Sulzer to Focus on Three Key Markets

High Order Intake but Reduced Profitability in the First Half of 2013

Group ReleasesTuesday, July 23, 2013

Order intake grew to CHF 2.1 billion. Sales decreased slightly, while profitability was lower. Sulzer wants to focus its activities in three attractive key markets.

  • In the first half of 2013, order intake increased to CHF 2.1 billion. Sales decreased slightly, despite good sales levels in recent months after a slow start to the year
  • Lower volumes, under-utilization of capacities, changes in the business mix, higher restructuring charges, and higher IT costs impacted the operating income and the profitability
  • Tailored measures were initiated in businesses and regions with continuing weaknesses to reduce costs and increase sales
  • Sulzer is placing a strong focus on executing the high order backlog efficiently
  • Sulzer wants to focus its activities in three attractive key markets—oil and gas, power, and water
  • The company is therefore exploring a divestiture of the Sulzer Metco division, which is mainly active in attractive parts of the automotive, aviation, and general industries
  • The potential divestiture of the Sulzer Metco division would generate additional funds for targeted acquisitions and further investments toward organic growth in Sulzer’s key markets.
  • Sulzer will serve its key markets as one focused company, leveraging collaborative advantages and synergies across its businesses
  • For the full year 2013, Sulzer expects slight growth in order intake and sales. Profitability is forecast to be slightly lower

Overview of key figures for the first half of 2013 (January – June)

(millions of CHF)

H1-2013

H1-20121

Δ

Δ adj.2

Order intake

2 103.1

2 025.4

+3.8%

+3.0%

Order backlog (June 30/Dec. 31)

2 038.6

1 829.2

11.4%

Sales

1 901.3

1 922.7

–1.1%

–1.9%

Operating income before depreciation/amortization (EBITDA)

217.0

256.7

–15.5%

Operating income (EBIT)

148.2

193.1

–23.3%

Return on sales (ROS)3

7.8%

10.0%

Net income attributable to shareholders of Sulzer Ltd

99.5

129.4

–23.1%

Basic earnings per share (in CHF)

2.92

3.81

–23.4%

Free cash flow

51.2

116.3

–56.0%

Net liquidity (June 30/Dec. 31)

–176.3

–95.9

Employees (June 30/Dec. 31)
(number of full-time equivalents)

17 794

17 936

–0.8%

High order intake in the first half of 2013

In the first half of 2013, the order intake grew to CHF 2.1 billion. This level was reached despite a slow start to the year in some businesses. Demand was weak, in particular, in the water market and for electromechanical services. However, major orders were booked recently, for instance, for pipeline pumps as well as for biopolymer process technology. The oil and gas market continued to show some growth. The transportation market remained stable at high levels. The power industry remained at a low level, while the water market was lower compared with the high base of the same period of the previous year. Demand in Europe was weak, while North America and Asia-Pacific were strong.

Sales decreased slightly. The good sales levels in recent months did not fully compensate the slow start to the year. The lower volumes, under-utilization of capacities, some effects from the changed business mix, higher restructuring charges, and investments in IT infrastructure resulting in higher cost impacted the operating income and the profitability. Sulzer initiated tailored measures in businesses and regions with continuing weaknesses. 

In Sulzer Pumps, operating income was impacted by lower volume and cost absorption in the wastewater business, especially in Southern Europe. To further leverage synergies, the wastewater pumps business was combined with the process pumps business into a new business area called Configured Solutions. Additional tailored measures have been started to reduce the number of manufacturing sites and to increase the efficiency of the sales and service network. In Sulzer Metco, the operating income was impacted by the costs of a site closure for footprint optimization. In Sulzer Chemtech, capacity utilization for process technology has returned from low levels at the beginning of the year with larger orders in recent months. In Sulzer Turbo Services, capacities were adapted to the weak demand for electromechanical services in the UK and Australia. 

Measures to decrease costs and increase sales will continue in the second half of the year. At the same time, Sulzer is placing a strong focus on executing the high order backlog efficiently.

Net income attributable to Sulzer shareholders amounted to CHF 99.5 million or 5.2% of sales (2012: CHF 129.4 million, 6.7% of sales). Basic earnings per share (EPS) decreased by 23.4% to CHF 2.92.

The free cash flow, consisting of cash flow from operating activities as well as capital expenditures, was, supported by the improved management of working capital, positive at CHF 51.2 million (2012: CHF 116.3 million).

