivity

Discrete automation and motion This division provides products, solutions and related services that increase industrial productivity and energy efciency. Its motors, generators, drives, programmable logic controllers (PLCs), power electronics and robotics provide power, motion and control for a wide range of automation applications. The leading position in wind generators and a growing offering in solar complement the industrial focus, leveraging joint technology, channels and operation platforms. Low voltage products The low voltage products division manufactures low-voltage circuit breakers, switches, control products, wiring accessories, enclosures and

cable systems to protect people, installations and electronic equipment from electrical overload. The division further makes KNX systems that integrate and automate a buildings electrical installations, ventilation systems and security and data communication networks. Process automation The main focus of this business is to provide customers with products and solutions for instrumentation, automation and optimization of industrial processes. The industries served include oil and gas, power, chemicals and pharmaceuticals, pulp and paper, metals and minerals, marine and turbocharging. Key customer benets include improved asset productivity and energy savings.

Sustainability

ABB contributes to society through its business activities, and their social, environmental and economic impact. Social performance - both within the company and in the communities where ABB operates - is a key element of the companys sustainability goals. Education ABB has adopted six schools covering over 5,500 children, near its major manufacturing hubs. The support includes facility upgradation covering school buildings, classrooms, toilets, library etc. and initiatives such as teachers training sessions, health camps and excursions. To support improved nutrition, ABB provides mid-day meals to the students from the schools in Bengaluru with the help of Akshaya Patra Foundation. Over 90% of the cost of this program is paid for by the employees. The ABB Jrgen Dormann Foundation for Engineering Education signed partnership agreements with two more universities in India - Jadavpur University, Kolkata and MS (Maharaja Sayajirao) University, Vadodara. Access to electricity project More than 7,000 people living in 1,137 homes in seven remote villages in the districts of Barmer and Jodhpur, in the desert region of Rajasthan have been given the gift of solar-powered residential lighting. In 2009, lighting facilities were extended to all schools, community centre and maternity centre. ABB constructed another water tank of capacity 30,000 litres at a village which will ease the water problem for 200 more families. With this project, in the last 3 years, income levels for families have increased by 25%,

attendance in schools has also seen a rise by 20% and new avenues for employment have been created. Supporting the differently-abled ABB has outsourced assembly of simple components to organizations, Prerana and Seva Tirth in Bengaluru and Vadodara respectively, to help over 100 colleagues live a life of dignity by facilitating a regular source of income. In 2009, ABB provided the centres with computers, extending the outsourcing initiative to making engineering drawings in AutoCAD. Environment ABB in India installed and commissioned its first photovoltaic solar plant at its Nelamangala facility, to support its lighting needs. Environment initiatives include green-cover maintenance, rain water harvesting and vermiculture. In 2009, over 10 million litres of water was collected to improve the water table while supporting the greenery. For the third time in a row, the ABB greening initiatives in Bengaluru received awards for the Best Maintained Garden and Traffic Islands. ABB in India also received the CII Leadership and Excellence Award in Environment Health & Safety (EHS) for the southern region. Support to natural calamities ABB in India and its employees assisted the relief and rehabilitation operations for the victims of the floods in North Karnataka and Bihar with monetary contributions. This money provided essential commodities such as milk, medicines, eatables and clothes to the flood victims.

Notice to Members

NOTICE is hereby given that the SIXTIETH ANNUAL GENERAL MEETING of the Members of ABB Limited will be held at The Atria Hotel, Chancery, No.1, Palace Road, Bengaluru 560 001, on Tuesday, May 11, 2010 at 11.00 A.M. (IST) to transact the following business: Ordinary Business:

Notes: 1. The Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956, setting out the material facts in respect of special business under item No. 6 is annexed hereto. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT ONE OR MORE PROXY(IES) TO ATTEND AND VOTE INSTEAD OF HIMSELF / HERSELF AND A PROXY NEED NOT BE A MEMBER OF THE COMPANY. PROXIES IN ORDER TO BE EFFECTIVE MUST BE DULY FILLED, STAMPED, SIGNED AND SHOULD BE DEPOSITED AT THE COMPANYS REGISTERED OFFICE NOT LATER THAN FORTYEIGHT HOURS BEFORE THE COMMENCEMENT OF THE MEETING. PROXIES SUBMITTED ON BEHALF OF LIMITED COMPANIES, SOCIETIES, PARTNERSHIP FIRMS, ETC., MUST BE SUPPORTED BY APPROPRIATE RESOLUTION / AUTHORITY AS APPLICABLE, ISSUED ON BEHALF OF THE APPOINTING ORGANISATION. Members should bring the duly filled in attendance slip sent herewith for attending the meeting. The Register of Members and the Share Transfer Books of the Company will remain closed from May 5, 2010 to May 11, 2010 (both days inclusive) for the purpose of payment of dividend. The dividend, as recommended by the Board of Directors of the Company, if declared at the Annual General Meeting, will be paid on or after May 13, 2010, to those Members whose names stand registered on the Companys Register of Members:a) as Beneficial Owners as at the end of business hours on May 4, 2010 as per the list to be furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) in respect of shares held in dematerialized form. as Members in the Register of Members of the Company after giving effect to valid share transfers lodged with the Company, on or before May 4, 2010.

2. 1. To receive, consider and adopt the Audited Balance Sheet as at December 31, 2009 and the Audited Profit & Loss Account for the year ended on that date and the Reports of the Directors and the Auditors thereon. To declare a dividend on equity shares. To appoint a Director in place of Mr. D. E. Udwadia, who retires by rotation at this Annual General Meeting, and being eligible, offers himself for re-election. To appoint a Director in place of Mr. N. S. Raghavan, who retires by rotation at this Annual General Meeting, and being eligible, offers himself for re-election. To appoint M/s. S.R. BATLIBOI & CO., Chartered Accountants having registration number 301003E, as Statutory Auditors of the Company to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting and to authorize the Board of Directors to fix their remuneration. 3. 4.

2. 3.

4.

5.

5.

Special Business: 6. To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution: RESOLVED THAT Mr. Francis Duggan, who was appointed as an Additional Director by the Board of Directors of the Company on February 26, 2010, pursuant to Article 152 of the Articles of Association of the Company and who holds office upto the date of this Annual General Meeting under Section 260 of the Companies Act, 1956 and in respect of whom the Company has received a notice in writing from a member proposing his candidature for the office of Director, be and is hereby appointed as a Director of the Company, liable to retire by rotation. By Order of the Board For ABB Limited B. Gururaj Company Secretary

b)

6.

Place : Bengaluru Date : February 26, 2010 Registered Office: 2nd Floor, East Wing, Khanija Bhavan, 49, Race Course Road, Bengaluru 560 001.

Members are requested to note that dividends not encashed or remaining unclaimed for a period of seven (7) years from the date of transfer to the Companys Unpaid Dividend Account, shall be transferred, under Section 205-A of the Companies Act, 1956, to the Investor Education and Protection Fund, established under Section 205C of the said Act. Members who have not yet encashed the dividend warrant(s) from the financial year ended December 31, 2002, onwards are requested to forward their claims to the Companys Registrar and Share Transfer Agents. It may be noted that once the unclaimed dividend is transferred to the Investor Education and Protection Fund as above, no claim shall rest with the Company in respect of such amount. It may also be noted that the unclaimed dividend amounts which were lying with the Company upto the year ended on December 31, 2001, have been transferred to the Investor Education and Protection Fund.


11

7.

Members are requested to intimate, indicating their folio number, the changes, if any, in their registered addresses, either to the Company or to its Registrar and Share Transfer Agents, viz., Karvy Computershare Private Limited, Unit: ABB Limited, (a) No. 51/2, T.K.N.Complex, Vanivilas Road, Opp. National College, Basavanagudi, Bengaluru - 560 004. (b) Plot No. 17-24, Vittal Rao Nagar, Madhapur, Hyderabad - 500 081, or to their respective Depository Participant (DP) in case the shares are held in dematerialised form. Members holding shares in physical form can avail of the nomination facility by filing Form 2B (in duplicate) with the Company or its Registrar & Share Transfer Agents which will be made available on request and in case of shares held in dematerialised form, the nomination has to be lodged with their DP. As required under clause 49 (IV) (G) of the Listing Agreement of the Stock Exchanges, the relevant details of persons seeking re-appointment/ appointment as Directors are furnished in the Corporate Governance Section of this Annual Report.

