Sulzers Currency-Adjusted Sales and Operational EBITA Remained Stable

17.08.2016

In the first half of 2016, sales, operational EBITA, and operational ROSA remained stable. Order intake — impacted by oil and gas market headwinds — decreased, but increased by 8% sequentially in the second quarter of 2016. Significant savings from the Sulzer Full Potential (SFP) program offset the impact from market headwinds.

For the full year 2016, Sulzer is updating its guidance on order intake. The updated guidance indicates that order intake will be at the higher end of the previously communicated range of –5% to –10%, now closer to –5%. The company confirms its guidance on sales (–5% to –10%) and operational EBITA margin (approximately 8%).

Performance in the first half of the year

Sulzer’s order intake of CHF 1 423 million was 9.1% below the same period last year (nominal: –10.1%). However, it improved by 8% sequentially in the second quarter of 2016. Order intake gross margin increased nominally by 1.7 percentage points to 34.6%, mainly due to a higher share of aftermarket business. Growth in the water, power, and general industry markets positively affected order intake. Growth in the water and power market largely related to Pumps Equipment. Chemtech’s Sulzer Mixpac Systems (SMS) business unit drove growth in the general industry segment. Market headwinds affected oil and gas order intake substantially in the first half of 2016. In the oil and gas market, the company recorded significantly fewer new equipment orders in Pumps Equipment and Chemtech. Order levels just slightly decreased in Rotating Equipment Services and the Pumps Equipment aftermarket business. Compared with the first quarter of 2016, oil and gas order intake grew in the second quarter. Regionally, order intake from China continued its rebound. Orders were up in the second quarter both year on year, as well as sequentially from a very low base.

Sales amounted to CHF 1 381 million and were stable compared with the first half of 2015 (– 0.1%). The currency translation effect totaled CHF –10.9 million. Operational EBITA (opEBITA) remained on last year’s level; it amounted to CHF 98.7 million compared with CHF 98.3 million in the first half of 2015. Significant savings from the SFP program compensated for the effect of a lower gross profit. Operational ROSA remained stable at 7.1%.

Cash flow generation is back-loaded this year and includes, to date, CHF 24 million of an SFP cash-out. As such, the company delivered a slightly positive free cash flow in the first half of 2016.

Sulzer acquired PC Cox Group Ltd. and signed a binding agreement to acquire Geka GmbH. With these transactions, the company doubled the size of its most profitable business unit, SMS.

The Sulzer Full Potential Program is progressing well

The SFP program is running at full speed. In the first six months of 2016, Sulzer has realized savings from SFP of CHF 36 million. The company expects savings to be in the range of CHF 60 to 80 million by the end of 2016 and annual savings of about CHF 200 million in a steady state from 2018 onwards. The global procurement organization is operational and is leveraging scale effects. The IT department is working on a new organizational footprint with improved cost structures. The Pumps Equipment division is further refining its global operations network. It introduced a new production planning system to improve profitability and on-time delivery. The Rotating Equipment Services division restructured its activities and simplified its footprint. The Chemtech division, facing sustained pressure on manufacturing costs in Switzerland, announced the closing of its manufacturing facility in Oberwinterthur, Switzerland, in March 2016.

Outlook

For the full year 2016, Sulzer is updating its guidance on order intake. The company previously communicated that order intake would be in the range of –5% to –10%. The updated guidance indicates that order intake will be at the higher end of that range, closer to –5%. The company confirms its guidance on sales and operational EBITA margin. Sales are forecast to decline in the range of 5% to 10%. The operational EBITA margin (opROSA) is expected to be approximately 8%.on

Results in detail

Pumps Equipment: currency-adjusted sales and operational EBITA increased

Order intake decreased in the first half of 2016. Order intake gross margin increased. The oil and gas market decreased significantly and was the main trigger for the decline in orders. Order intake in the power and water markets increased, while it remained stable in the general industry market. Regionally, demand in Europe and Africa decreased significantly, whereas demand in the Middle East grew. Order intake in the Americas dropped. Asia-Pacific was above last year’s level. Sales improved from the first half of the previous year. The division reported stable nominal operational EBITA and operational ROSA.

Rotating Equipment Services: improved operational EBITA despite lower sales

Order intake decreased from the first half of the previous year. A weak demand in EMEA — particularly in the UK — mainly caused the decrease. Order intake gross margin decreased. The oil and gas market decreased. Order intake in the power market was flat and grew in the general industry market. Demand in the Americas was on last year’s level, despite very challenging market conditions in South America. It partially compensated for the decrease in EMEA and Asia-Pacific. Despite decreasing sales in the first half of 2016, operational EBITA improved due to the positive results of the restructuring in EMEA. Hence, operational ROSA improved as well.

Chemtech: improved profitability and lower sales

The Chemtech division reported a decrease in order intake from the same period of the previous year. The decline mainly stems from the weak oil and gas market and a baseline effect (a large order from the Middle East in 2015). The overall order intake gross margin increased. The oil and gas market remained challenging. Demand in the general industry market grew, chiefly because order intake in the SMS business unit increased significantly. Order intake in Europe, Middle East, and Africa increased (excluding the abovementioned large order). Order intake in the Americas declined, whereas it was up from last year’s low level in Asia-Pacific. In the first half of 2016, sales decreased compared with the same period of the previous year. SMS’s significant increase in sales could not offset the lack of large projects in the oil and gas market. Operational EBITA and operational ROSA improved compared with the first half of 2015.

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