Stable Sales and High Profitability in First Half-Year

28.08.2009

In the first half of 2009, Sulzer’s sales remained stable at a high level due to a strong order backlog. Return on sales before restructuring expenses reached 14.5% and return on sales including those expenses was 12.4%. The net income remained stable, cash flow improved and net liquidity was further strengthened.

In the context of declining market activities, Sulzer initiated a global cost reduction program. With its strong market positions, a solid balance sheet and the cost reduction program, Sulzer stays well positioned for future success.

The order backlog ensured high capacity utilization at many sites in the first half of 2009. Nominal sales were with CHF 1 725 million broadly in line with the prior year (+0.4% adjusted1), mainly driven by the strong performance of Sulzer Pumps. As customers were cautious with investment decisions due to lower end-user demand, order intake decreased substantially. Geographically, all regions were affected by the deteriorated economic situation, although China and Brazil remained somewhat stronger by comparison.

The operating income and profitability in the first half of 2009 was substantially impacted by two non-recurring items. As no quick recovery of market activities is expected, Sulzer announced in June a global cost reduction program to adapt its capacity and cost structure in all divisions.

In the first half of 2009, charges associated with this program of CHF 36 million were booked. Furthermore, Sulzer Real Estate achieved an exceptionally high operating income of CHF 46 million in the first half of 2009 due to major disposals of operationally non-essential property.

Supported by the result of Sulzer real estate, operating income before restructuring expenses (EBITR) rose by 9% to CHF 251 million, resulting in a high return on sales before restructuring expenses (ROSR) of 14.5%. Including the non-recurring charges for the cost adaption program, operating income (EBIT) decreased by 6% to CHF 214 million and return on sales (ROS) reached 12.4%.

Net income remained stable at CHF 156 million, resulting in basic earnings per share of CHF 4.64. Cash flow generation from operating and investing activities was with CHF 175 million significantly higher than in the first half of 2008. Net liquidity increased to CHF 358 million.

Sulzer Pumps: Increased sales and operating income

Sulzer Pumps’ order backlog ensured high capacity utilization at many sites, resulting in a significant increase in sales. Order intake decreased substantially. Supported by the higher volumes, operating income increased notably, even after inclusion of the restructuring expenses. Profitability before restructuring expenses increased to 13.0%. The division maintained its strong market position despite the challenging conditions. For the full year, the division expects a notably lower order intake and decreases in sales and operating income compared to 2008.

Sulzer Metco: Affected by the economic downturn

The economic downturn had a strong negative impact on Sulzer Metco’s key markets. The division reported considerably lower order intake and sales volumes for all business units, while the operating income declined even more. Return on sales before restructuring expenses decreased to 5.8%. In light of the challenging market environment, the division implemented multiple measures to reduce costs, for instance, selective reduction of the workforce, short-time work and the closure of individual facilities. The division’s innovative solutions experience high customer acceptance, confirming its strong market position. For the full year, Sulzer Metco expects order intake, sales and profitability clearly below the levels of the previous year.

Sulzer Chemtech: Sales decline less than order intake

On the basis of a strong order backlog, Sulzer Chemtech’s sales declined at a clearly lower rate than order intake. Orders decreased substantially as customers were cautious with capital investments, which resulted in a significant reduction of demand for new equipment. Operating income decreased and profitability before restructuring expenses reached 13.7%. The division started to implement measures to adjust its production capacity and cost structure as a response to the changed market conditions. Sulzer Chemtech maintained its strong market position with innovative solutions, increased service and a broad global presence. Compared to 2008, the division expects a substantially lower order intake for the full year. Consequently, sales, operating income and profitability are anticipated to decrease.

Sulzer Turbo Services: Higher profitability before restructuring

The economic downturn had an impact on the service business in Sulzer Turbo Services’ key markets, resulting in lower order intake and sales. Despite lower volumes, profitability before restructuring expenses increased to 10.3%. The division initiated measures to reduce costs and further improve processes in order to adapt to the changed market environment, particularly in Europe. Sulzer Turbo Services expects order intake, sales and operating income for the full year below the levels of the previous year.

Outlook for 2009

While the long-term prospects for Sulzer’s performance-critical solutions remain positive, the company does not expect a quick recovery of its key markets. The oil and gas as well as the hydrocarbon processing industries are expected to show clearly lower activity compared to the levels of 2008. Also, in the power generation market, project activity is projected to decrease. The pulp and paper industry will remain at a low level and the general weakness in the automotive industry is expected to continue. The aviation market, which has been relatively stable so far, is likely to decline later this year as passenger and cargo miles flown decrease. Geographically, all regions will continue to be affected by the economic downturn; however, activities in some emerging markets in Asia and Latin America are likely to remain comparatively stronger.

For the full year, Sulzer expects a substantially lower order intake and also decreases in sales, operating income and return on sales compared to the extraordinary high levels of 2008. With the company’s strong market positions, its order backlog, a solid balance sheet and the cost reduction program, Sulzer stays well positioned to manage the challenges in a difficult economic environment.

1Adjusted for currency effects as well as acquisitions and divestitures

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