Annexure to Notice Explanatory Statement under Section 173(2) of the Companies Act, 1956 Item No. 6 The Board of Directors of the Company at its meeting held on February 26, 2010, appointed Mr. Francis Duggan as an Additional Director effective that date. In terms of Section 260 of the Companies Act, 1956 and Article 152 of the Articles of Association of the Company, Mr. Francis Duggan holds office as Director upto the date of the ensuing Annual General Meeting of the Company and is eligible for re-appointment as Director. The Company has received a notice under Section 257 of the Companies Act, 1956, along with the deposit of Rs 500/- from a member proposing the candidature of Mr. Francis Duggan, for the office of Director. The Board considers that his association as Director will be beneficial and in the interest of the Company. The Directors recommend the passing of resolution set out at Item No.6, of the accompanying Notice. Except Mr. Francis Duggan, none of the other Directors is, in any way, concerned or interested in the said resolution. By Order of the Board For ABB Limited B. Gururaj Company Secretary Place: Bengaluru Date: February 26, 2010

8.

9.

10. Securities and Exchange Board of India vide its circular dated April 27, 2007 and June 25, 2007, has made it mandatory effective July 2, 2007 for every participant in the securities / capital market to furnish Income Tax Permanent Account Number (PAN No.). Accordingly all shareholders are required to submit their PAN No. along with a photocopy of both sides of the PAN card, duly attested. Shareholders holding shares in physical form are requested to submit the copy of the PAN card of all holders including joint holders duly attested by the Notary Public / Gazetted Officer / Bank Manager under their Official Seal and stating their full name and address, registration number to the Companys registered office address or its Registrars & Share Transfer Agents, Karvy Computershare Private Limited, at the address mentioned above. Shareholders holding shares in electronic form are required to furnish their PAN No to their Depository Participant with whom they maintain their account along with the documents as required by them. 11. The Company has designated an exclusive e-mail id viz., [email protected] to enable investors to register their complaints / queries, if any.

Registered Office: 2nd Floor, East Wing, Khanija Bhavan, 49, Race Course Road, Bengaluru 560 001.

12


Directors Report

Your Directors have pleasure in presenting their Sixtieth Annual Report and Audited Accounts for the year ended December 31, 2009. Financial Results (Rs in Thousands) For the year ended December 31, 2009 Profit Before Taxation Less: Provision for Tax - Current Tax - Deferred Tax - Fringe Benefit Tax Profit After Tax Balance Brought Forward from last year Amount available for Appropriation Appropriations General Reserve Proposed Dividend Corporate Dividend Tax Balance Carried Forward 3,000,000 423,817 72,028 607,178 4,103,023 5,000,000 466,198 79,230 556,632 6,102,060 1,805,255 (39,000) (38,652) 3,546,391 556,632 4,103,023 2,858,210 (90,000) 90,100 5,474,130 627,930 6,102,060 5,273,994 For the year ended December 31, 2008 8,332,440

Dividend Your Directors recommend payment of a dividend at the rate of Rs 2/(Rupees Two only) per share for the year ended December 31, 2009 on 211,908,375 equity shares of Rs 2/- each. Performance Review Orders received during the year at Rs 86,847 million were 8% higher compared to Rs 80,541 million in the previous year. Order backlog at the end of 2009 was healthy at Rs 84,787 million compared to Rs 61,618 million at the end of the previous year. Sales and other income for the year were lower by 9% at Rs 63,098 million compared to Rs 69,675 million in the previous year. Revenues of all the segments were lower than the previous year except Automation Products which saw a moderate growth of 4%. Profit before tax was lower at Rs 5,274 million compared to Rs 8,332 million in the previous year. Reduction in profit was mainly attributable to lower sales, adverse impact from fair valuations of forward foreign exchange and embedded derivative contracts and additional cost incurred for exit/ foreclosure of rural electrification business. Profit after tax at Rs 3,546 million for the year has reduced by 35% compared to Rs 5,474 million in the previous year. Earning per equity share of face value of Rs 2/- correspondingly decreased to Rs 16.74 compared to Rs 25.83 in the previous year.

For detailed analysis of the performance, please refer to the managements discussion and analysis section of the annual report. Transfer to Investor Education and Protection Fund In terms of Section 205C of the Companies Act, 1956, the unclaimed dividend amount aggregating to Rs 899,063/- lying with the Company for a period of seven years pertaining to year ended on December 31, 2001, was transferred during the year 2009, to the Investor Education and Protection Fund established by the Central Government. Conservation of Energy, Earnings and Outgo Technology Absorption, Foreign Exchange

The particulars as prescribed under sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are given in Annexure A, forming part of this report. Environment, Health and Safety The Company has in place a system for controlling and monitoring pollutants at all factories complying with environmental standards and legislation. All the manufacturing units of the Company have received certificates for ISO 14001 (EMS). Environment, health and safety are given high priority. All the units of the Company have been awarded OHSAS18001 certification for the health and safety system. Several environmental management projects are underway across the locations. Some of these include energy conservation, waste management, rain water harvesting and greening initiatives.


13

Particulars of Employees The statement under sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended and forming part of this report is given in Annexure - B. The said Annexure - B shall, however, be provided to the Members on request made to the Company Secretary. Directors Responsibility Statement Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors to the best of their knowledge and belief confirm that: i. ii. in the preparation of the annual accounts, the applicable accounting standards have been followed by the Company; appropriate accounting policies have been selected and applied consistently and such judgements and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at December 31, 2009 and of the profit of the Company for the year ended on that date; proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and the annual accounts have been prepared on a going concern basis.

Mr. Bernhard Jucker was appointed as an Alternate Director for Mr. Peter Leupp during the period from April 30, 2009 to July 31, 2009. Mr. K Rajagopal, Whole-time Director of the Company resigned effective July 31, 2009. Your Directors place on record their appreciation of the valuable services rendered by the above Directors during their tenure as Directors / Alternate Director of the Company. Mr. Francis Duggan was appointed as an Additional Director of the Company with effect from February 26, 2010. Mr. D. E. Udwadia and Mr. N. S. Raghavan, Directors of the Company are due for retirement by rotation and are eligible for re-appointment. As stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges, brief profile of the Directors proposed to be re-appointed / appointed, nature of their expertise in specific functional areas, names of companies in which they hold directorships and memberships / chairmanships of Board Committees, shareholding are provided in the Report on Corporate Governance forming part of the Annual Report. Auditors The Companys Auditors, M/s. S.R. BATLIBOI & CO., Chartered Accountants, hold office upto the conclusion of the ensuing Annual General Meeting. The Company has received a requisite certificate from them pursuant to Section 224(1B) of the Companies Act, 1956, confirming their eligibility for reappointment as Auditors of the Company. For and on behalf of the Board Place: Bengaluru Date: February 26, 2010 Gary Steel Chairman

iii.

iv.

Corporate Governance As required under Clause 49 of the Listing Agreement of Stock Exchanges, a report on Corporate Governance and a Certificate from M/s D. R. Shressha & Associates, Practicing Company Secretaries, confirming compliance with the requirements of Corporate Governance are given in Annexure C and Annexure D respectively, which forms part of this report. Board of Directors Mr. Bernhard Jucker and Mr. Veli-Matti Reinikkala, Directors of the Company resigned effective March 20, 2009 and March 31, 2009 respectively.