Focus on three attractive key markets

Sulzer has taken the strategic decision to focus the company’s activities in three attractive key markets—oil and gas, power, and water. The company already holds leading positions in these markets, which accounted for about two thirds of the company’s sales in 2012. They offer attractive growth potential based on global megatrends such as population growth, urbanization, increasing energy demand, and scarcity of water. Sulzer offers both performance-critical equipment and related services in these key markets. 

After the potential divestiture of Sulzer Metco, these three markets would account for almost 80% of sales—with oil and gas at 48%, power at 16%, and water at 15%. The potential divestiture of the Sulzer Metco division would generate additional funds for targeted acquisitions and further investments toward organic growth in these key markets.

Realignment of portfolio to match new market strategy

Sulzer Metco, with half of its sales in the automotive and aviation markets and about one-third in general industries, has a clear focus outside Sulzer’s three key markets. Sulzer is therefore exploring a divestiture process.

Sulzer is looking for a new owner for the entire Sulzer Metco division that will leverage the strengths of the division in the best possible way. Sulzer Metco is a business that is performing well and that has outstanding solutions for attractive markets—namely, automotive and aviation, power generation, and the general industries. 

The division’s strengths include having the industry-leading, most complete portfolio in surface technologies, a combined offering of coating solutions, equipment, materials, and services, as well as components. With its strong customer partnership, broad global presence, and competent and committed teams, the coating business has excellent prospects for continued profitable growth with a new owner.

Working together as one company

Sulzer will serve its key markets as one focused company with dedicated customer orientation. The overall direction is based on Sulzer’s vision and its four strategic priorities, which were announced in July 2012: technology leadership, outstanding services, continuous operational improvement, and collaborative advantage. Several related group-wide initiatives were initiated in the second half of 2012 and are making good progress.

Along with the stronger market focus, Sulzer also intends to explore and leverage collaborative advantages and synergies across its businesses more extensively. In the future Sulzer Pumps and Sulzer Turbo Services will work together more closely to cross-sell their services for rotating equipment—ranging from pumps to turbines, compressors, motors, and generators. With a combined front end for customers, they will leverage their complementary technical knowhow and service offering as well as the combined global footprint and customer base. This will further strengthen Sulzer’s unique position in services for rotating equipment. Furthermore, to better support its strategy, Sulzer is starting shared service initiatives in various functions such as finance, human resources, and IT infrastructure.

Outlook 2013 and midrange targets 2012–2015

Based on present knowledge and excluding any major changes in the general economic conditions, growth is expected for parts of the oil and gas market in 2013. Activity in the power, water, transportation, and the general industries is forecast to continue at similar levels. Geographically, Asia-Pacific and North America are likely to remain the growth drivers.

Based on the potential divestiture of Sulzer Metco, the current performance, and the outlook, Sulzer is currently reviewing its midrange targets. 

For the full year 2013, Sulzer expects slight growth in order intake and sales. Profitability is forecast to be slightly lower compared with the previous year.

The new strategic focus on three attractive key markets—oil and gas, power, and water—positions Sulzer well for profitable growth and continued sustainable success.

Results in detail

Sulzer Pumps: Increased order intake and new strategic partnerships

Order intake accelerated after a slow start and increased, when compared with the first half of the previous year. Growth was supported by large orders in the second quarter for pipeline pumps and fire-fighting pumps. The main growth driver was the oil and gas market. The power industry grew moderately on a low base, while the water market was lower than the strong previous-year period. North America and Asia-Pacific were particularly strong. Sales were low at the beginning of this year. The slow start was not fully compensated by the improvements in recent months. Due to lower volumes, the changed business mix, and under-utilization of capacities, the operating income decreased significantly. 

The division will adapt capacities to lower demand in certain markets, reduce the number of manufacturing units, implement additional LEAN initiatives, and increase the efficiency of its sales and service networks. In addition, Sulzer Pumps and Sulzer Turbo Services are preparing to cross-sell services for rotating equipment, thus leveraging their global networks. 

Sulzer Pumps signed an agreement for the supply and aftermarket support services of high-energy and process pumps with a leading global oil company. The division also established a strategic partnership with Sinopec Corporation, one of the largest oil and gas companies in China. Sulzer Pumps continued to extend its global footprint with new service centers in Brazil, China, and South Africa.

For the full year, order intake and sales are expected at similar levels as in 2012, based on the high order backlog. Profitability is forecast to be slightly lower than in the previous year. The division expects the oil and gas and the power market to grow moderately with North America and the Asia-Pacific region as growth drivers. The water market is expected to continue on a similar level, compared to the previous year.

