If not otherwise indicated, changes from the previous year are based on currency-adjusted figures.
Order intake resilient
Sulzer booked an order intake of CHF 3’414 million in 2020, limiting the pandemic-induced decrease to 2.2% (–3.8% organically). Acquisitions contributed CHF 55 million to order intake. Currency translation effects had a negative impact of CHF 249 million, as the Swiss franc appreciated against all currencies Sulzer is operating in. Order intake gross margin increased to 34.0%, slightly up from 33.6% in 2019 on the back of order selectivity and pricing discipline.
Orders in the Pumps Equipment division decreased by 4.1%. Water orders increased by 2.3%, excluding two large projects of CHF 42 million for water transport and desalination booked in 2019. Industry remained stable (–0.5%). After a strong first half-year, commercial activity in the Energy-related markets slowed in the second half as expected, leading to a year-on-year decrease of 1.9%. Order intake in Rotating Equipment Services grew by 2.5%, supported by CHF 22 million from the Alba acquisition and organic growth of 0.6%, across all product lines and regions. Restricted access to customer sites impacted order intake in the second half-year. Chemtech orders remained on the previous year’s level (–1.1%), despite customers postponing projects and site access restrictions shifting outages to 2021. The GTC acquisition contributed CHF 20 million. In Applicator Systems, after a good Q1, our markets collapsed in Q2 as dentists and retailers were forced to close. Order intake rebounded strongly in the second semester, with Q4 orders up 5% organically year-on-year, mitigating the full year order drop to 11.0% (–14.2% organically). The Haselmeier acquisition contributed CHF 13 million.
As of December 31, 2020, the order backlog amounted to CHF 1’759 million (December 31, 2019: CHF 1’793 million). Negative currency translation effects totaled CHF 130 million.
Sales down only 5%
Sulzer recorded sales of CHF 3’319 million in 2020, moderately down 4.6% (–5.6% organically) despite site, supply chain and customer disruptions triggered by the pandemic. Acquisitions added CHF 34 million, while negative currency translation effects amounted to CHF 239 million.
Sales in Pumps Equipment declined by 5.7%. Strong sales in Water, up 3.4% organically (–0.8% currency-adjusted) and stable sales in Industry (–1.0%) did not fully offset a sales decline in Energy (–11.8%). Sales in Rotating Equipment Services remained stable, with the Alba acquisition contributing CHF 13 million. In Chemtech, sales declined by 4.8%. Strong execution in China could not offset the lockdown impacts elsewhere. The GTC acquisition contributed CHF 14 million. In Applicator Systems, sales declined by 13.4%, caused by the abrupt closure of retailers and dental clinics in Q2 2020, followed by a strong rebound later in the year. The newly acquired Haselmeier business contributed CHF 7.4 million.
Gross margin remained stable at 29.9% in 2020 (2019: 30.1%), despite a lower share of high-margin Applicator Systems business within the sales mix.
Operational profitability of 9.0%
Operational profit amounted to CHF 298 million compared with CHF 371 million in 2019, a decrease of 13.7%. Cost reduction measures partly mitigated the impact from lower sales, particularly in Applicator Systems with the corresponding negative mix effect given its higher profitability. A hiring pause, reduction in personnel-related costs, discretionary spend and travel contributed CHF 59 million to cost savings. Excluding Applicator Systems, Sulzer divisions profitability was actually up 10 basis points, demonstrating the solidity of our business model and the quality of our execution.
Structural actions
Sulzer launched decisive measures to mitigate the impact of market disruptions particularly on its Energy-related business activities early in 2020. One-off expenses of CHF 81 million were recorded, comprised of CHF 56 million restructuring expenses, CHF 15 million non-operational costs and CHF 10 million impairments. These mainly relate to the closure or resizing of sites in Europe and the Americas, as well as the resizing of supporting resources. Structural recurring savings of CHF 70 million will be delivered, of which CHF 12 million in 2020, an additional 40 million in 2021 and the remaining in 2022.
Net income impacted by restructuring charges
EBIT amounted to CHF 151 million, decreasing nominally by 37.5% compared with CHF 241 million in 2019. Return on sales was 4.5% compared with 6.5% in 2019.
