Markedly higher earnings by Sulzer’s continuing operations
Sulzer Pumps increased sales (+11% to CHF 947 million; adjusted: +3%) and operating income* (+10% to CHF 56 million) thanks to concentrated efforts in increasingly difficult markets. The second half-year brought a slight market decline in general, particularly in the pulp and paper industry.
SULZER GROUP: Net income break even for 2001 – important innovations proposed for the AGM 2002
Sales for 2001 by the continuing operations relevant to the future of Sulzer rose by 11% to CHF 1965 million (adjusted for acquisitions and currency effects: +3%), with operating income before goodwill amortization and exceptional items 56% higher at CHF 154 million. Consolidated net income (without Sulzer Medica) was just above break even at CHF 2 million, largely due to numerous exceptional items, in particular the participation in the proposed settlement of the Sulzer Medica claims. Accordingly, the Board of Directors will propose to the Annual General Meeting of April 11, 2002, that no dividend be paid. Sales and operating income for the current year are expected to rise further despite challenging market conditions.
Consolidated net income for 2001 was substantially affected by the following extraordinary items: the unfriendly takeover bid by InCentive Capital AG in spring, the Sulzer Medica spin-off per July 10, the divestitures of the Sulzer Turbo, Sulzer Infra and Sulzer Textil divisions, and the participation in the settlement of the Sulzer Medica recall claims. The overall balance of these factors was negative, so that net income remained just above break even at CHF 2 million despite a good operating performance. The consolidated income statement in accordance with IAS accounting rules shows a substantial loss of CHF 448 million. This deficit is entirely attributable to the Sulzer Medica accounts for the first half-year (provisions accrued for the recall). This loss was eliminated from the Sulzer balance sheet with the spin-off of Sulzer Medica and is no longer relevant for the future of Sulzer.
With respect to the break even result, to avoid a further capital reduction and to safeguard liquidity – the payment for the Sulzer Medica settlement is not paid yet – the Board of Directors proposes to the General Meeting 2002 that no dividend shall be paid.
Sulzer CEO Fred Kindle on the result for 2001: “The growth in sales and operating income attained by all our core divisions despite difficult market conditions is encouraging. Without the negative effects of exceptional items, our net income would have been very satisfactory. We are clearly on the right path and look forward to concentrating on our businesses this year without further distraction”.
The continuing operations relevant to the future of Sulzer developed very positively (core divisions, Sulzer Hexis and Others). Their sales rose by 11% from CHF 1773 million to CHF 1965 million (adjusted: +3%), with a 56% rise in operating income* to CHF 154 million. Notable is the growth attained by the core divisions, whose sales rose by 17% (adjusted: +7%), and operating income* by as much as 53%. Return on sales was 7.2% (prior year: 5.4%).
Individual Sulzer core business developments
Double-digit growth of Sulzer Metco sales (+25% to CHF 422 million; adjusted: +7%) and operating income (+36% to CHF 45 million) continued in 2001 thanks to the successful integration of the turbine component manufacturer Eldim (NL). The division’s market position in the automotive industry was further strengthened by the acquisition per October 1, 2001, of the German companies Euroflamm and Metaplas Ionon (consolidated per 1.1.02). Sulzer Metco responded to the aviation industry downturn after the events of September 11 relatively well and looks forward to the current year with cautious optimism.
Sulzer Turbomachinery Services accelerated growth last year both in sales (+66% to CHF 194 million; adjusted: +23%) and operating income* (CHF 25 million, prior year: CHF 6 million). The relevant market conditions were very favorable, especially in the first semester. The Elbar acquisition of the prior year was successfully integrated and contributed substantially to this growth. Sulzer Turbomachinery Services will continue to focus on profitable growth in 2002. The recently announced acquisition of the Enpro service company in the USA demonstrates this division’s continued focus on growth both organically and through acquisitions.
