For the Sulzer Corporation, the year 2002 brought a return to stability. Averting the threat of Centerpulse product liability claims in den USA, successful conclusion of the divestiture program (with the sale of Sulzer Burckhardt, now Burckhardt Compression), renewal of the Board of Directors, modernization of the articles of association, and the attainment of greatly improved financial results were the milestones on this way.

Net sales for 2002 totaled CHF 1946 million, almost matching prior-year level for the continuing operations (–1%), but equivalent to a 4% growth after adjustment for acquisitions, divestitures, and currency effects. Comparison with the reported sales for 2001 (CHF 2988 million) is not meaningful, as those figures also included sales of discontinuing operations. Order intake was nominally 5% below prior-year level at CHF 1917 million, but 2% higher after adjustment.

Operating income of the continuing divisions before goodwill amortization (EBITA) totaled CHF 143 million, only slightly lower than in the previous year (–2%). EBITA of the four core divisions declined from CHF 123 million to CHF 97 million. This is attributable to massive pricing pressure and high one-time charges affecting Sulzer Metco, and to operationally induced gross-profit reductions and workload gaps with Sulzer Pumps. The decline in operating income of the core divisions was more than compensated by high revenues from real-estate sales and the Sulzer Burckhardt divestiture, so that consolidated net income reached the respectable level of CHF 83 million (prior year: CHF 2 million). After dispensing with a dividend payment last year, the Board of Directors proposes to the Annual General Meeting 2003 a dividend of CHF 6 per share.

Sulzer CEO Fred Kindle comments on the results for 2002 as follows: “It is very encouraging that despite market-driven volume stagnation, all divisions show clearly positive earnings. Sulzer now stands on solid foundations both financially and strategically; we will face the challenges of the future with energy and confidence.”

Divisional summaries

Sulzer Metco sales volume and margins in thermal-spray coatings and systems were under heavy pressure in 2002. Despite a global decline in the aviation industry and stationary gas turbine segments, the turbine components business looks back on a successful year, while thin-film coating activities developed modestly. Sulzer Metco order intake matched the 2001 level at CHF 429 million (adjusted: –8%). Sales for 2002 rose from CHF 422 million to CHF 465 million (adjusted: –1%), but EBITA declined from CHF 45 million in the prior year to CHF 25 million.

This result, which is far below expectations, is attributable to heavy margin pressure and to non-recurring costs of about CHF 15 million for restructuring and revaluation of plants and inventories. Due to the measures already initiated, a significantly improved operating income is expected for the current year.

After the extraordinarily high level reached in 2001, Sulzer Turbomachinery Services business volume stagnated last year. The power generation market in the USA was strongly affected by the Enron debacle, and business volume suffered additionally from the global economy decline. Order intake for 2002 was 6% lower than in 2001 at CHF 193 million (adjusted: also –6%), while sales matched the prior-year level at CHF 194 million (adjusted: +2%). Due to weak markets, EBITA declined from an excellent CHF 25 million in the prior year to CHF 22 million. Thanks to rapid adjustments, Sulzer Turbomachinery Services thus managed to maintain a high level of profitability. This division looks to 2003 with guarded optimism in view of the modest market upswing expected, although armed conflict in Iraq would negatively affect Sulzer Turbomachinery Services business.

Apart from ongoing buoyancy in the important segment Oil & Gas, the other relevant Sulzer Pumps markets were in poor to medium shape during 2002. Exchange rate developments seriously affected key business volume figures, reducing order intake by 4% to CHF 942 million and sales by 1% to CHF 934 million, as against increases of 6% and 9% respectively in local currencies. EBITA declined to CHF 38 million from CHF 47 million in 2001, above all due to unfavorable gross margins on some prior-year orders, as well as workload deficiencies in process pump business during the fourth quarter. The goal of Sulzer Pumps for the current year is to increase EBITA margin and thus operating income again. To this end the new divisional management is focusing above all on internal improvements.

Sulzer Chemtech business development in 2002 was positive on the whole. Market conditions varied widely according to region, ranging from very weak in North America and modest in Europe to very encouraging in Asia. Despite the demanding economic situation throughout the year, order intake of CHF 299 million matched the 2001 level (–1%, adjusted: +5%). Due to delays of some large projects and negative currency effects, net sales of CHF 290 million for 2002 were 7% lower than in prior year (adjusted: –1%). Very encouraging is the doubling of EBITA from CHF 6 million to CHF 12 million. This success is largely due to the cost reduction measures implemented last year at various locations. Sulzer Chemtech is confident of attaining a further rise in operating income for 2003, provided that the situation in the Middle East does not lead to a protracted crisis.