14


Annexure - A to Directors Report

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo - Companies (Disclosure of particulars in the Report of Board of Directors) Rules, 1988. 1. Conservation of energy Energy conservation continued to be priority area for the Company. Energy conservation measures taken during the year included Optimum utilisation of maximum demand load HV (11kV) capacitor banks installed for HV machine testing to improve the system power factor to 0.99 Maximised use of sun light during day time reducing illumination requirement. This aspect was considered while designing of new factory at Nelamangala Induction of a hot dip impregnation machine for two baking ovens and use of 40 kW oven for 135 kW oven at Faridabad plant Replacement of all incandescent lamps with CFL Control over compressed air leakages Use of solar powered street lights at Bangalore plant Awareness and training programmes for employees Energy audits and corrective actions Switching off lights and air conditioners during breaks and when not essential

Product Improvements: 400 kV circuit breaker 4000A suitable for Indian conditions Polymer insulators for current and capacitor voltage transformers Surge capacitor for GCB application Development of IP 65 protection for frame size 160 and 180 Online machine monitoring system for electrical rotating machines New insulation scheme for motors in classified hazardous area in line with Global Standards Product certification for IP 55 for foot and flange motors in frame size 280 - 355 ACS 510 drives for general purpose industry Global cabinet design for LV drives Manufacturing of cabinet for ACS 5000 MV drives Optimisation of dimensions of unigear switchgear

Technology adaptation and innovation: Unigear panel localisation and range expansion Localisation of contactors, air circuit breakers, MCCBs, switches and fuses of different ratings, components for 145 kV circuit breaker, assemblies for hybrid switchgear type PASS and double bus bar switchgear Local manufacturing of 615 series relays Development of indigenous components for switching mechanism Technology absorption for traction motors, TEFC range machines Indicating meter with digital display for analog power line carrier terminal type ETL4X and ETL8X Bidding tool for Electrics for balance of plant Design for HMI603, LCD based human machine interface for REJ603 Benefits derived as a result of the R&D efforts Multifold benefits were accrued as a result of R&D activities. Apart from strengthening of technical base, benefits have also been reflected in terms of improvement of product reliability and quality, standardisation of design of assemblies, sub-assemblies and components of various products, improved measurement range and accuracy level, better aesthetics, cost reduction and increased acceptability of products in local and global markets. R&D also helped in adopting some of the new products with the existing legacy system installed at the customer plants, helping customer in avoiding costlier investments. 2.3 Expenditure on Research & Development Considering nature of research and development, complexity, competency required, time frame, amount and also to optimise overall cost, all major R&D efforts are pooled centrally at the Group level. Company as a beneficiary of these developments in terms of new products, technologies and application pays to the Group companies royalties/ license fees. Total amount incurred for these fees during the year was Rs 790 million. Localisation of products manufacturing, adoption to local environment and other improvements/ cost saving actions are carried out locally. Total expenditure on such development efforts during the year is estimated to be Rs 10 million.

With proper planning and awareness consumption of electricity and diesel was reduced as compared to previous year. Proposed areas of work include use of LPG and natural gas for thermic fluid heating for ovens, replacement of inefficient central air conditioned plant with efficient AC plants, installation of VFD on compressors, servo control voltage stabilisers for lighting, water saving activities, compressed air systems, selection of energy efficient plant and machineries as per BEE guidelines. Total energy saving as a result of measures taken is estimated at 2 million kWh units of energy per annum. This saving, however, has no appreciable impact on cost of goods, as the Companys production processes are not energy intensive. 2. Technology absorption, adaptation and innovation 2.1 Technical Development

2.2

New Products Developed: 145 kV new design LTBD circuit breaker 33 kV 400A centre break disconnector 145 kV 2500A double break disconnector 180 kVA auxiliary railway converter Dry type transformer New design for small frame motors for domestic and export market 36 kV vacuum circuit breaker 36 kV indoor switchgear type unigear ZS2 12 kV 630A, 20 kA frame mounted compact substation 12 kV 800A, 13.1 kA outdoor breaker


15

3.

Imported Technologies 3.1 Technologies imported during last five years 'A range contactors up to 40A 2005 Residual current circuit breakers 2005 PR521 and PR512 relays 2005 SPAD 346C relays 2005 Operating mechanism- BLK 222 245 kV CB 2005 ACS 550 Drives 2005 Residual Current Device (RCD) 2007 Localisation of TMAX/EMAX MCCBs 2007 TA 25 Relays 2007 HT Motors M3BM 2007 Three phase LV induction Motors up to 7.5 kW 2007 Shunt reactors 2008 MCD-80 band pass and ETL-600 2008 145 kV, SF6 circuit breaker LTB145D1/B 2008 REF601 relays 2008 Fuseless capacitors 2008 Unigear double bus bar switchgear 2009 TEFC range of machines (HXR range) 100 1400 kW 2009 Contactors size 3, 4 & 5 2009 ACS 510 drives for general purpose industry 2009 Global cabinet design LV drives and ACS 5000 MV drives 2009 145 kV new design LTBD circuit breaker 2009 Dry type transformer 2009 Shunt reactor 50 MVAr, 400 kV 2009

the year orders were received for the first time from new markets/ countries. It continued as a global feeder factory within the group for 72.5 kV circuit breakers. Segments export orders received included 128 circuit breakers from a utility of Brazil, maiden order for 300 kV disconnector from Indonesia for POSO energy, a large order from Nigeria for 800, 36 kV outdoor breakers and 964 MVA of 132/33 kV of power transformers from Saudi Arabia, Malaysia, Ethiopia and other countries. Automation product segment continued to pursue export sales promotional activities. Orders received grew by 15%. Significant orders received included supply for wind power generator motors to Denmark, high current rectifier order from Indonesia, supply of coils and rewinding of generator stators from United Kingdom and from ABB, Spain for electric motors. Machine life expectancy analysis studies earned significant revenues. Internal sourcing within group of products, components, tools and engineering services is on increase. Construction of wind power generator motor factory for export at Vadodara is in advance stage of completion. Metals and minerals business units of process automation division are group internal centre of excellence for metals and cement businesses and have secured several orders particularly from Middle East and South Asia regions. A major order from Arcelor-Mittal for Tube Mill at Saudi Arabia was received during the year. Power system segment also received a major substation order from Bangladesh. With management focus, strategies and increasing sourcing of components, products and services from India by the ABB Group companies, prospects for growth of exports in coming years remains high. (b) Total foreign exchange used and earned (Rs in Millions) i) ii) Foreign exchange earned (including deemed exports) Foreign exchange used 8,770 22,904 For and on behalf of the Board

Above technologies have been fully absorbed, except for contactors size 4 & 5 and dry type transformer. 3.2 Foreign exchange earnings and outgo (a) Activities related to Exports; initiatives taken to increase exports; development of new export markets for products and services; export plans During the year export orders received was Rs 7,431 million, reflecting a growth of 31% over previous year. Several strategies adopted in past few years resulted in continuous growth in the export orders. Due to significant higher revenues from certain large value projects in last year, overall revenues during the year at Rs 5,021 million were lower by 4%. Power products segment further consolidated its position in the export market and had growth in export orders of 28%. During

Place: Bengaluru Date: February 26, 2010

Gary Steel Chairman

16


Annexure C to Directors Report

Report on Corporate Governance 1. Corporate Governance Philosophy The Company is committed to good Corporate Governance. The Company fully realises the rights of its shareholders to information on the performance of the Company and considers itself a trustee of its shareholders. The Company provides detailed information on various issues concerning the Companys business and financial performance, to its shareholders. The basic philosophy of Corporate Governance in the Company is to achieve business excellence and dedicate itself for increasing long-term shareholder value, keeping in view the needs and interests of all its stakeholders. The Company is committed to transparency in all its dealings and places emphasis on business ethics. 2. Board of Directors (i) Composition / Category of Directors / Attendance at Meetings / Directorships & Committee Memberships in other companies as on December 31, 2009 Directorships / Mandatory Committee Memberships in Other Companies Directorship in Private Companies Directorship in Public Companies

Attendance

No. of Board Meetings attended

No. of Board Meetings held during 2009

Name

Category of Director

Mr. Gary Steel (Chairman) Mr. Biplab Majumder (Vice Chairman & Managing Director) Mr. K. Rajagopal * Mr. N. S. Raghavan Mr. Nasser Munjee Mr. D. E. Udwadia Mr. Bernhard Jucker** Mr. A .K. Dasgupta Mr. Peter Leupp Mr. Veli-Matti Reinikkala# * ** #

Non-executive Executive Executive Non-executive & Independent Non-executive & Independent Non-executive & Independent Non-executive Non-executive & Independent Non-executive Non-executive

4 4 4 4 4 4 4 4 4 4

3 4 3 3 3 4 1 3 3 -

Yes Yes Yes Yes Yes Yes NA Yes No NA

1 1 2 14 12 6 1 -

8 1 7 -

1 1 4 7 1 -

Mr K Rajagopal resigned as Whole-time Director of the Company with effect from July 31, 2009. Mr Bernhard Jucker resigned as Director of the Company with effect from March 20, 2009, but however he was appointed as an Alternate Director for Mr Peter Leupp during the period from April 30, 2009 to July 31, 2009 and he attended the Board Meeting held on April 30, 2009. Mr Veli-Matti Reinikkala resigned as Director of the Company with effect from March 31, 2009

None of the Non-executive Directors has any pecuniary relationship or transaction with the Company. (ii) No. of Board Meetings held in the Financial Year 2009 and dates on which held The Board meets at least once in a quarter to consider amongst other business, the quarterly performance of the Company and the financial results. The Board has held four meetings during the financial year 2009 i.e., on February 20, April 30, July 31 and October 30, 2009. 3. Audit Committee (i) Terms of Reference The Audit Committee is responsible for overseeing the Companys financial reporting process, reviewing the quarterly/half-yearly/annual financial statements, reviewing with the management on the financial statements and adequacy of internal audit function, recommending the appointment/ re-appointment of statutory auditors and fixation of audit fees, reviewing the significant internal audit findings/related party transactions, reviewing the Management Discussion and Analysis of financial condition and result of operations. The Committee acts as a link between the management, external and internal auditors and the Board of Directors of the Company.