Sulzer Pumps increased sales (+11% to CHF 947 million; adjusted: +3%) and operating income* (+10% to CHF 56 million) thanks to concentrated efforts in increasingly difficult markets. The second half-year brought a slight market decline in general, particularly in the pulp and paper industry. Thanks to a strong strategic position in its main markets, Sulzer Pumps looks to the future with confidence despite the uncertain economy and the weak oil price.
After three years of declining profitability, Sulzer Chemtech reached a vastly improved but not yet satisfactory operating income* (CHF 9 million, prior year: CHF –2 million), with a 6% increase in sales to CHF 312 million (adjusted: +8%). This division was able to expand its market share in a shrinking market. Further earnings improvements are targeted for 2002 even though the stagnating markets are not expected to improve.
The Sulzer Hexis venture division continued its transformation last year from an R&D project into a production and marketing unit. In December 2001, the pre-series model “HXS 1000 Premiere” was CE-certified, and the first units were delivered. Initial order intake by Sulzer Hexis for 2001 totalled CHF 8 million, and the market launch of a more compact system for series production is planned for 2004. Various partnership and financing options are currently under study for long-term expansion of the promising Sulzer Hexis fuel cell business.
Real estate sales totalled more than CHF 60 million in 2001 (net cash contribution around CHF 40 million). Total sales for 2001/02 are still targeted at around CHF 200 million despite more difficult market conditions in the meantime.
* before goodwill amortization and exceptional items
The discontinuing operations (Sulzer Textil, Sulzer Infra, Sulzer Burckhardt) recorded sales totalling CHF 1023 million (prior year: CHF 2635 million), with an operating income of CHF –15 million (prior year: CHF 62 million). These key figures were directly influenced by the prior divestiture of Sulzer Turbo (deconsolidated per 1.1.2001) and the divestiture in 2001 of Sulzer Infra and Sulzer Textil, which consequently were only consolidated for part of the year. The divestiture of Sulzer Burckhardt, expected within the next few weeks, will complete the corporate restructuring phase.
Sulzer’s goals are to further improve sales and operating income in the current year despite more difficult market conditions. Sulzer’s operating divisions are broadly based, with a good volume of orders on hand as well as new product introductions. Furthermore, the service and maintenance business is less susceptible to economic cycles. The medium-term corporate goals of sales growth from CHF 2 to 3 billion p.a. and an operating margin of 9% still hold although their realization may be delayed somewhat by the current recession.
Abolition of voting rights restriction
The Board of Directors will be recommending various changes to the articles of association at the forthcoming General Meeting. Particularly important is the proposed abolition of voting rights restrictions, which if approved will give all shareholders “one share, one vote” rights. Furthermore, the status of nominee shareholders is to be more clearly defined. The number of Board members is now to be established at no less than five and no more than nine.
As previously announced, the Sulzer Board will be renewed. Georges Blum, Reto Domeniconi, and Jan Kleinewefers will be retiring from the Board on the date of the forthcoming General Meeting. Louis R. Hughes, who was newly elected in 2001, will remain in office, while Board Chairman Leonardo Vannotti stands for re-election. The following new members are proposed for election at the General Meeting 2002: Mario Fontana, Thor Hakstad, Hans Hubert Lienhard, and Daniel Sauter. With these proposed actions, all promises made by the Board of Directors at the previous General Meeting with regard to corporate governance are thus fulfilled.
Furthermore, Sulzer provides transparency with respect to Board and Corporate Executive Management remunerations as follows. Board remuneration (10 members until spring 2001, thereafter 5 members) totalled CHF 1.3 million for 2001. Remuneration of the current executive management (10 members) in 2001 totalled CHF 6.3 million, of which CHF 3.4 million in basic salaries and CHF 2.9 million in the form of bonuses.
Main key figures of the continuing divisions (in million CHF)
|2001||2000||change in %||change in %, adjusted for acquisitions, divestitures and currency effects|
|Operating income before goodwill amortization and exceptional items||154||99||+56||–|
|Number of employees at year end||9376||9666||–3||–|