In 2020, net income amounted to CHF 87 million compared with CHF 158 million in the previous year. Core net income excluding the tax-adjusted effects of non-operational items totaled CHF 200 million compared with CHF 258 million in 2019. Basic earnings per share decreased from CHF 4.52 in 2019 to CHF 2.46 in 2020.
Record free cash flow
Cash flow from operating activities amounted to CHF 369 million, compared with CHF 320 million in 2019. Lower net income was more than compensated by an increase of provisions (CHF 93 million), also driven by restructuring-related provisions and favorable changes in inventories (CHF 30 million) and accounts receivables (CHF 21 million). Free cash flow amounted to CHF 272 million compared with CHF 213 million in the prior year. This was driven by the higher cash flow from operating activities and lower capital expenditure.
Growing in medical, water and sustainable solutions
In line with our strategy to complement our portfolio with bolt-on acquisitions in fast-growing markets such as medical and water, we announced transactions of strategic importance. Haselmeier, an acquisition we announced in August and closed five weeks later, gives Sulzer access to the highly attractive drug delivery devices market. With its self-injection pens for reproductive health, diabetes or osteoporosis patients, Haselmeier is a great fit to our Applicator Systems business and leverages our precision injection-molding expertise.
With the acquisition of the Swedish company Nordic Water, announced in January and closed on February 1, 2021, Sulzer strengthened its wastewater treatment offering and gained further access to the clean water market, a fast-growing segment where Sulzer is already present.
With these transactions, we continued Sulzer’s industrial repositioning towards higher growth markets. Today, we have strong positions in sustainability-driven segments such as water treatment, energy efficiency, recycling, biomaterial applications, low carbon solutions and healthcare. Just within Chemtech, sales from our renewable solutions amounted to CHF 50 million in 2020 and are expected to grow considerably in the next few years.
Proposals by the Board of Directors at the Annual General Meeting
The Board of Directors will propose an unchanged ordinary dividend of CHF 4.00 per share at the Annual General Meeting on April 14, 2021. This reflects the solidity of our balance sheet and our confidence in Sulzer’s future performance.
The Board of Directors will propose Peter Löscher, Matthias Bichsel, Mikhail Lifshitz, Alexey Moskov, Gerhard Roiss and Hanne Birgitte Breinbjerg Sørensen to be reelected for a one-year term of office at the Sulzer Annual General Meeting.
Furthermore, Lukas Braunschweiler and Marco Musetti have decided to retire from the Board of Directors and will not stand for re-election. The Board of Directors will propose the election of Dr. Suzanne Thoma and David Metzger to the Board. Mr. Metzger will represent Tiwel.
In addition, the Board of Directors proposes to the AGM the amendment of the Articles of Association by adding a clause on conditional share capital allowing the company to create new shares up to an amount of approx. 5% of the current share capital for the purpose of possible re-financing and financing transactions in the future (e.g. issuance of convertible bonds).
Outlook
For 2021, Sulzer expects a progressive return to pre-pandemic levels. The first half of the year at least will continue to be impacted by the pandemic, with regional lockdowns hampering business interactions. Our business most impacted by the lockdowns in 2020, Applicator Systems, should build on its strong H2 2020 rebound to return to pre-pandemic volumes by the middle of 2021. Progress with vaccination should bring an acceleration to all Sulzer businesses in the second half of the year.
Sulzer order intake in 2020 was only down 2% for the year, on the back of a strong first half where we were up almost 2%. Against this robust baseline, we expect orders to be up 3% to 6% in 2021 on a currency-adjusted basis. We expect sales to grow by 5% to 7% in 2021, also on a currency-adjusted basis. Operational profitability will benefit from the rebound in Applicator Systems and the uplift from our structural cost-cutting measures to return to pre-pandemic levels, close to 10%.
Key figures divisions
Details on the performance of the divisions can be found in the Annual Report 2020: https://report.sulzer.com/ar20
Annual Report 2020 - Sustainable InnovationAmid difficult market dynamics caused by the pandemic, Sulzer was able to deliver yet another resilient performance with orders only softening by 2.2% and sales by 4.6%. This was supported by continued growth in the aftermarket business, strong demand in China, and positive development in Water and Chemicals. Solid operational execution and strict cost-saving measures helped reach an operational profitability of 9.0%. For the second consecutive year, Sulzer delivered a record free cash flow, amounting to CHF 272.1 million in 2020.