Sulzer net income reaches CHF 42 million – operating divisions under earnings pressure

27.08.2002

In view of the challenging market situation, the Sulzer Corporation attained satisfactory profitability per mid-year 2002, with an operating income (EBIT) of CHF 66 million and net income reaching CHF 42 million. Operating income of the core divisions totaled CHF 31 million, 26% below the prior-year figure of CHF 42 million. Although the economic environment is likely to remain difficult in the second half of 2002, the Sulzer Corporation expects to end the year with a respectable net income compared to the breakeven result of the prior year.

Net sales of CHF 939 million maintained the prior mid-year level – considering only the con­tinuing operations as benchmark for 2001. Adjusted for acquisitions, divestitures and currency effects, there was an increase of 5%. Order intake of CHF 1039 million declined nominally by 3%, but increased by 2% after adjustment for acquisitions, divestitures and currency effects. Operating income of CHF 66 million per mid-year is at a good level, whereby apart from the operational business, various disposals of real estate and the sale of Sulzer Burckhardt contrib­uted to this result. Net income as of June 30 totaled CHF 42 million. The respective prior-year figures for operating income (CHF 161 million) and net income (CHF 120 million) are not a suit­able benchmark, as they were influenced to a very large extent by exceptional items mainly comprising gains from divestitures. For 2001 as a whole, however, Sulzer net income totaled only CHF 2 million.

Sulzer CEO Fred Kindle‘s comments: “Although operating income has fallen short of the desired level, these mid-year results prove the profitability of the realigned Sulzer Corporation even under difficult circumstances. Our healthy balance sheet and good cash position form a solid basis for a profitable future.”

The Sulzer Corporation passed some important milestones during the first half of this year. The threat of the product liability claim against Centerpulse (formerly Sulzer Medica) in the USA was averted by participation in an out-of-court settlement. With the management buyout of Sulzer Burckhardt, the strategic realignment of the Sulzer Corporation was completed. Furthermore, renewal of the Board of Directors in spring 2002 has given Sulzer a rejuvenated and inter­nationally rooted strategic management body with strong experience of its markets.

Divisional results

In the first half of the year, Sulzer Metco suffered from increasingly difficult market conditions. Order intake rose by a nominal 5% to CHF 221 million (adjusted: –7%) and sales by 7% to CHF 222 million (adjusted: –4%). Operating income declined to CHF 7 million compared to CHF 21 million per mid-year 2001. This unsatisfactory result is attributable to rapidly decreasing demand and steeply rising pressure on prices in the second quarter. Order intake almost matched that of prior year for the first quarter, but declined by more than 20% in the second quarter. Sulzer Metco is responding to this pressure with cost-cutting measures including capacity reductions at various locations, but will not be able to achieve the previous year’s result in 2002.

Sulzer Turbomachinery Services' order intake for the first half of the year totaled CHF 101 million (–10%, adjusted: –7%), with sales of CHF 97 million (–6%, adjusted: –3%) and an oper­ating income of CHF 9 million (prior mid-year level: CHF 12 million). Although these figures are down from the excellent results for the same period last year, they are nevertheless an im­provement over the second half of 2001. While market conditions in the USA are very difficult, particularly in the energy sector, the European and above all the Asian market have improved to some extent. Due to these circumstances, the Sulzer Turbomachinery Services result for 2002 as a whole is likely to be slightly below that of prior year.

At CHF 528 million, order intake by Sulzer Pumps matches the prior mid-year figure in nominal terms (adjusted: +9%), while sales rose by 6% to CHF 458 million (adjusted: +14%) and oper­ating income to CHF 12 million (prior year CHF 11 million). A stronger second half-year can be expected both with respect to sales and operating income. While the oil and gas markets remained active, demand in the other segments continued on the modest level of prior year. Overall, the Sulzer Pumps markets are currently affected by considerable pressure on prices. Despite difficult conditions, Sulzer Pumps expects operating income for 2002 to match the prior-year level. Per January 1, 2003, Thomas Gutzwiller will be succeeded as division president of Sulzer Pumps by Ton Buechner, currently head of Sulzer Turbomachinery Services (see sepa­rate media release).

Sulzer Chemtech's order intake per mid-year rose slightly to CHF 163 million (+1%, adjusted: +6%), while sales at CHF 135 million were still down from the same period last year (–9%, ad­justed: –5%). In line with the positive expectations for this division, operating income improved steeply to CHF 3 million (prior year: CHF –2 million). This turnaround is primarily attributable to internal measures rather than to better market conditions for Sulzer Chemtech, which have only improved on a very limited basis in certain areas. For the year as a whole, Sulzer Chemtech expects a further improvement of operating results.

As planned, in the first half of 2002 the Sulzer Hexis venture division produced and delivered further fuel cell systems of the pre-production series. Almost thirty of these CE certified systems are already in operation. In the meantime, all of the 400 planned pre-series systems are now under contract and about 100 of them are due for delivery this year. In parallel, development work is progressing on a near-series fuel cell heating unit, with market launch planned for 2004/2005. The operating loss of CHF 6 million per mid-year is expected to increase over the next six months due to the further planned development phases.

The situation in Sulzer's markets as a whole is expected to remain difficult for the rest of the year. As in previous years, a stronger second half can be expected, but due to adverse eco­nomic conditions the core divisions will not be able to match their operating income for 2001. The Sulzer Corporation expects to end this year with a respectable net income (in comparison with the breakeven result of the prior year), including further gains from real estate sales.

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