Mandatory Committee Chairmanships 1 1 3 1 17

Mandatory Committee Memberships

Last AGM attendance

The Committee discussed with the external auditors their audit methodology, audit planning and significant observations/suggestions made by them. The Committee also discussed major issues related to risk management and compliances. In addition, the Committee has discharged such other role/function as envisaged under Clause 49 of the Listing Agreement of the Stock Exchanges and the provisions of Section 292A of the Companies Act, 1956. (ii) Composition, name of members & Chairperson, meetings held during the year and attendance at meetings The Company has complied with the requirements of Clause 49 of the Listing Agreement of the Stock Exchanges and Section 292A of the Companies Act, 1956, as regards composition of Audit Committee. The Audit Committee presently consists of four Non-executive Independent Directors. The Committee has held five meetings during the financial year 2009 i.e., on February 19, April 30, June 20, July 31 and October 30, 2009. The composition of the Audit Committee as on December 31, 2009 and the attendance of members at the meetings of the Audit Committee held during the financial year 2009 were as follows: Members of Audit Committee Mr. Nasser Munjee (Chairman) Mr. N. S. Raghavan Mr. D. E. Udwadia Mr. A. K. Dasgupta 4. Remuneration Committee (i) Terms of Reference The role of the Remuneration Committee is to recommend to the Board, the remuneration package for the Managing / Executive Directors (s). (ii) Composition, name of members & Chairperson, meetings held during the year and attendance at meetings The Remuneration Committee presently consists of 3 Non-executive Directors, the Chairman being Non-executive and Independent. No meeting of the Committee was held during the financial year 2009. The composition of the Remuneration Committee as on December 31, 2009 is as under: Members of Remuneration Committee Mr. N. S. Raghavan (Chairman) Mr. Gary Steel Mr. A. K. Dasgupta (iii) Remuneration Policy/Criteria of payments to Non-executive Directors The Company has a credible and transparent policy in determining and accounting for the remuneration of the Executive/Non-executive Directors. Their remuneration is governed by the external competitive environment, track record, potential, individual performance and performance of the Company as well as industry standards. The remuneration determined for the Executive/Non-executive Directors is subject to the approval of the Board of Directors and the Members. The Non-executive Independent Directors are compensated by way of a commission and the criteria being their attendance in the Board/Committee Meetings. As a policy, the Non-Independent Directors are not paid sitting fees. (iv) Details of remuneration to all the Directors paid / payable for the financial year 2009 (Rs in Thousands) Name Mr. Biplab Majumder Mr. K. Rajagopal** Mr. N.S. Raghavan Mr. Nasser Munjee Mr. D. E. Udwadia Mr. A. K. Dasgupta (*) ** subject to the approval of the Board. Mr K Rajagopal resigned as Whole-time Director of the Company effective July 31, 2009. Sitting Fees Nil Nil 85 70 110 60 Salary & Perquisites 13,513 4,820 NA NA NA NA Commission Payable(*) 3,662 1,200 400 400 400 400 Stock Option Nil Nil Nil Nil Nil Nil Pension Nil Nil Nil Nil Nil Nil No. of meetings attended 4 4 5 3

18


Fixed Component / Performance Linked Incentive / Criteria The Executive Directors of the Company are entitled to an annual performance related commission based on the results achieved against the targets fixed and determined by the Board. Service Contract / Notice Period / Severance Fees a) b) 5. The Contract of Service entered into by the Company with Mr. Biplab Majumder, Vice Chairman & Managing Director, provides that the Company and the Vice Chairman & Managing Director shall be entitled to terminate the agreement by giving 90 days notice in writing on either side. No severance fee is payable by the Company on termination of the agreement.

Shareholders Committee The Board of Directors of the Company has set up an Investors Grievance Committee which has been authorised to approve the transfer / transmission / transposition of shares. In order to expedite the process, the Board of Directors has also delegated the authority severally to the Vice Chairman & Managing Director (VC & MD) and the Company Secretary to approve the share transfers and accordingly, the VC & MD or the Company Secretary approves the transfer / transmission of shares generally at a frequency of about twice a month. Four meetings of Investors Grievance Committee were held during the financial year 2009 i.e., on February 20, April 30, July 31 and October 30, 2009. Mr. B. Gururaj, Senior Vice President - Legal & Compliance and Company Secretary is the Compliance Officer of the Company. The composition of Investors Grievance Committee as at December 31, 2009 and attendance of the Committee members at these meetings were as follows: Members of Investors Grievance Committee Mr. D. E. Udwadia (Chairman) Mr. N. S. Raghavan Mr. Biplab Majumder The details of investors complaints received and resolved during the financial year 2009 is as under: No. of investors complaints received during 2009 294 No. of investors complaints resolved during 2009 294 Investors complaints pending at the end of 2009 NIL No. of meetings attended 4 3 4

6.

General Body Meetings (i) Location and time where last three Annual General Meetings (AGMs) held For the Year 2008 2007 2006 (ii) Venue The Lalit Ashok, Kalinga, Kumara Krupa High Grounds, Bengaluru 560 001 The Atria Hotel, Chancery, No.1, Palace Road, Bengaluru 560 001 The Atria Hotel, Chancery, No.1, Palace Road, Bengaluru 560 001 Day & Date Tuesday, May 19, 2009 Tuesday June 3, 2008 Friday, May 25, 2007 Time 11.00 a.m. (IST) 11.00 a.m. (IST) 3.00 p.m. (IST)

Special Resolution passed in the previous three Annual General Meetings No Special Resolution was passed in the last two Annual General Meetings i.e., AGM held on June 3, 2008 and May 19, 2009. Two Special Resolutions had been passed in the Annual General Meeting of the Company held on May 25, 2007, wherein the approval of the members was obtained for (a) amendment to Articles of Association of the Company and (b) payment of Commission to Non-executive Directors.


19

(iii)

Postal Ballot No postal ballot was conducted in the year 2009. As on date, the Company does not have any proposal to pass any special resolution by way of postal ballot.

7.

Disclosures (i) Disclosures on materially significant related party transactions. There was no materially significant related party transaction during the year having potential conflict with the interests of the Company. (ii) Details of non-compliance by the Company, penalties and strictures imposed on the Company by the Stock Exchanges or SEBI or any statutory authorities or any matter related to capital markets during the last three years. The Company has complied with all the requirements of the Listing Agreement of the Stock Exchanges as well as regulations and guidelines of SEBI. Neither any penalty nor any stricture has been passed by SEBI, Stock Exchanges or any other Statutory Authority on matters relating to capital markets, in the last three years. (iii) Whistle Blower Policy and affirmation that no personnel have been denied access to the Audit Committee. The Company has adopted Whistle Blower Policy of ABB Group. The employees of the Company have access to approach the Management on any issues relating to Code of Conduct/Business Ethics. ABB Group has a business ethics hotline maintained at Groups headquarter at Zurich for making any compliant by anyone on compliance issues. (iv) Details of compliance with mandatory requirements and adoption of the non-mandatory requirements of this clause. The Company has fully complied with the mandatory requirements of Clause 49 of the Listing Agreement of the Stock Exchanges. Further, the Company has adopted one non-mandatory requirement of clause 49 of the Listing Agreement, viz. Remuneration Committee of the Board, which has been constituted to determine the remuneration package of the Executive Director(s).

