Sulzer Pumps to Significantly Improve Profitability

15.12.2003

Sulzer Pumps has launched a far-reaching operational improvement program to considerably strengthen performance. The division thereby aims to continue on the positive trend of 2003.

It has enjoyed good growth in order intake for the first 9 months and operating performance for the full year is expected to recover from last year’s low.

This improvement program will lead to exceptional charges of CHF 23 million in 2003, but is expected to continuously lift the operating margin to 8% in 2006. One consequence of the measures required will be the reduction of a total of 240 positions in various locations.

Sulzer Pumps is the largest division in the Corporation and plays an important role in the future development of Sulzer as a whole. While this division historically suffered from a below-average operating performance, the current year has shown a turnaround in both order intake (after nine months: +3% nominally, +12% adjusted) and operating income, which is expected to surpass the 5% EBITA threshold for the full year. However, in order to reach a competitive operating margin of 8% by 2006, further improvement steps are necessary.

During the last 9 months, the division has worked out a comprehensive improvement program. One portion of this program deals with general operational improvement initiatives such as sourcing, lean manufacturing, product design, project execution, etc. Additionally, a comprehensive factory network optimization will move existing activities and product lines from higher to lower cost locations. As an example, certain value adding activities will be shifted from North America and Finland to Mexico and China. All initiatives primarily affect operations outside of Switzerland. A number of measures have already started execution in 2003; most of them will be implemented over the next two years.

As a whole, the program affects about 390 jobs in the overall Sulzer Pumps organization, which employed approximately 4600 people per mid-year 2003. About 70 positions were already reduced in the current year, and 80 are intended to be taken over by new owners or moved within the organization. For the remaining 240 employees Sulzer will try to minimize the impact of redundancy. Discussions with the employee representatives are ongoing.

The operational improvement program leads to a one-time charge of CHF 23 million which will affect the 2003 accounts. On the other hand, the benefits will have an impact starting already next year. The EBITA-margin of 4% in 2002 is expected to gradually improve each year to 8% in the results of 2006. Due to the exceptional charge incurred in 2003, the Sulzer core divisions as a whole will not be able to match their prior-year results, while the EBITA before exceptional items is expected to be above the level of 2002.

The management of Sulzer Ltd is committed to making Sulzer Pumps more successful and is convinced that these measures will significantly improve the competitiveness of this division and lead to benefits for all stakeholders in the long-term.

The Sulzer Corporation will release the order intake figures for the full year 2003 on January 16, 2004.

Sulzer Pumps, the largest Sulzer division, is a global leader in the development and supply of centrifugal pumps. Its product line extends from highly complex engineered pumps for special applications to an extensive range of configured pumps. Sulzer Pumps provides comprehensive and globally available pumping solutions to selected industries, mainly oil and gas, hydrocarbon processing, pulp and paper, and power plants. It is also a provider of technical support for all types of pumps and other rotating equipment. Sulzer Pumps employs approximately 4600 professionals worldwide. Net sales for the first half year 2003 totaled CHF 411 million (sales for year 2002: CHF 934 million).

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