Sulzer Pumps key figures

millions of CHF

H1-2013

H1-2012

Δ

Δ adj.2

Order intake

1 077.7

1022.3

+5.4%

+5.4%

Sales

949.9

981.0

–3.2%

–3.2%

Operating income before depre-ciation/amortization (EBITDA)

81.7

110.0

–25.7%

Operating income (EBIT)

53.7

84.0

–36.1%

Return on sales (ROS)3

5.7%

8.6%

Employees (June30/Dec.31)
(number of full-time equivalents)

8573

8573

Sulzer Metco: Increases in order intake and sales

Order intake increased compared with the first half of the previous year, based on continued high demand in the automotive and aviation industries. After a slow start to the year, there was also stronger demand in recent months for coating equipment and services. Order intake growth was driven by Europe and Asia-Pacific.

The division clearly increased sales in the first half of the year, supported by the success of its innovative coating solutions for the automotive market. Operating income was lower, mainly due to the costs of a site closure for footprint optimization. Targeted measures for cost control were continued.

Sulzer Metco further expanded its global footprint with a production and service plant in China and an acquisition in Russia. With a new plasma spray gun that delivers improved coating efficiency, the division continued to add innovative solutions to its portfolio.

For the full year, the division continues to expect moderate growth of order intake and sales. Profitability is forecast to be slightly lower than in the previous year. The automotive and the aviation industries are expected to remain at high levels, driven by North America, Asia, and Eastern Europe. The general industries are likely to show slower growth rates.

Sulzer Metco key figures

millions of CHF H1-2013 H1-2012 Δ Δ adj.2
Order intake 370.7 360.5 2.80% –0.8%
Sales 354.5 339.3 4.50% 1.10%
Operating income before depre-ciation/amortization (EBITDA) 44.6 45.8 –2.6%
Operating income (EBIT) 31.8 34.6 –8.1%
Return on sales (ROS)3 9.00% 10.20%
Employees (June30/Dec.31) (number of full-time equivalents) 2 489 2 399

Sulzer Chemtech: Higher order intake

The order intake increased in the double-digit range compared with the same period of the previous year. The oil and gas downstream industry continued to develop positively for mass transfer technology and tower field services. The process technology business reported a strong second quarter with various large orders, after a slow start into 2013. The order intake for two-component mixing systems was strong, also supported by an acquisition. Market activity remained at a good level in most geographic regions.

The division increased sales slightly compared with the first half of 2012. The operating income and profitability decreased due to lower volumes for process technology and the weaker operational performance of tower field services. The division will focus on processing the increased order backlog in the second half of the year, particularly at the process technology business. 

Sulzer Chemtech acquired a leading manufacturer of dispensers, strengthening the division’s position as leading provider for one- and two-component application systems. In addition, the division was awarded a large contract for a high-performance biopolymer production plant in Asia, based on Sulzer’s leading proprietary technology, which offers additional potential for the future. 

For the full year, the division continues to expect high single-digit growth in order intake and sales. Based on the strong order growth in the first half of the year, profitability is forecast to reach a double-digit level. The activity in the oil and gas downstream market is predicted to remain at the current level, and the high demand for two-component mixing systems is likely to continue. Asia-Pacific and North and South America are expected to be the main growth drivers, while investment levels in Europe are expected to remain at the current lower levels.

Sulzer Chemtech key figures

millions of CHF

H1-2013

H1-2012

Δ

Δ adj.2

Order intake

411.0

361.0

+13.9%

+9.9%

Sales

363.5

362.6

+0.2%

–3.6%

Operating income before depreciation/amortization (EBITDA)

54.2

53.7

+0.9%

Operating income (EBIT)

35.0

36.6

–4.4%

Return on sales (ROS)3

9.6%

10.1%

Employees (June30/Dec.31)
(number of full-time equivalents)

3 958

4 086


Sulzer Turbo Services: Growth in sales

Compared with the record-high first half of the previous year, orders decreased in the beginning of the year, but then showed some signs of improvement. Activity levels in the oil and gas market were strong, while the power and the general industries were slower. The demand for electromechanical services was weak, particularly in the UK and in Australia. Geographically, all regions had a slow start in 2013, but market activity has since improved.

Sales grew slightly in the first half of the year. The slow start to the year, with reduced capacity utilization, especially at the electromechanical service sites in the UK and in Australia, had a significant impact on the operating income and profitability of the division. Sulzer Turbo Services took targeted measures to improve its operational performance, such as capacity adaptations and sales improvement initiatives, particularly for the electromechanical service units.

Sulzer Turbo Services and Sulzer Pumps are taking steps to cross-sell services for rotating equipment. This will allow the divisions to leverage their global sales and service center networks and offer a full range of services to their combined customer base. Sulzer Turbo Services continued to develop its business with long-term service agreements, which generate steady streams of revenue and strengthen customer loyalty.