8.

Means of Communication (i) Quarterly Financial Results / Official News Releases The quarterly / half-yearly / annual financial results are published in The Economic Times / Business Standard / Financial Express (English Daily) and Samyukta Karnataka (Kannada Daily). The financial results and the official news releases are also placed on the Companys website www.abb.co.in. The Company has a dedicated help desk with e-mail ID: [email protected] in the Secretarial Department for providing necessary information to the investors. 9. (i) General Shareholder Information Annual General Meeting Day, Date, Time and Venue: The Company will be holding its 60th Annual General Meeting on Tuesday, May 11, 2010 at 11.00 a.m. (IST) at The Atria Hotel, Chancery, No.1, Palace Road, Bengaluru 560 001. Agenda: (a) (b) (c) (d) (e) Adoption of Audited Accounts, Directors and Auditors Report Declaration of Dividend Re-election of Directors retiring by rotation Re-appointment of M/s. S. R. Batliboi and Co., Chartered Accountants, as Auditors Appointment of Director

20


(ii)

Profile of Directors seeking re-appointment/appointment The profile of Directors who are seeking re-appointment / appointment at the Annual General Meeting is furnished below: Brief profile of Directors and nature of their expertise in functional areas Directorships/Committee Memberships in other companies Directorships 1. ADF Foods Ltd. 2. AstraZeneca Pharma India Ltd. 3. The Bombay Burmah Trading Corp. Ltd. 4. Development Credit Bank Ltd. 5. Eureka Forbes Ltd. 6. ITD Cementation India Ltd. 7. JM Financial Ltd. 8. MPS Ltd. 9. Mechanalysis (India) Ltd. 10. WABCO-TVS (India) Ltd. 11. Wyeth Ltd. 12. Nitesh Estates Ltd. 13. Conservation Corporation of India Pvt. Ltd. 14. Habasit lakoka Pvt. Ltd. 15. JM Financial & Investment Consultancy Services Pvt. Ltd. 16. JM Financial Trustee Co. Pvt. Ltd. 17. JM Financial Consultants Pvt. Ltd. 18. Quantum Advisors Pvt. Ltd 19. Rossi Gearmotors (India) Pvt. Ltd. Committee Memberships Audit Committee 1. 2. 3. 4. 5. 6. 7. AstraZeneca Pharma India Ltd. The Bombay Burmah Trading Corp. Ltd. Development Credit Bank Ltd. ITD Cementation India Ltd. MPS Ltd. WABCO-TVS (India) Ltd. Wyeth Ltd. NIL Flame-Tao Knoware Pvt. Ltd. IDFC Private Equity Nadathur Holdings and Investments Pvt. Ltd. Ojas Ventures Fund Pte. Ltd., Singapore Syndicated Research Worldwide Pvt. Ltd. Ananta Holdings Pvt. Ltd. Nadathur Arts Pvt. Ltd. Nadathur Fareast Pte. Ltd. Shareholding in ABB Limited 2600 Shares

Mr. D. E. Udwadia Mr. Udwadia, aged 70, has obtained a Post Graduate Degree from the University of Mumbai. He has nearly five decades of active law practice and has acquired invaluable knowledge, experience and expertise in various matters viz., corporate laws, mergers / acquisitions & takeovers, corporate restructuring, foreign collaboration, joint ventures etc. He is a solicitor by profession and is a senior partner of a law firm Udwadia & Udeshi, which is one of the leading law-firms in Mumbai. He is also the Chairman of AstraZeneca Pharma India Limited and Vice Chairman of MPS Limited. He is also on the boards of several reputed public as well as private companies.

Mr. N. S. Raghavan Mr. Raghavan, aged 66, is a graduate in Electrical Engineering. He served in the Ministry of Defence, Government of India for 9 years handling various responsibilities in the Corps of Electrical and Mechanical Engineers. He worked as an Engineer in Andhra Pradesh State Electricity Board and as Head - Electrical Department in Kothari Sugars and Chemicals Limited, Trichy. He was the Joint Managing Director of Infosys Technologies Limited for 19 years.

Directorships 1. 2. 3. 4. 5. 6. 7. 8.

Committee Memberships Audit Committee 1. IDFC Private Equity Mr. Francis Duggan Mr. Duggan aged 50, is a graduate Engineer. He has been working with ABB for the past 25 years. Mr. Duggan has held various high-profile positions across the company, including Transmission & Distribution Manager in Poland, Country Manager of the Czech Republic, Global Business Area Manager for Oil, Gas and Petrochemicals, as well as Head of Group Account Management. Currently he is the Region Manager for India, Middle East and Africa (IMA). NIL NIL


21

(iii)

Financial Year Indicative calendar of events for the year 2010 (January - December) excluding Extra Ordinary General Meeting(s), if any, are as under: Fourth Quarter Financial Results (Year 2009) First Quarter Financial Results Annual General Meeting Second Quarter Financial Results Third Quarter Financial Results February, 2010 April, 2010 May, 2010 July, 2010 October, 2010

(iv) Date of Book Closure The Companys Register of Members and Share Transfer Books will remain closed for the purpose of payment of dividend from May 5, 2010 to May 11, 2010 (both days inclusive). (v) Dividend Payment Date The dividend, as recommended by the Board of Directors, if declared at the ensuing Annual General Meeting will be paid on or after May 13, 2010, to those shareholders whose names appear on the Companys Register of Members as on May 4, 2010. (vi) Listing on Stock Exchanges The equity shares of the Company are currently listed at National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE). The Company has paid till date, appropriate listing fee to both the Stock Exchanges where the Companys equity shares are listed. (vii) Stock Code National Stock Exchange ABB (viii) Market Price Data The market price data of the Companys shares traded in the Bombay Stock Exchange and the National Stock Exchange, during the year 2009 was as follows: BSE (Rs.) High 517.00 480.00 433.00 560.00 697.00 834.00 808.00 763.90 820.35 827.90 786.45 777.00 Low 420.00 360.00 344.00 414.05 392.10 649.10 641.15 648.15 723.00 731.15 707.50 730.15 BSE Sensex High 10469.72 9724.87 10127.09 11492.10 14930.54 15600.30 15732.81 16002.46 17142.52 17493.17 17290.48 17530.94 Low 8631.60 8619.22 8047.17 9546.29 11621.30 14016.95 13219.99 14684.45 15356.72 15805.20 15330.56 16577.78 High 519.65 478.00 432.80 560.00 700.00 834.00 806.00 765.00 820.00 827.25 786.80 788.00 NSE (Rs.) Low 422.50 359.45 343.35 414.00 452.80 648.10 642.00 649.00 723.00 700.55 703.00 728.05 High 3147.20 2969.75 3123.35 3517.25 4509.40 4693.20 4669.75 4743.75 5087.60 5181.95 5138.00 5221.85 NSE Nifty Low 2661.65 2677.55 2539.45 2965.70 3478.70 4143.25 3918.75 4353.45 4576.60 4687.50 4538.50 4943.95 Bombay Stock Exchange 500002 ISIN INE117A01022

Period 2009 January February March April May June July August September October November December

22


(ix)

Performance in comparison to broad-based indices viz., BSE Sensex and NSE Nifty


23

(x)

Registrar and Share Transfer Agents Karvy Computershare Private Limited, (Unit: ABB Limited) (1) No. 51/2, T.K.N.Complex, Vanivilas Road, Opp. National College, Basavanagudi, Bengaluru - 560 004. Tel. No.: 080-26621192 Fax No.: 080-41312645 E-mail: [email protected] (2) Plot No. 17-24, Vittal Rao Nagar, Madhapur, Hyderabad - 500 081. Tel. No.: 040-23420815-28 Fax No.: 040-23420814 E-mail: [email protected]

(xi)

Share Transfer System The Companys shares being in compulsory demat list, are transferable through the depository system. However, shares in the physical form are processed by the Registrar & Share Transfer Agents and approved by the Investors Grievance Committee. In order to expedite the process, the Board of Directors has also delegated the authority severally to the Vice Chairman & Managing Director (VC & MD) and the Company Secretary to approve the share transfers and accordingly, the VC & MD or the Company Secretary approve the transfer/transmission of shares generally at a frequency of about twice a month. The share transfer process is reviewed by the said Committee.

