Substantial rise of net income to CHF 83 million
In a difficult market environment, the Sulzer Corporation was able to uphold sales (CHF 1946 million) and order intake (CHF 1917 million) for 2002 at prior-year level, taking the continuing operations as comparison basis.
Consolidated operating income before goodwill amortization (EBITA) reached CHF 149 million. The four core divisions contributed CHF 97 million, 21% less than in prior year. Net income rose to CHF 83 million, compared with only a breakeven result in prior year (CHF 2 million).
The Board of Directors proposes to the Annual General Meeting of April 16, 2003, a dividend of CHF 6 per share and the election of CEO Fred Kindle to the Board. Sulzer expects a demanding year 2003 and will put the emphasis on operational improvements in the core divisions.
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.”
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.
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.
For more details on results of other Sulzer divisions and key figures have a look at Sulzer's homepage.