The Sulzer Hexis venture division passed some important milestones in 2002 both in fuel cell marketing and technical development. With 400 pre-series “HXS 1000 Premiere” units sold, 80 of which delivered by year-end 2002, a good start has been made with European market anchorage. Development of the next system generation is already making significant progress. The greatest challenge during 2003 will be to significantly extend the service life of the fuel cell stack while at the same time using commercial production methods. The operating loss of this venture division for 2002 was not materially higher than in prior year (CHF 15 million as against CHF 13 million in 2001). Sulzer Hexis will now be focusing intensively on developing its fuel cell system to market maturity as the first one for residential applications.

Other activities contributed very positively to overall earnings with an EBITA of CHF 61 million (prior year: CHF 36 million). Real-estate business attained peak revenues due above all to numerous property sales, with an EBITA of CHF 77 million (prior year: CHF 45 million). The target set in spring 2001 to realize at least CHF 200 million gross sales of non-essential properties in 2001 and 2002 has been significantly exceeded at roughly CHF 280 million.

In Discontinuing operations the operating income (EBIT) amounted to CHF 23 million in 2002 (prior year: CHF –49 million), mainly attributable to the divestiture gain of Sulzer Burckhardt.

Focus on operational improvements

Sulzer expects a demanding year 2003. Economic developments and their effects on specific industrial sectors can hardly be foreseen, and the political situation gives rise to concern particularly with regard to crisis potential in the Middle East. The focus of Sulzer’s efforts during the current year is on improving operating processes to increase overall operating income of the four core divisions. Net income is likely to decline this year since real-estate sales will not match the exceptionally high level of 2002.

The Annual General Meeting 2002 approved some very shareholder-friendly amendments to the Sulzer Ltd articles of association. Furthermore, the Board of Directors was almost completely renewed. Proposed at this year’s AGM on April 16 are the election of CEO Fred Kindle and the re-election of Mario Fontana and Daniel J. Sauter to the Sulzer Board of Directors, which would then comprise seven members.

In compliance with the Swiss Exchange SWX Corporate Governance guidelines, Sulzer discloses the remuneration of Board and Executive Management members. Total remuneration of the Board of Directors (5 members until spring 2002, afterwards 6 members) for 2002 amounted to CHF 1.0 million in cash and 9500 stock options. The Corporate Executive Management (10 members) received remuneration for 2002 totaling CHF 6.1 million in cash and 25,600 stock options.

Key figures summary

Main key figures of the continuing operations (in million CHF)

	2002	2001	± in %	± in %, adjusted *
Orders received	1917	2016	–5	+2
Net sales	1946	1965	–1	+4
Operating income before goodwill amortization EBITA	143	146	–2
Operating income                                 EBIT	113	119	–5
Personnel employed as of 12/31	9108	9376	–3

Main corporate key figures (in million CHF)
(prior year: including discontinued operations)

	2002 Total	2001 Sulzer without Centerpulse**	2001 Total with Centerpulse
Orders received	1917	3215	3929
Net sales	1946	2988	3701
Operating income before goodwill amortiz.   EBITA	149	–59	–856
Operating income                                 EBIT	136	70	–755
Net income/loss	83	2	–448
Net income/loss per share (in CHF)        EPS	24	1	–129
Personnel employed as of 12/31	9113	9916	9916

* adjusted for acquisitions, divestitures and currency effects
**  «Sulzer without Centerpulse» includes for all continued and discontinued activities except Centerpulse (formerly Sulzer Medica)
 

Main key figures per division (in million CHF)

Orders received	2002	2001	± in %	± in %, adjusted *
Core divisions	1863	1921	–3	+2
Sulzer Metco	429	429	+0	–8
Sulzer Turbomachinery Services	193	206	–6	–6
Sulzer Pumps	942	984	–4	+6
Sulzer Chemtech	299	302	–1	+5
Venture division (Sulzer Hexis)	2	8	–	–
Other	52	87	–40	–
Continuing operations	1917	2016	–5	+2
Discontinuing operations	–	1199	–	–

Net sales	2002	2001	± in %	± in %, adjusted *
Core divisions	1883	1875	+0	+4
Sulzer Metco	465	422	+10	–1
Sulzer Turbomachinery Services	194	194	+0	+2
Sulzer Pumps	934	947	–1	+9
Sulzer Chemtech	290	312	–7	–1
Venture division (Sulzer Hexis)	2	1	–	–
Other	61	89	–31	–3
Continuing operations	1946	1965	–1	+4
Discontinuing operations	–	1023	–	–

Operating income before goodwill amortization (EBITA) ***	2002	2001	± in %
Core divisions	97	123	–21
Sulzer Metco	25	45	–44
Sulzer Turbomachinery Services	22	25	–12
Sulzer Pumps	38	47	–19
Sulzer Chemtech	12	6	–
Venture division (Sulzer Hexis)	–15	–13	–
Other	61	36	+69
Continuing operations	143	146	–2
Discontinuing operations	6	–205	–

*** excl. income from disposal of discontinuing operations