(xii) Shareholding Pattern As on 31.12.2009 Shareholders ABB Asea Brown Boveri Ltd. Zurich & ABB Norden Holdings AB, Sweden Non-Resident Individuals / OCBs Directors and their relatives LIC / UTI / Other Insurance Cos. Nationalised Banks / Other Banks Mutual Funds Foreign Institutional Investors Bodies Corporate / Trust General Public Total No. of shares 110420285 446193 3500 43318448 979900 6030284 21308653 5934434 23466678 211908375 % 52.11 0.21 0.00 20.44 0.46 2.85 10.06 2.80 11.07 100.00 As on 31.12.2008 No. of shares 110420285 459231 5225 37088502 584473 7848964 26215035 5047432 24239228 211908375 % 52.11 0.22 0.00 17.50 0.28 3.70 12.37 2.38 11.44 100.00

(xiii) Distribution of Shareholding as on December 31, 2009 Category 1 5000 5001 10000 10001 50000 50001 100000 100001 and above Total No. of Shareholders 111741 382 230 31 75 112459 No. of Shares held 18676873 2625092 4644175 2287980 183674255 211908375 %age of equity capital 8.81 1.24 2.19 1.08 86.68 100.00

24


(xiv) Dematerialisation of Shares and liquidity The equity shares of the Company are available under dematerialised form with National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd., (CDSL). The Companys equity shares are compulsorily traded in the dematerialised form. Consequent to sub-division of the face value of equity share of the Company, the Company has been allotted with new ISIN i.e., INE117A01022. As on December 31, 2009, 101,703,577 equity shares of the Company have been dematerialised representing 47.99% of the total shares. (101,432,487 equity shares were in dematerialised form representing 47.87% of the total shares as on December 31, 2008). (xv) Outstanding GDRs / ADRs / Warrants or any Convertible Instruments, conversion date and likely impact on equity As on date, the Company has not issued GDRs, ADRs or any other Convertible Instruments and as such, there is no impact on the equity share capital of the Company. (xvi) Code of Conduct The Company has in place a Code of Conduct applicable to the Board Members as well as the Senior Management and the same has been hosted on the Companys website. All the Board Members and the Senior Management Personnel have affirmed compliance with the Code of Conduct, as on December 31, 2009. (xvii) Plant Locations The Companys plants are located at Bengaluru, Faridabad, Haridwar, Mumbai, Nashik and Vadodara. (xviii)Address for Correspondence ABB Limited 2nd Floor, East Wing, Khanija Bhavan, 49, Race Course Road, Bengaluru - 560 001 Phone: 080-22949150 to 22949153 Fax: 080-22949148 Corporate Secretarial E-mail ID: [email protected] Corporate Website: www.abb.co.in (xix) Non-Mandatory Requirements Remuneration Committee of the Board to determine the remuneration package for the Executive Director(s). For and on behalf of the Board

Place : Bengaluru Date : February 26, 2010

Gary Steel Chairman


25

Annexure - D to Directors ReportCorporate Governance Compliance Certificate

To The Members of ABB Limited. We have examined all relevant records of ABB Limited (the Company) for the purpose of certifying compliance of the conditions of Corporate Governance under Clause 49 of the Listing Agreement with National Stock Exchange of India Limited (NSE), and Bombay Stock Exchange Limited (BSE), for the financial year ended December 31, 2009. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of certification. The compliance of the conditions of Corporate Governance is the responsibility of the management. Our examination was limited to the procedure and implementation thereof. This certificate is neither an assurance as to the future viability of the Company nor the efficacy or effectiveness with which the management has conducted the affairs of the Company. On the basis of our examination of the records produced, explanations and information furnished, we certify that the Company has complied with: (a) (b) all the mandatory requirements of the said Clause 49 of the Listing Agreement. the following non-mandatory requirement of the said Clause 49 Constitution of Remuneration Committee. For D.R.Shressha & Associates Company Secretaries


D.R.Shressha Proprietor C. P. No. 6119

26


Managements Discussion and Analysis

Operating Results of the Company During the year 2009, the Company secured orders worth Rs 86,847 million, a modest 8% higher than the previous years orders of Rs 80,541 million. Due to slowing down of global and Indian economy and liquidity crunch particularly in early part of the year, investment decisions by our customers, particularly industrial sector customers, were either deferred or dropped. As a result, orders for Process Automation segment were significantly lower. This had affected rate of overall growth in order receipt during the year. Central Governments stimulus package had positive impact on investments and liquidity in the economy. Consequently, order receipt for Power Products segment had remained at the same level as achieved in last year. The Company had good inflow of orders from Power Systems and Automation Products segments. During the year, relative share of project orders were higher compared to product orders which delayed conversion of these orders into revenues. Companys order backlog at the end of the year increased by 38% to Rs 84,787 million as compared to Rs 61,618 million at the beginning of the year. Revenues during the year were at Rs 63,098 million, registering a decline of 9% over the previous years revenues of Rs 69,675 million. Slowing down of orders for products, particularly in the first two quarters of the year, increased credit risk, decision to exit from rural electrification business in Power Systems segment and requests from certain customers to defer the supplies affected overall revenue growth. Profit before tax was lower at Rs 5,274 million as compared to Rs 8,332 million in the previous year. Profit before tax for the year was lower on account of lower revenues, cost of early exit/foreclosure of certain contracts in rural electrification business, adverse impact from fair valuation of forward foreign exchange and embedded derivative contracts, building of organisation and manufacturing capacities for higher expected scale of operation and significant provision against receivables due to higher credit and other risks. During the year, management continued to pursue several cost optimisation measures, which partially helped in improving the profitability. Net profit after tax at Rs 3,546 million for the year was lower by 35% compared to the previous year. Earnings per equity share (face value Rs 2) was also lower at Rs 16.74 compared to Rs 25.83 in the previous year. Cash flow, however, from operations was significantly higher than the previous year. In line with attractive long term returns, the Company has completed majority of manufacturing capacities expansion projects and continued to expand its range of offering and introduced several new products. Investment in fixed assets during the year was Rs 1,632 million. Outlook for the Company With improvement in economic scenario, better liquidity environment, recent pickup in growth rate in the manufacturing sector, continued investments in power and other infrastructure projects, the business is expected to grow. And all time high order backlog, potential for increase in exports, adequate manufacturing and engineering capacities coupled with various management strategies and access to global technologies, management is optimistic about volume growth of the Company in coming years. Profitable growth in the short term may be influenced by market competition, credit risk, successful closure of rural electrification and certain other large projects. Business Segment Analysis Please refer to note 4, Schedule 16, for detailed description of the Companys business segments. The relative distribution of revenues amongst the segments is as under. Power Systems (PS) Power Products (PP) Process Automation (PA) Automation Products (AP) 2009 26 % 29 % 18 % 27 % 2008 31 % 28 % 18 % 23 %

Relative share of revenues from Power Systems segment reduced significantly during the year with corresponding increase in revenue share from Power and Automation Products segments. Power Systems Segment (PS) The summarised performance of the segment is as under. (Rs in Millions) Orders Received Order Backlog Revenues Result 2009 33,478 42,653 17,192 65 2008 25,608 26,131 23,054 2,028

With energy shortage increasing in the country and Central Governments focus on power sector reforms and introduction of national electricity policy in past few years have reflected in increasing investment in capacity addition, development of transmission network and power distribution improvements. Against power generation capacity addition target of 78,700 MW during the eleventh five year plan (2007-12), actual capacity addition till year end has been rather low. However additional capacity of over 60,000 MW is under construction and for most of these projects fuel linkage has been established. National grid is being planned and it is envisaged to have 37,000 MW of inter-regional capacity comprising of high capacity HVDC and HVAC lines to be completed by the year 2011-12. Power Grid Corporation of India Limited (PGCIL) is expected to invest over Rs 500 billion on enhancing power transmission capacity in next two years. Central Government has finalised Restructured Accelerated Power Development and Reforms (R-APDRP) for augmenting and strengthening power distribution network in India. There have been significant investment plans both by public and private sectors for other infrastructure projects also in the areas of airports, metros, railways, roads, ports, water irrigation etc. Central Governments stimulus packages have helped in improving liquidity and investments in power and infrastructure sector.


