Sulzer: Strong Increase in Order Intake and Record High Sales

01.08.2012

Driven by the major acquisition of a wastewater pumps business and organic growth, order intake increased significantly by nominal 11% to CHF 2 025 million in the first half of 2012.

Adjusted for currency effects as well as acquisitions and divestitures, it was up by 1%. Acquisitions contributed CHF 208 million. The strong Swiss franc had a negative translation effect of CHF 23 million on orders.

Sales increased substantially to CHF 1 923 million in the first half of 2012. This represents a nominal growth of 20% (9% adjusted1) compared with the first half of the prior year. Acquisitions contributed CHF 199 million, while the strong Swiss franc had a negative translation effect of CHF 24 million. All divisions recorded positive growth rates on a nominal and adjusted* basis.

Operating income increased to CHF 193 million, and profitability remained at a healthy double-digit level despite acquisition-related charges and an increased share of sales of the new equipment business, mainly at Sulzer Pumps. The return on sales figures of the divisions include an increase of corporate charges by 50 basis points of sales. Net income attributable to Sulzer shareholders increased to CHF 132 million. Basic earnings per share (EPS) increased by 4.9% to CHF 3.87. The free cash flow improved substantially to CHF 116 million in the first half of 2012.

The oil and gas market remained stable at a high level, and strong demand continued in the transportation market and the general industries. The power market started to show first signs of recovery. Geographically, the Asia-Pacific region and North America were the main growth drivers.

With the refinancing of an existing credit facility through a new CHF 500 million facility, Sulzer underscored its strong credit profile.

Outlook for 2012

The ongoing uncertainties in the financial markets and their potential negative impacts on the global economy cannot be fully assessed and bear a certain downside risk. Based on current knowledge, order intake and sales are expected to increase within the high single-digit range for the full year, driven by the major acquisition and organic growth. Profitability is projected to remain at a double-digit level. Activity in the oil and gas, power, and water markets is expected to remain stable at a high level. The transportation market and the general industries are predicted to continue at the current high levels. The Asia-Pacific region and North America are forecast to remain the growth drivers for the company.

In detail: Sulzer Pumps

The division increased its order intake noticeably in the first half of the year, mainly driven by the major acquisition. The water market continued to grow, in particular, the wastewater subsegment. The oil and gas industry remained stable at a high level, while the power market started to show the first signs of recovery. Geographically, activity levels were particularly high in North America, the Asia-Pacific region, and in Russia.

Sales grew even more strongly than orders, driven by the major acquisition and organic growth. The profitability of the division was affected by amortization due to the acquisition, a changed business mix with a higher share of sales of the new equipment business, and the increase of corporate charges by 50 basis points of sales.

Sulzer Pumps continued to innovate with new products—the most significant ones being a new multiphase subsea pump and additional solutions for the desalination and the concentrated solar power markets. The division’s presence in the emerging markets was further expanded with additional service centers in China and Russia and a packaging facility in South Korea. The integration of the acquired water and wastewater businesses is on track.

For the full year, the division anticipates double-digit growth in orders and sales. Profitability is forecast to reach the level of 2011. Activity in the oil and gas, power, and water markets is expected to remain stable at a high level. Geographically, North America, the Asia-Pacific region, and Russia are forecast to remain the growth drivers for the division.

In detail: Sulzer Metco

In a continuously positive environment in its key markets, the division further increased its order intake compared with the first half of the previous year. Demand for the division’s innovative coating solutions was particularly high in the power and in the aviation industries. The automotive market stabilized at the current high levels. Geographically, demand was particularly pronounced in North America and in the Asia-Pacific region, while Europe remained stable.

Sales grew in line with order intake. Profitability remained in the double-digit range despite additional corporate charges, which increased by 50 basis points of sales. With the continuously high demand for the division’s innovative coating solutions, additional production capacity for ceramics powder was built in Germany, and further expansions are planned in China and India.

The division continued to strengthen its leadership position by adding new innovative solutions to its portfolio. For instance, a new thermal-spray plasma gun with improved productivity and a new scratch-resistant coating for the plastics industry were launched. With coldspray technology and laser cladding, new competencies with high customer value were added to the division’s surface technology portfolio. The global footprint was further expanded with an additional sales office in Brazil. In China, a new shop-in-shop coating center was opened. The division also became a member of the Commonwealth Center for Advanced Manufacturing (CCAM) research facility, a collaboration that involves top US universities and best-in-class global industry players.

For the full year, the division expects moderate growth levels in order intake and sales. Profitability is forecast to increase slightly. The automotive, aviation, and general industries are likely to continue at the current high levels, driven by the emerging markets and North America.

In detail: Sulzer Chemtech

The division’s order intake decreased slightly compared with the very strong first half of the prior year. The oil and gas downstream industry developed positively for both mass transfer technology and tower field services. However, some process technology projects were delayed. The demand for two-component mixing systems in the dental, industrial, and construction markets remained at the levels of the first half of the previous year. Geographically, the demand was particularly high in Asia and the Americas, while customers were relatively cautious with investments in Europe.

The division significantly increased its sales volume and operating income. Profitability remained in the double-digit range despite the rise in corporate charges by 50 basis points of sales.

The division initiated further steps to strengthen its position in the fast-growing Asian markets. The headquarters of the Mass Transfer Technology business unit will be relocated to Singapore at the beginning of next year. In addition, the Process Technology and the Mixpac Systems business units are expanding their activities in China. With the start-up of the pilot plant for innovative bioplastics in Switzerland, the division reinforced its leading position in that promising market. The plant is able to produce up to 1 000 tons of biopolymers per year and supports the further development of market opportunities in close cooperation with customers.

For the full year, the division expects moderate growth in order intake and higher sales. Profitability is forecast to remain at a double-digit level. Activity in the oil and gas downstream industry is projected to continue at the current levels. Increased demand is expected in the field of process technology. Demand for the division’s offering for the dental, industrial, and construction markets is forecast to continue at the current levels. Geographically, Asia and the Americas are expected to remain the growth drivers.

In detail: Sulzer Turbo Services

The division increased half-year orders to a record high, supported by large service projects in the Americas, contributions from new markets in the Asia-Pacific region, and synergies from the integrated business. The positive environment in the oil and gas and the transportation industries supported the growth. Activity levels in the power and the general industries remained on a stable level.

Sales increased in line with the high growth of orders. The operating income and profitability increased despite the rise in corporate charges of 50 basis points of sales.

Tailored initiatives were introduced to ensure further sustainable growth: Synergies between the turbomachinery and the electromechanical businesses were further developed. The division entered new markets, such as the mining, rail, and marine industries. Additional regional teams were deployed to develop long-term service agreements, which are generating steadier revenue streams over longer time frames. The division further expanded its global footprint with new sales offices in Shanghai and Singapore. Capacity and capability at the new office in Russia were further strengthened.

For the full year, the division anticipates a moderate increase in order intake. Sales are expected to stabilize, in particular due to timing aspects of large and long-term projects. Profitability is predicted to be at a double-digit level. Demand for the division’s services in the oil and gas, power, and the general industries is expected to remain at the current levels. The Americas and the Asia-Pacific region are forecast to remain the growth drivers for this year.

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