In the first half of 2019, Sulzer maintained the momentum of 2018. Order intake grew by 7.5 percent organically and by 8.7 percent including acquisitions. Sales increased by 13.1 percent, mostly organically. Operational EBITA was up 15.4 percent to CHF 159 million for an improved operational ROSA of 9.0 percent. Sulzer increases its guidance for order intake and sales for the full year.
Strong order growth
Order intake of CHF 1’933.3 million was up 8.7 percent year-on-year, of which 7.5 percent was organic and CHF 21.8 million in came from recent acquisitions.
Order intake in the Pumps Equipment division increased by 5.9 percent. The increase stemmed from 5.5 percent organic growth, supported strongly by large projects in the Water market (+21.7 percent) where Sulzer was awarded two large projects for desalination and water pipeline pumps in the Middle East. Growth in the Oil and Gas segment (+7.1 percent) maintained its momentum.
Order intake in the Rotating Equipment Services division grew by 7.3 percent, mainly organically. All product lines – Pump Services, Turbo Services and Electromechanical Services – contributed to growth, with a particularly strong demand for Pump Services. On July 2, 2019, Sulzer announced the acquisition of Alba Power, a leading independent service provider for aero-derivative gas turbines in Aberdeen, UK. With that acquisition, Sulzer diversifies its gas turbine service business into distributed power and offshore as well as marine applications.
The Chemtech division grew by 25.9 percent driven by organic growth of 23.3 percent, with all regions contributing. Chemical customers, which account for close to 60 percent of Chemtech, continue to add capacity at a sustained pace. The GTC Technology acquisition announced in May 2019 added CHF 7.8 million in order intake over the quarter. GTC develops technologies and commercializes licensed processes for the petrochemical industry worldwide. It strengthens Chemtech’s leadership in petrochemical processes.
Order intake in the Applicator Systems division remained flat. Adhesives, Dental and Healthcare grew at a collective 6.1 percent, of which 2.5 percent organic. Beauty temporarily declined as growth is increasingly captured by a more fragmented, viral-marketing driven customer base. Sulzer remains the market leader in brush-based beauty applications and is investing in a significant transformation of its industrial base to better serve these customers.
Double-digit sales growth
Sales amounted to CHF 1’773.8 million. This increase of 13.1 percent was 12.1 percent organic, with the addition of CHF 15.7 million from recent acquisitions.
Sales grew 28.1 percent in the Oil and Gas and Petrochemical markets on a high order backlog and supported by slight contributions from acquisitions. Sales to the Chemical Processing Industry increased by 26.1 percent and by 4.7 percent to the Industry market. Power sales declined by 0.5 percent, also due to a lower backlog at the beginning of the year. Water sales declined by 0.7 percent after a strong increase in 2018.
Operational return on sales increased to 9.0 percent
Operational EBITA (opEBITA) amounted to CHF 158.8 million compared with CHF 139.7 million in the first half of 2018, an increase of 15.4 percent. Higher sales volume, savings from the Sulzer Full Potential (SFP) program of CHF 11 million, proportionally lower operating expenses, and acquisitions contributed to this increase. OpEBITA increased organically by 14.4 percent. Operational EBITA margin (opROSA) increased to 9.0 percent compared with 8.8 percent in the first half year of 2018.
As it concludes the SFP program in 2019, Sulzer is continuing to adapt its global manufacturing capacities to evolving market and business conditions. Up to June 2019, SFP-related non-operational expenses were CHF 7.8 million. Plans to consolidate two Applicator Systems factories in Germany are underway, for which restructuring provisions of CHF 14.4 million and non-operational costs of CHF 6.4 million were recorded in the first half of 2019. Consequently, EBIT amounted to CHF 96.2 million, an increase of 18.2 percent compared with CHF 82.0 million in the first half of 2018. Return on sales (ROS) was 5.4 percent compared with 5.2 percent in the first half of 2018.
While Sulzer is not immune to the climate of economic uncertainty that percolates from some of the markets or geographies that the company is active in, the company does not see at this point signs of a slowdown in its leading indicators.
Based on sustained customer inquiries and a strong performance in the first half of this year, Sulzer increases its guidance. The company raises its forecast for order intake to grow by 6 percent to 9 percent (previously 2 percent to 5 percent), and sales to grow by 7 percent to 9 percent (previously 3 percent to 5 percent), adjusted for currency effects and including an acquisitions effect of 2 percent. Sulzer maintains its forecast of reaching an opEBITA margin of around 10 percent in 2019.