27

Most utilities prefer to order substation packages on turnkey basis and power plant developers prefer to go in for procurement by splitting the packages for boilers, turbines and generator (BTG) and balance of plant (BOP). These trends are favourable to this segment. There is also increasing focus on non conventional source of energy like solar and wind due to environment considerations and global warming concerns. Several new players have entered in extra high voltage space increasing competition resulting in lower price levels for substation packages. With favourable environment, Power Systems segment booked several large orders during the year. The major orders received during the year included 765/400 kV transmission substations at Bilaspur, Wardha and Agra from PGCIL, 220/132/33 kV transmission substations at Srinagar from Power Transmission Corporation of Uttaranchal Limited, electrical balance of plant package for 2X250 MW Chhabra II from Indure Private Limited, electrical balance of plant for 2X800 MW thermal power plant at Krishnapatnam from TATA Projects Limited, electrical balance of plant packages for 1X500 MW Korba thermal power plant from INDU Projects Limited and supply, erection, testing and commissioning of power supply receiving/distribution system, 750V DC third rail traction electrification and SCADA system from Bangalore Metro Rail Corporation Limited. During the year several 400/220/132 kV substations were commissioned for PGCIL and other customers. Orders received in Power Systems segment grew by 31% during the year. Revenues during the year were lower by 25% due to Companys decision to exit from rural electrification business due to cash flow and safety concerns, deferment of deliveries by the private sector customers for electrical balance of plant, and lower order receipt/backlog for certain business units. Profit of the segment was significantly lower compared to previous year due to lower revenues, impact of exit/foreclosure of certain rural electrification projects, margin slippages in certain contracts, execution of lower margin orders and adverse impact from fair valuation of foreign exchange forward and embedded derivative contracts. Cash flow from operations was better during the year due to collection of old receivables and higher advances from customers for the large order receipt during the year. Power Systems segment continued its focus in the area of safety, project risk reviews, increasing competency in the area of project management, project controlling and supply chain management. In complex projects we shall introduce world class systems and plan to deploy world class experts from the parent company. Internal organisation has been recently reorganised to optimise resources and bringing management focus. Considering improving economic environment and good order backlog position, outlook for the segment is positive. However due to competitive market, exit costs of rural electrification business and successful closure of certain large projects pose a challenge towards realisation of normal profit levels in the short term. Power Products Segment (PP) The summarised performance of the segment is as under. (Rs in Millions) Orders Received Order Backlog Revenues Result 2009 23,742 20,629 19,936 2,170 2008 24,062 16,980 20,492 2,601

The business environment for the power transmission and distribution sector continued to be positive as detailed under Power Systems segment. Due to slow down in the Indian economy and liquidity crunch, investment by industries was lower. Central Governments stimulus package had positive impact on the business environment. Increasing number of utilities are preferring to buy on turnkey basis from EPC contractors. This segment also witnessed increase in number of competitors from both domestic as well as overseas, particularly from China and Korea, and excess capacity for certain products, have affected the price levels. It is also to be noted that there is increasing demand for new technologies like gas insulated switchgears due to space constraint in urban areas. Major orders received during the year included 18 number power transformers of various ratings from NTPC Limited for Mauda project, 13 number power transformers of various ratings from TATA Projects Limited for Krishnapatnam project, 15 number power transformers from NTPC Limited for Vishnugad project, 19 number power transformers of various ratings from Neyveli Lignite Corporation Limited for Tuticorin project, 6 bay of 220 kV hybrid switchgears from GMR Energy Limited for barge mounted power plant at Kakinada and an export order for supply of 36 kV OHB breakers for Rs 323 million. This segment also booked large value internal orders for transformers and HV/MV breakers from Power Systems segment. To maintain competitive edge in the market, during the year, several new products were introduced/supplied by the segment. This included shunt reactor 50 MVAr, 400 kV, dry type transformers, 33 kV indoor switchgear type ZS2 equipped with Vacuum circuit breaker type VD4, 33 kV packaged substation, 145 kV LTB D light circuit breaker, 33 kV, 4000A centre break disconnector, 145 kV, 2500A double break disconnector and current transformers and capacitor voltage transformers with polymer insulators. During the year new manufacturing facilities for small power transformers, bushings, shunt reactors and capacity augmentation for high voltage circuit breakers and instrument transformers were commissioned. Manufacturing capacity enhancement for power transformers and traction transformers at Vadodara, indoor unigear switchgear at Nashik and HV capacitor at Bangalore are under implementation and will be completed during 2010. Series of short circuit tests of transformers of various ratings were completed during the year. During the year orders and revenues remained broadly at the same level as of the previous year. Profit was lower compared to last year due to lower price realisation for high and medium voltage switchgears and higher provision against receivables. Cash flows from the operation was better during the year. Outlook for the segment continues to be positive with comfortable order backlog, higher manufacturing capacities, continuous introduction of new products and expected increase in demand for power products from utilities as well as industrial sector.

28


Process Automation Segment (PA) The summarised performance of the segment is as under. (Rs in Millions) Orders Received Order Backlog Revenues Result 2009 12,335 13,401 12,100 1,488 2008 15,659 13,265 13,334 1,848

The Industrial climate in the country remained buoyant for several years till middle of 2008. The global market meltdown, lower consumer spending, liquidity crunch and capacity built-up in anticipation of demand growth have adversely affected the demand for new equipment and systems provided by the segment from later part of the year 2008. Some of the proposed investments were either deferred or dropped. For improving efficiencies, industries are investing for retrofit and up gradation projects. For certain customer orders there was delay in conversion of order backlog into revenues due to delay in the projects. In the later part of the year 2009, with improvements in consumer sentiments, availability of finance and industrial growth, there were early signs of new investments in brown and green field projects. The industry has significant latent opportunities for investments from trend of increasing per capita consumptions for all metals, cement and paper. With pickup of automobile sector and investments in power generation and other infrastructure segment, demand for cement, steel and coal handling equipment is expected to increase. The global steel majors like POSCO, Arcelor-Mittal and Tata Group, Steel Authority of India Limited, Jindal group and Bhushan group have announced their plans for investment in steel sector in India. With limited global opportunities, competition in India is increasing. Customers are splitting the packages for smaller group of products limiting the opportunities for the segment in terms of volume and margin. Due to adverse external environment, orders received, revenues and profits during the year were lower than the previous year. Profitability of the segment was further affected due to adverse impact from fair valuation of foreign exchange derivatives. Operating cash flows were lower due to delay in payments from the customers. To minimise adverse impact of business slow down, control over expenses and new recruitments were exercised throughout the year. With slow down in investment for new capacity enhancement projects, segment focused on service opportunities and had significant growth in orders and revenues from the service business. The segment has received several large orders for electrical and automation solutions during the year. The major orders received include Arcelor-Mittal for Tube Mill at Saudi Arabia, Tata Projects Limited for blast furnace BF5-Rourkela Steel Plant, Vedanta Aluminium Limited LT package for pot lines, Punj Lloyd Limited for LPG terminal, Prism Cements Limited and Jaiprakash Associates Limited for cement plants, Megha Engineering and Infrastructure Limited for ONGC Assam renewable project, ThyssenKrupp Industries Limited for internal coal handling plant for Mundra power plant, Bhushan Power and Steel Limited for cold rolling mill and Diesel Locomotive Works for TPR61 Turbochargers. Major plants/systems for electrical and automation solutions commissioned during the year includes cold rolling mill for Dharampal Industries Limited, hot rolling mill plate mill at Vasind for JSW Steels Limited, cold rolling mill at Korba for BALCO, Grasim Cements Limited cement plant at Kotputil, clinkerisation plant for Star Cement Limited, Dubai, Ariyalur cement line II for Chettinad Cements Limited, bucket wheel excavator for Neyveli Lignite Corporation Limited, SCADA systems at nine locations for ONGC and systems for paper machine, variflex winder and Janus calendar for Ballarpur Industries Limited. Focus in the material handling sector has been increased to secure orders for coal handling plants. Newer opportunities are expected from Middle East and South East Asian markets where internal market allocation has been given to the segment for metals and minerals businesses. Safety at project sites continued as major focus area and training programmes were conducted during the year for risk reviews. With good order backlog, increase in growth rate of industrial production and expectation of firming up of the new and deferred investment plan by the customers, outlook for the segment remains positive. The outlook for Process Automation segment shall improve gradually with additional emphasis on service business particularly with ABB Full Service Concept which is being introduced as a major revenue stream. Automation Products Segment (AP) The summarised performance of the segment is as under. (Rs in Millions) Orders Received Order Backlog Revenues Result 2009 23,297 12,632 18,022 2,048 2008 20,679 7,830 17,376 2,268

