Sales Up 13% Over Prior Year
Against a backdrop of generally friendlier conditions, Sulzer posted sales of CHF 977.6 million for the first half of 2004. The sales figure is 13.0% higher than the level achieved in the prior-year period (adjusted ) +10.1%).
Net income was CHF 32.5 million (prior year: CHF 24.6 million). Earnings growth was driven by the core divisions, which boosted operating income before goodwill amortization (EBITA) by 40.1% to CHF 62.5 million.
Sulzer concentrated on the one hand on improving its operating performance and on the other hand on having good product positioning in the market. Order intake grew by 9.4% year-on-year (adjusted +6.7%) to CHF 1,095.1 million, while sales were up 13.0% (adjusted +10.1%) to CHF 977.6 million. The adjustments are primarily the effects of acquisitions; the currency effect was less than in previous years. Sulzer’s net income for the first half of the year increased from CHF 24.6 million in 2003 to CHF 32.5 million—a sharp increase of 32.1%. Operating income before goodwill amortization (EBITA) of the core divisions advanced 40.1% from CHF 44.6 million to CHF 62.5 million. All core divisions contributed to the increase in earnings except for Sulzer Turbomachinery Services, where earnings were down slightly. The increase in earnings for the core divisions more than made up for the decline in the category “Other,” which was due primarily to a drop in real-estate income.
Individual Results for Divisions
In the first six months of this year, Sulzer Metco (surface technology solutions and services) continued the positive trend observed in the second half of 2003. Order intake climbed 30.5% (adjusted +15.4%) to CHF 268.0 million, while sales advanced 32.3% (adjusted +18.9%) to CHF 255.2 million. The higher sales volumes and the capacity adjustments carried out in 2003 led to a marked recovery in EBITA, which rose from a modest CHF 5.1 million to CHF 15.5 million year-on-year. The return on sales, meanwhile, leapt from 2.6% to 6.1%.
Sulzer Turbomachinery Services (service and repair of thermal turbomachinery) was able to maintain results at a good level in the first half of 2004 in a very difficult environment. Order intake rose by 3.9% to CHF 109.6 million (adjusted +6.0%), while sales were up by 1.9% (adjusted +3.5%) to CHF 102.5 million. Considering the strong competition, particularly in North America, EBITA of CHF 9.4 million (previous year CHF 10.3 million) can be viewed as a good achievement. The return on sales fell from 10.2% to 9.2%.
Sulzer Pumps (pumping solutions and services) further improved its performance thanks to the operational improvement program announced in December 2003. Order intake once again rose by 6.9% (CHF 540 million; adjusted +5.3%) relative to an already strong half year in 2003. Sales advanced 12.5% to CHF 461.9 million (adjusted 10.5%), while EBITA rose from CHF 19.8 million to CHF 24.1 million. The return on sales increased from 4.8% to 5.2%.
The rigorous focus of Sulzer Chemtech (components and services for separation columns and static mixing) on the division’s core competencies and the expansion in Asia are paying off. At CHF 167.8 million (down 1.0%, adjusted +0.2%), order intake matched the already very high level achieved in 2003. Sales were up 1.2% (adjusted +2.6%) over the same period to CHF 149.2 million. EBITA increased from 9.4 million to an excellent CHF 13.5 million as a result of high volumes and cost savings. The return on sales rose to 9.0% (from 6.4% in 2003).
The venture division Sulzer Hexis has achieved a number of further milestones in terms of research and development. At present, there are some 100 Sulzer Hexis fuel cell systems that have been installed and are running under operating conditions. Based on the promising results, Sulzer will address its strategic options for Sulzer Hexis in winter 2004-05. The operating loss for the first half of the year was CHF 8.2 million.
The category Other posted an operating income of CHF 8.7 million, falling short of the CHF 12.7 million posted in the same period in 2003. On the one hand, the costs of the settlement reached with the buyer of the former division Sulzer Infra were slightly in excess of provisions. On the other hand, real-estate income was down from last year; the small gains from disposals were partially offset by an insurance reimbursement for a fire casualty in a property in Mantes, France, which is mainly rented out to third parties.
Outlook
Given the ongoing external uncertainty, a solid operating performance will remain essential. Unless any negative external influences arise, we expect to see a significant improvement in earnings in 2004 compared with the previous year. This improvement will be driven primarily by the core divisions, whose results for the second half of 2004 look set to slightly improve on the figures for the first six months of the year.