For the full year, Sulzer Turbo Services anticipates a decrease in order intake. Sales are forecast to decrease slightly. Despite the positive effect from the measures taken, profitability is expected to be at a lower level than in 2012. The demand for the division’s services in the oil and gas market is predicted to remain strong, while the power and the general industries are likely to remain at the current low levels. Further growth opportunities are being developed, particularly in the emerging markets.

Sulzer Turbo Services key figures

millions of CHF

H1-2013

H1-2012

Δ

Δ adj.2

Order intake

251.2

277.0

–9.3%

–8.7%

Sales

239.6

236.0

+1.5%

+2.1%

Operating income before depre-ciation/amortization (EBITDA)

26.5

33.0

–19.7%

Operating income (EBIT)

18.2

24.9

–26.9%

Return on sales (ROS)3

7.6%

10.6%

Employees (June30/Dec.31)
(number of full-time equivalents)

2 592

2 703

Key figures

Order Intake

(millions of CHF)

H1-2013

H1-2012

Δ

Δ adj.2

Divisions

2 110.6

2 020.8

+4.4%

+3.2%

Sulzer Pumps

1 077.7

1 022.3

+5.4%

+5.4%

Sulzer Metco

370.7

360.5

+2.8%

–0.8%

Sulzer Chemtech

411.0

361.0

+13.9%

+9.9%

Sulzer Turbo Services

251.2

277.0

–9.3%

–8.7%

Others4

–7.5

4.6

Total

2 103.1

2 025.4

+3.8%

+3.0%

Sales

(millions of CHF)

H1-2013

H1-2012

Δ

Δ adj.2

Divisions

1 907.5

1 918.9

–0.6%

–1.8%

Sulzer Pumps

949.9

981.0

–3.2%

–3.2%

Sulzer Metco

354.5

339.3

+4.5%

+1.1%

Sulzer Chemtech

363.5

362.6

+0.2%

–3.6%

Sulzer Turbo Services

239.6

236.0

+1.5%

+2.1%

Others4

–6.2

3.8

Total

1901.3

1922.7

–1.1%

–1.9%

Operating income (EBIT)

(millions of CHF)

H1-2013

H1-20121

Δ

 

Divisions

138.7

180.1

–23.0%

 

Sulzer Pumps

53.7

84.0

–36.1%

 

Sulzer Metco

31.8

34.6

–8.1%

 

Sulzer Chemtech

35.0

36.6

–4.4%

 

Sulzer Turbo Services

18.2

24.9

–26.9%

 

Others4

9.5

13.0

 

Total

148.2

193.1

–23.3%

 

Return on sales (ROS)3

H1-2013

H1-20121

   

Divisions

7.3%

9.4%

   

Sulzer Pumps

5.7%

8.6%

   

Sulzer Metco

9.0%

10.2%

   

Sulzer Chemtech

9.6%

10.1%

   

Sulzer Turbo Services

7.6%

10.6%

   

Others4

   

Total

7.8%

10.0%

   

1 Restatement of prior year figures regarding IAS 19 revised, see note 04 on page 15 of MYR 2013
2 Adjusted for currency effects as well as acquisitions and divestitures
3 EBIT in % of sales
4 Others mainly consists of Sulzer Innotec (until August 2012), Corporate Center, and consolidation adjustments

Virtual press kit

In our virtual press kit for the Midyear Report 2013 (www.sulzer.com/MYR2013), you will find our image database and the following pdf documents:

  • Midyear Report 2013 (online version and pdf format)
  • Media release
  • Midyear results presentation

Press conference

Sulzer will host a press conference today at 11.00 a.m. CET at the SIX Swiss Exchange, Zurich, Switzerland.

Conference for analysts and investors

The conference for analysts and investors is scheduled for today at 09:00 a.m. CET (08:00 a.m. BST / 03:00 a.m. EDT) at the SIX Swiss Exchange in Zurich, Switzerland. Callers should dial the following numbers:

Dial-in Code:  2265915

+41(0)22 567 5432

Swiss Toll

0800 345 603

Swiss Toll Free

+44(0)20 3427 1911

UK Toll

0800 279 4977

UK Toll Free

+1646 254 3367

USA Toll

1877 280 2342

USA Toll Free

(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: www.sulzer.com/myr13_webcast

The playback of the webcast will be available under the same link shortly after the event.

Key dates in 2013 

October 17

Order intake Jan. – Sept. 2013

November 8

Capital Market Day 2013

 

News Release

Presentations

Reports

Related Links