Strong Increase in Order Intake and Record High Sales

Overview of key figures for the first half of 2012 (January – June)

Driven by the major acquisition of a wastewater pumps business and organic growth, order intake increased significantly by nominal 11% to CHF 2 025 million in the first half of 2012. Adjusted for currency effects as well as acquisitions and divestitures, it was up by 1%. Acquisitions contributed CHF 208 million. The strong Swiss franc had a negative translation effect of CHF 23 million on orders.

Sales increased substantially to CHF 1 923 million in the first half of 2012. This represents a nominal growth of 20% (9% adjusted¹) compared with the first half of the prior year. Acquisitions contributed CHF 199 mil-lion, while the strong Swiss franc had a negative translation effect of CHF 24 million. All divisions recorded positive growth rates on a nominal and adjusted¹ basis.

Operating income increased to CHF 193 million, and profitability re-mained at a healthy double-digit level despite acquisition-related charges and an increased share of sales of the new equipment business, mainly at Sulzer Pumps. The return on sales figures of the divisions include an increase of corporate charges by 50 basis points of sales. Net income attributable to Sulzer shareholders increased to CHF 132 million. Basic earnings per share (EPS) increased by 4.9% to CHF 3.87. The free cash flow improved substantially to CHF 116 million in the first half of 2012.

The oil and gas market remained stable at a high level, and strong de-mand continued in the transportation market and the general industries. The power market started to show first signs of recovery. Geographically, the Asia-Pacific region and North America were the main growth drivers.

With the refinancing of an existing credit facility through a new CHF 500 million facility, Sulzer underscored its strong credit profile.

Outlook for 2012

The ongoing uncertainties in the financial markets and their potential negative impacts on the global economy cannot be fully assessed and bear a certain downside risk. Based on current knowledge, order intake and sales are expected to increase within the high single-digit range for the full year, driven by the major acquisition and organic growth. Profit-ability is projected to remain at a double-digit level. Activity in the oil and gas, power, and water markets is expected to remain stable at a high level. The transportation market and the general industries are predicted to continue at the current high levels. The Asia-Pacific region and North America are forecast to remain the growth drivers for the company.

Strategic priorities with focus on value creation and profit-able growth

Sulzer’s aim is to gear the entire company toward one shared vision in order to strengthen its position as a leading supplier in its newly defined key markets: oil and gas, power, water, and transportation. The com-pany has defined strategic priorities with the goal of creating high cus-tomer value and ensuring profitable growth. Sulzer’s priorities are:

Technology leadership: Sulzer’s strong market positions are based on the company’s technology leadership. Maintaining this crucial strength requires continuous innovation with a focus on market and customer needs. Consequently, the company has strengthened its innovation
activities within the divisions and is managing its innovation process with KPIs.

Outstanding services: Throughout the company, services are an es-sential part of the business and allow Sulzer to create substantial value for its customers. Sulzer leverages its global presence to strengthen its service network and focuses on speed and on-time execution with the target of growing the service business and exceeding customer expecta-tions.
Continuous operational improvements: By improving operational pro-cesses based on LEAN principles, strengthening project management, fostering health and safety activities, and further improving the cash conversion cycle, Sulzer drives excellent operational performance across the organization.

Cross-divisional cooperation: Sulzer wants to position itself clearly as one company for its customers—leveraging the strong Sulzer brand, one shared vision, and values that guide its behavior. While responsibility for market- and customer-oriented processes will remain within the divi-sions, the company wants to take further advantage of cross-divisional cooperation and shared services.

Results in detail

Sulzer Pumps: Double-digit growth in orders and sales

The division increased its order intake noticeably in the first half of the year, mainly driven by the major acquisition. The water market continued to grow, in particular, the wastewater subsegment. The oil and gas indus-try remained stable at a high level, while the power market started to show the first signs of recovery. Geographically, activity levels were par-ticularly high in North America, the Asia-Pacific region, and in Russia.

Sales grew even more strongly than orders, driven by the major acquisi-tion and organic growth. The profitability of the division was affected by amortization due to the acquisition, a changed business mix with a higher share of sales of the new equipment business, and the increase of corpo-rate charges by 50 basis points of sales.

Sulzer Pumps continued to innovate with new products—the most signifi-cant ones being a new multiphase subsea pump and additional solutions for the desalination and the concentrated solar power markets. The divi-sion’s presence in the emerging markets was further expanded with addi-tional service centers in China and Russia and a packaging facility in South Korea. The integration of the acquired water and wastewater busi-nesses is on track.

For the full year, the division anticipates double-digit growth in orders and sales. Profitability is forecast to reach the level of 2011. Activity in the oil and gas, power, and water markets is expected to remain stable at a high level. Geographically, North America, the Asia-Pacific region, and Russia are forecast to remain the growth drivers for the division.

Sulzer Pumps key figures  

Sulzer Metco: Increased order intake and sales

In a continuously positive environment in its key markets, the division further increased its order intake compared with the first half of the previ-ous year. Demand for the division’s innovative coating solutions was par-ticularly high in the power and in the aviation industries. The automotive market stabilized at the current high levels. Geographically, demand was particularly pronounced in North America and in the Asia-Pacific region, while Europe remained stable.

