Sulzer H1 2022: Substantial Rise in Orders on Continuing Momentum
Image source: Sulzer Ltd.
Thanks to our diversified product portfolio, strong operational execution, and strict cost management, we managed to further increase operational profitability. Supported by our solid order backlog, we are well-positioned to capture the continuing momentum and yet again deliver on our guidance and continue our profitable growth.”
Increased order intake in all three divisions
Compared with the first half of 2021, order intake increased by a strong 11.4% to CHF 1’734.1 million, fueled by organic growth of 10.9% and CHF 7.0 million from net acquisitions. Currency translation effects had a positive impact on order intake of CHF 5.9 million. Order intake gross margin slightly decreased from 33.1% to 32.8%.
Within Flow Equipment all segments grew by double digits, leading to an increase of 14.0% (13.1% organically) in the division. Energy orders increased by 20.7% thanks to good market momentum and a low comparable base for the first half of last year. Industry orders also increased significantly by 12.7%, as did orders in the Water segment, which recorded growth of 10.4% (8.2% organically).
Order intake in the Services division grew by 2.7%, with organic growth of 2.4% being the main driver. A strong performance in the Americas and Asia-Pacific more than offset the drop in Europe, the Middle East and Africa (EMEA), impacted by the exit of the Russian market.
Chemtech’s order intake increased by 20.8%, with strong commercial momentum in all regions and continuously growing demand in the Renewables segment (12.0% of the division’s order intake).
Sulzer enters the second half of 2022 with a high order backlog of CHF 1’896.2 million (December 31, 2021: CHF 1’724.1 million). Negative currency translation effects totaled CHF 12.2 million.
Stable sales in difficult environment
Sales increased by 0.9% compared to the first half of 2021, reaching CHF 1’516.8 million. Organic growth amounted to 0.6%, with acquisitions adding CHF 4.6 million and positive currency translation effects amounting to CHF 8.3 million.
The Flow Equipment division saw a decline in sales of 4.4% (5.1% organically). The decline in Energy (-10.9%) was anticipated, as the business entered the year with a low order backlog. Sales in Industry were 2.5% lower than in the first half of 2021, whereas Water sales grew by 0.6%, also helped by CHF 4.5 million from acquisitions (1.4% organic decline).
Sales in Services grew strongly in the Americas, more than offsetting declines in the EMEA and Asia-Pacific regions. Overall, Services achieved year-on-year sales growth of 2.8% (2.4% organically).
In Chemtech, sales were significantly up by 9.2% (9.8% organically, impacted by a divestiture in Brazil) thanks to strong execution and stringent efforts to overcome Covid-19-related lockdowns in China.
Increased operational profitability at 9.0%
Operational profit from continuing operations amounted to CHF 135.8 million (excluding the impacts of write-offs) compared with CHF 127.6 million in the first half 2021, an increase of 4.9%. A better mix was further supported by savings from cost reduction measures in the Energy-related business and continued spending discipline.
Operational profitability from continuing operations reached 9.0% (H1 2021: 8.5%) for Sulzer. While operational profitability in the Services division remained flat, both Flow Equipment and Chemtech improved year-on-year:
- Flow Equipment increased to 5.3% compared with 5.0% in the first half of 2021
- Services at 13.3% compared with 13.4% in the first half of 2021
- Chemtech improved profitability to 9.9% compared with 9.1% in the first half of 2021
Negative EBIT due to Russia and Poland write-offs
Sulzer incurred one-off expenses of CHF 141.4 million, mainly consisting of write-offs in relation to the exit from Russia and closures in Poland which accounted for CHF 132.5 million at EBIT level. Therefore, EBIT amounted to CHF –25.5 million compared with CHF 97.4 million in the first half of 2021. Return on sales (ROS) was –1.7%, compared with 6.5% as of June 30, 2021. Excluding the Russian and Polish write-offs, EBIT would have been at CHF 107m (+10% YOY) and ROS above the H1 2021 level.
Free cash flow impacted by global supply constraints
Free cash flow amounted to CHF –78.2 million in the first half of 2022, a significant reduction compared to CHF 117.1 million reported in the same period last year, which still included the later spun-off APS division (CHF 33.6 million). Besides lower net income, this is attributable to higher working capital needs in a difficult global supply chain environment.
Outlook 2022
Continued growth momentum in the markets is expected despite the existing macroeconomic and geopolitical uncertainties as well as increased volatility. Sulzer confirms its full-year forecast. For the full year 2022, orders are expected to increase by 3 to 5% organically compared with the previous year, organic sales growth of 2 to 4% (excluding the impact of the exit from the Russian market), and a further improvement in operational profitability to close to 10% of sales.
Source: Sulzer Ltd.