Slow down in Indian economy and lower investments in industrial sector effected orders and revenues for standard products. Demand for building electrical products was lower due to slow down in the real estate segment. This was more than compensated by very good order receipt and revenues from power electronics and medium voltage drives business units. Overall growth in orders and revenues of the segment during the year was 13% and 4% respectively. Due to lower demand for standard products and lower price realisation from increased competition, adverse impact of foreign exchange rates and capacity build up cost affected the profitability of the segment. Cash flow from the operating activities was better during the year. Active sectors during the year were capital goods, cement, non-ferrous metals, infrastructure, iron, steel, pulp, paper, automotive, chemicals, food, beverages, water, waste water and telecom. Segment was able to sustain its market position in all the product ranges. There was marketing focus on original equipment manufacturer (OEM) segment including HVAC, pumps, compressor, boiler machinery, food, beverages and wind energy. Orders were received from major


29

OEMs like Sulzer Limited, Ingersoll Rand (India) Limited, Kirloskar Brothers Limited, Thermax Limited, Atlas Copco Limited, Cethar Vessel Limited, Other European customers including Win Wind. Excess industry capacity, increase in competition and volatility of foreign exchange rates continue to be the risks for the segment. Segment received several large orders during the year from various sectors of the industry. Major orders received includes Vedanta Aluminium Limited for supply and commissioning of high current rectifier system and associated equipments for expansion of aluminum smelter at Jharsuguda, Orissa, Bharat Aluminium Company Limited for supply and commissioning of high current rectifiers for aluminium smelter at Korba, RNS Infrastructure Limited for equipments for KNNL lift irrigation project, Megha Engineering and Infrastructure Limited for equipment for lift irrigation project at Dumagudem, Win Wind for LV drives for wind converters, other European customers for wind generators and Bombardier Transportation India Limited for traction motors as well as other low voltage products and Relays. Execution and commissioning of large systems during the year included high current rectifiers at Vedanta Aluminium Limited and 180 kVA traction converters for Indian Railways. Segments new modern factory for manufacturing of breakers, drives, LV system and power electronics at Nelamangala, Bangalore and new Machine service unit at Taloja, Maharashtra were inaugurated in early part of the year. New wind generator motor factory at Vadodara is in advance stage of completion. The channel partner network remained over 850 during the year which contributed to revenues of Rs 12 billion. E-initiatives continued to yield good results with the B2B transactions running over Rs 5 billion. Segment has plans to increase thrust on marketing activities in potential growth areas like railways, wind, water, ports and harbors, maintain efficient distribution network and continuous range expansion to secure fair share of the market. With improvement in industrial production in the later part of the year, comfortable order backlog and capacities available for faster deliveries, overall outlook for the segment remains positive. Finance There was improvement in liquidity position in economy from second half of the year compared to short of crisis situation witnessed during later part of the previous year. Availability of funds from banking sector improved and rate of interest reduced during the year. Collections from industrial customers and channel partners improved in the later part of the year. Cash flow from operation during the year improved significantly. However higher investment in receivable continues to remain area of concern. Interest expenses during the year reduced to Rs 256 million compared to Rs 347 million in the previous year. Company had borrowing position in most part of the year and interest income from placement of temporary surplus funds as fixed deposits with the banks reduced to Rs 11 million compared to Rs 85 million in the previous year. Net cash position (cash and bank balances less loan fund) at the end of the year was higher at Rs 5,241 million compared to Rs 3,482 million at the end of the previous year. The Company continued to hedge all its foreign currency exposures for imports and exports to protect contract stage margins. As in the past, Company has maintained excellent relationship with major banks operating in India and was able to avail and negotiate favourable terms for various banking facilities. Human Resources Employee engagement remained the key focus of human resource (HR) function. New HR initiatives were aligned to support business needs. This has been achieved by continuously investing in learning and development programmes creating a positive work environment, empowering employees at all levels and launching structured reward and recognition mechanisms. During the year goal setting exercise, followed by a mid-term performance review, of all the employees was carried out. This initiative was taken up from a feedback from an employee engagement survey in 2008. Special emphasis was laid on talent management by rolling out a new and comprehensive employee performance and development appraisal programme in the later part of the year. Action learning workshops were launched and technical skill enhancement trainings were provided to the employees across all the levels in organisation. To recognise exemplary performances, to create an employee centric reward system and to create a culture of appreciation within the Company, employee driven reward programme called EMPower was launched. To attract and recruit bright professionals, employer branding and robust functional assessments processes were carried out. As in the past, the industrial relations continued to remain cordial at all the locations of the Company. During the year two employee unions were merged at a location and process for management of third party service providers was streamlined. This is expected to optimise management efforts in the coming years. The company had 6,222 (previous year 6,496) employees at the end of 2009. There were selective recruitments during the year and employee strength was rationalised in line with the business environment. Internal Control System The Company has in place effective systems of internal control ensuring accurate, reliable and speedy compilation of financial information, safeguarding the assets and interests of the Company and ensuring compliance with laws and regulations. The Company has an exhaustive budgetary control system and the management regularly reviews actual performance. The Company has also put in place a well-defined organisation structure, clear authority levels and detailed internal guidelines for conducting business transactions. The Company has an internal audit department that conducts regular audits to ensure adequacy of the control system, adherence to management instructions and legal compliance. Audit plans are prepared in advance based on risk assessment. Internal audit also conducts follow up reviews to ensure implementation of its recommendations and suggestions. The Audit committee of the Board of Directors periodically reviews the audit plans, observations and recommendations of the internal and external auditors with reference to significant risk areas and adequacy of internal controls. As per the requirements of Sarbanes Oxley Act, 2002 and clause 49 of the listing agreement with the stock exchanges, the management has established adequate internal control procedures over financial reporting. During the year, detailed customer evaluation and credit limit fixation process were established and physical verification of all the fixed assets of the Company was carried out and these assets were bar coded to support future efficient verification process.

30


CEO / CFO Certification

To The Board of Directors ABB Limited We certify that; 1. We have reviewed the financial statements and cash flow statement of ABB Limited for the year ended December 31, 2009 and to the best of our knowledge and belief; (i) (ii) 2. 3. these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; these statements together present a true and fair view of the company's affairs and are in compliance with existing accounting standards, applicable laws and regulations.

To the best of our knowledge and belief, there are, no transactions entered into by the company during the year, which are fraudulent, illegal or violating the companys code of conduct. We accept responsibility for establishing and maintaining internal controls over financial reporting and we have evaluated the effectiveness of internal control systems of the company over financial reporting and we have disclosed to the auditors and the audit committee, deficiencies in the design or operation of internal controls over financial reporting, if any, of which we are aware and the steps we have taken, propose to take, to rectify these deficiencies. In our opinion, there are adequate internal controls over financial reporting. We have indicated to the auditors and the audit committee that there are (i) (ii) (iii) significant improvement in internal controls over financial reporting during the year; no significant changes in accounting policies during the year. no instance of fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company's internal control system on financial reporting.

4.


Biplab Majumder Chief Executive Officer Vice Chairman & Managing Director

Amlan Datta Majumdar Chief Financial Officer Sr. Vice President-Finance


31

Auditors Report To The Members of ABB Limited

1.

We have audited the attached balance sheet of ABB Limited (the Company) as at December 31, 2009 and also the profit and loss account and the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As required by the Companies (Auditors Report) Order, 2003 (as amended) issued by the Central Government of India in terms of subsection (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. Further to our comments in the Annexure referred to above, we report that: i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account ;

iv.

In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; On the basis of the written representations received from the directors, as on December 31, 2009, and taken on record by the Board of Directors, we report that none of the directors is disquali

ABB India Annual Report 2009

Documents

Transcript of ABB India Annual Report 2009