Sales grew in line with order intake. Profitability remained in the double-digit range despite additional corporate charges, which increased by 50 basis points of sales. With the continuously high demand for the divi-sion’s innovative coating solutions, additional production capacity for ce-ramics powder was built in Germany, and further expansions are planned in China and India.

The division continued to strengthen its leadership position by adding new innovative solutions to its portfolio. For instance, a new thermal-spray plasma gun with improved productivity and a new scratch-resistant coating for the plastics industry were launched. With cold-spray technol-ogy and laser cladding, new competencies with high customer value were added to the division’s surface technology portfolio. The global footprint was further expanded with an additional sales office in Brazil. In China, a new shop-in-shop coating center was opened. The division also became a member of the Commonwealth Center for Advanced Manufac-turing (CCAM) research facility, a collaboration that involves top US uni-versities and best-in-class global industry players.

For the full year, the division expects moderate growth levels in order intake and sales. Profitability is forecast to increase slightly. The automo-tive, aviation, and general industries are likely to continue at the current high levels, driven by the emerging markets and North America.

Sulzer Metco key figures

Sulzer Chemtech: Double-digit growth in sales and operating income

The division’s order intake decreased slightly compared with the very strong first half of the prior year. The oil and gas downstream industry de-veloped positively for both mass transfer technology and tower field ser-vices. However, some process technology projects were delayed. The de-mand for two-component mixing systems in the dental, industrial, and con-struction markets remained at the levels of the first half of the previous year. Geographically, the demand was particularly high in Asia and the Americas, while customers were relatively cautious with investments in Europe.

The division significantly increased its sales volume and operating income. Profitability remained in the double-digit range despite the rise in corporate charges by 50 basis points of sales.

The division initiated further steps to strengthen its position in the fast-growing Asian markets. The headquarters of the Mass Transfer Technol-ogy business unit will be relocated to Singapore at the beginning of next year. In addition, the Process Technology and the Mixpac Systems busi-ness units are expanding their activities in China. With the start-up of the pilot plant for innovative bioplastics in Switzerland, the division reinforced its leading position in that promising market. The plant is able to produce up to 1 000 tons of biopolymers per year and supports the further devel-opment of market opportunities in close cooperation with customers.

For the full year, the division expects moderate growth in order intake and higher sales. Profitability is forecast to remain at a double-digit level. Activ-ity in the oil and gas downstream industry is projected to continue at the current levels. Increased demand is expected in the field of process tech-nology. Demand for the division’s offering for the dental, industrial, and construction markets is forecast to continue at the current levels. Geo-graphically, Asia and the Americas are expected to remain the growth driv-ers.

Sulzer Chemtech key figures

Sulzer Turbo Services: Record high order intake

The division increased half-year orders to a record high, supported by large service projects in the Americas, contributions from new markets in the Asia-Pacific region, and synergies from the integrated business. The positive environment in the oil and gas and the transportation industries supported the growth. Activity levels in the power and the general indus-tries remained on a stable level.

Sales increased in line with the high growth of orders. The operating in-come and profitability increased despite the rise in corporate charges of 50 basis points of sales.

Tailored initiatives were introduced to ensure further sustainable growth: Synergies between the turbomachinery and the electromechanical busi-nesses were further developed. The division entered new markets, such as the mining, rail, and marine industries. Additional regional teams were de-ployed to develop long-term service agreements, which are generating steadier revenue streams over longer time frames. The division further expanded its global footprint with new sales offices in Shanghai and Sin-gapore. Capacity and capability at the new office in Russia were further strengthened.

For the full year, the division anticipates a moderate increase in order in-take. Sales are expected to stabilize, in particular due to timing aspects of large and long-term projects. Profitability is predicted to be at a double-digit level. Demand for the division’s services in the oil and gas, power, and the general industries is expected to remain at the current levels. The Ameri-cas and the Asia-Pacific region are forecast to remain the growth drivers for this year.

Sulzer Turbo Services key figures

Proposal by the Board of Directors to the Annual General Meeting

Proposal for new corporate auditor
On July 19, 2012, the Board of Directors decided to propose to the shareholders at the next Annual General Meeting (on March 27, 2013) to elect KPMG as its new corporate auditor.

In our virtual press kit for the Midyear Report 2012 (www.sulzer.com/MYR12), you will find our image database and the following pdf documents:

• Midyear Report 2012 (pdf-format)
• Media release 
• Midyear results presentation

Sulzer will host a press breakfast with the CEO today at 8:30 a.m. CET at the SIX Swiss Ex-change in Zurich, Switzerland.

The conference for analysts and investors is scheduled for today at 10:00 a.m. CET at the SIX Swiss Exchange in Zurich, Switzerland. Callers should dial the following numbers:

Dial-in Code: 2531143 

(Participants are requested to dial in 5–10 minutes prior to the start of the presentation)

Webcast
The analysts and investors conference call can also be followed by webcast (audio slides). Please use the following link: http://www.media-server.com/m/p/crv7in85

Playback Webcast
The playback of the webcast will be available shortly after the event under the following link: 
www.sulzer.com/MYR12-Webcast

Key Figures 

Operating income before depreciation/amortization (EBITDA; millions of CHF)

¹ Adjusted for currency effects as well as acquisitions and divestitures
² EBIT/sales
³ Attributable to shareholders of Sulzer Ltd
⁴ The most significant activities under “Others” are Sulzer Innotec, Corporate Center, and consolidation adjustments