Sulzer – Positive Outlook for The Second Semester

Although the second half of the year remains challenging, Sulzer expects an operating income of the four core divisions above the previous-year figure. Net income for the whole corporation will remain lower, however.

Sales for the first 6 months 2003 totaled CHF 866 million, 8% below the previous mid-year level. This decline is attributable above all to currency effects. Adjusted for acquisitions, divestitures, and currency effects, there was a slight organic growth of 1%. Order intake of CHF 1001 million declined nominally by 4%, but increased by 5% after adjustment. Irrespective of the nominal volume decline, the four core divisions were able to generate an improved operating income (EBITA) of CHF 45 million (previous year CHF 43 million), representing the main portion of the corporate EBITA of CHF 49 million. The operating margin of the core divisions rose by 0.6% to 5.3%.

Net income of the Sulzer Corporation for the first half year totaled CHF 25 million. The previous mid-year profit was higher at CHF 42 million, but included the gain from the Sulzer Burckhardt divestiture and a larger contribution from real estate operations.

Sulzer CEO Fred Kindle’s comments: “Thanks to the balanced portfolio of our activities, the strong market position of our divisions, and the corrective actions initiated earlier on, we were able to end the first half of this year with a slightly improved operational performance and a better outlook than one year ago. Sulzer remains committed to profitable growth.”

Divisional results

Per mid-year, Sulzer Metco’s order intake of CHF 205 million was 7% below the previous-year level (adjusted –3%) while sales decreased by 13% (adjusted –9%). Operating income before goodwill amortization (EBITA) fell from CHF 12 million in the previous year to CHF 5 million per mid-year 2003. This disappointing performance was caused by low sales volume, depressed margins, significant order delays with aerospace customers, and some restructuring costs. The prospects for the second semester, however, are improving. Increased volume and the savings from restructuring measures will affect Sulzer Metco’s operating income positively.

Sulzer Turbomachinery Services’ order intake for the first half of the year rose to CHF 106 million due to acquisitions (+5%, adjusted: –1%). Sales reached CHF 101 million (+4%, adjusted: 0%). Despite difficult markets, EBITA of CHF 10 million almost matched the previous year’s level (CHF 11 million), and the operating margin stayed around 10%. Sulzer Turbomachinery Services expects sales for 2003 to match the level of 2002 despite the challenging situation in North America. Due to margin erosion, however, EBITA is likely to be slightly lower than for 2002.

Sulzer Pumps’ order intake decreased by 4% to CHF 505 million. Adjusted for currency effects, however, the order volume rose by 7%. Likewise sales declined nominally to CHF 411 million (–10%, adjusted +1%). EBITA improved substantially to CHF 20 million (previous year: CHF 15 million) due to more critical order selection and cost-effective execution. Business in the oil and gas segment developed very positively, while the power generation industry remained at low level worldwide. Sulzer Pumps expects lower sales than in the previous year – due to currency effects – but an improved EBITA.

Sulzer Chemtech’s order for the first half year rose to CHF 170 million (+4%, adjusted +14%). Sales per mid-year increased to CHF 147 million (+9%, adjusted +21%). Thanks to this volume growth and the positive effect of cost saving measures, EBITA greatly improved from CHF 5 million in the previous year to CHF 10 million per mid 2003. The impressive growth is mainly attributable to projects in Europe, the Near East, China, and some South East Asian countries while the market situation in North America remains unsatisfactory. For the whole year, Sulzer Chemtech expects a continuation of the strong overall trend and, in particular, a substantial improvement in operation income compared with 2002.

So far, Sulzer Hexis has delivered 100 pre-series fuel cell systems. After selling these units as planned, Sulzer Hexis expects only insignificant order intake until launching the next system generation in 2004/05. In the first six months of this year, about CHF 9 million cash have been invested in Sulzer Hexis. Thanks to important progress made with regard to fuel cell stack life, Sulzer is increasingly confident that the next-generation product will be a breakthrough in the market. While the spending pattern will further increase in the next 12 months, Sulzer is planning to maximize the value of this venture by also looking into partnering options as soon as the next milestones have been reached.

The second half of the year 2003 will remain challenging. Nevertheless, Sulzer expects the operating income from the core divisions to be above the previous year’s level. Net income will benefit correspondingly, but it will remain below last year’s level, mainly because of the exceptionally high real estate income and the gain from the disposal of Sulzer Burckhardt that boosted 2002’s bottom line.

Order intake figures for the first nine months 2003 will be published on October 22.

Key figures of the Corporation (in millions CHF)

1)adjusted for acquisitions, divestitutres, and currency effects

2)contains the gain on disposal of Sulzer Burckhardt (CHF 18 million)

Key figures by division (in millions CHF)

1)adjusted for acquisitions, divestitures, and currency effects

1)adjusted for acquisitions, divestitures, and currency effects