Sulzer MYR 2013 Presentation

8/10/2019 Sulzer MYR 2013 Presentation

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Midyear Results Presentation 2013

Midyear Presentation 2013

Higher order intake, lower profitabilityfocused

market strategy


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| July 23, 2013 |Midyear Presentation 2013

THE SAFE HARBOR STATEMENT UNDER THE US PRIVATE

SECURITIES LITIGATION REFORM ACT 1995

This presentation may contain forward-looking statements, including

but not limited to, projections of financial developments, market

activities or future performance of products and solutions, containingrisks and uncertainties. These forward-looking statements are subject

to change based on known or unknown risks and various other

factors, which could cause the actual results or performance to differ

materially from the statements made herein.

2


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Agenda

Review first six months 2013

Financial review

Strategy update

Outlook and summary

3


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Summary of key figures H1-2013

Solid order intake growth

Three of four divisions grew

Outlook for Full Year 2013:

slight growth of order intake expected

5

CHF

2103mCHF

2025m

Moderate

increase

+4%

H1-2012 H1-2013

Order intake

Book-to-bill H1-2013 >1

Backlog increased to a high level

Focus on efficient backlog execution

Dec 31, 2012 Jun 30, 2013

Order backlog

CHF

2039mCHF

1829m

Increase

+11%

Good order developments

An increased order backlog


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Summary of key figures H1-2013

Slow start into the year, but volumes in recent months

showed improved trends

Changed business mix compared to previous year

Higher volumes for second half of the year expected


slight growth of sales expected

6

CHF

1901m

CHF

1923m

Slight

decrease

1%

H1-2012 H1-2013

Sales

Significant decrease in operating income, mainly

caused by the wastewater pumps business and

electro-mechanical services

Tailored measures taken to improve performance in

the second half of the year


profitability expected to be slightly lower

CHF

148m

CHF193m

Significant

decrease

23%

H1-2012 H1-2013

Operating income (EBIT) A significant decrease of operating income

Sales improved after slow start


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Measures to improve operating performance

7

DivisionMain cause of EBIT

decreaseMeasures taken

Expected effect

in H2-2013

Sulzer

Pumps

Lower sales and lower

margins in Configured

Solutions business

(mainly wastewater)

Under-utilization of

capacities

Accelerate synergy

potential by combining

wastewater business

with process pumps into

Configured Solutions

Reduction of

manufacturing sites

Strong recovery in sales

and profitability

Restructuring measures

are showing positive

impacts

Sulzer

Metco

Restructuring charge for

the closure of a site in

Europe

Continue with strict cost

control

Improved margins

through better cost base

Sulzer

Chemtech

Lower sales in Process

Technology due to

delayed order bookings

in 2012

Larger orders booked in

H1-2013

Higher sales resulting in

better absorption

Sulzer

Turbo

Services

Lower sales in electro-

mechanical businesses

in UK and Australia

Restructuring programs

initiated in UK and

Australia

Capacity adjusted to

lower demand; improved

cost base

Corporate

Center

Higher costs for

modernization of IT

infrastructure

Cost savings measures

implemented

Focused spending


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Agenda


Financial review

Strategy update

Outlook and summary

8



Order intake

Good demand

North America

Asia Pacific

Weak demand

Europe

11

millions of CHF H1-2013 H1-2012Change

in %

Change in

% adj.1)2012

Full Year

Sulzer Pumps 1 077.7 1 022.3 +5.4% +5.4% 2 094.3

Sulzer Metco 370.7 360.5 +2.8% 0.8% 689.5

Sulzer Chemtech 411.0 361.0 +13.9% +9.9% 705.1

Sulzer Turbo Services 251.2 277.0 9.3% 8.7% 535.2

Others 7.5 4.6 0.7

Total Sulzer 2 103.1 2 025.4 +3.8% +3.0% 4 023.4

1) Adjusted for currency translation as well as acquisitions and divestitures

Currency translation effectCHF 3 million or 0.1%

Acquisition/divestitures

CHF 15 million or 0.7%

Order backlog Jun 30, 2013CHF 2 039 million

44%

34%

22%

Europe, Middle East, AfricaAmericas

Asia-Pacific



Sales

12

millions of CHF H1-2013 H1-2012Change in

%

Change in

% adj.1)2012

Full Year

Sulzer Pumps 949.9 981.0 3.2% 3.2% 2 097.5

Sulzer Metco 354.5 339.3 +4.5% +1.1% 690.3

Sulzer Chemtech 363.5 362.6 +0.2% 3.6% 724.6

Sulzer Turbo Services 239.6 236.0 +1.5% +2.1% 510.5

Others 6.2 3.8 1.3

Total Sulzer 1 901.3 1 922.7 1.1% 1.9% 4 021.6

thereof services in % 39.4% 40.8% 40.6%

1) Adjusted for currency translation as well as acquisitions and divestitures

Currency translation effect: CHF 2 million or 0.1%

Acquisition/divestitures: CHF 13 million or 0.7%

Nominal growth in all divisions except Sulzer Pumps

Business mix different than in previous year

Service business share decreased by 140 bps.

Slightly lower sales despite recent improved trends



Gross margin

13

Main negative influence factors were:

Gross margin

H1-2012: 31.0%

Gross margin

H1-2013: 30.4%

Negative market developments insome regions

Changes in the business mix

Gross margin decreased slightly by 0.6%

Note: No material impact from raw material price changes



Operating income (EBIT)detailed analysis

Negative effects:

Lower sales volumesChanges in business mix

Under-utilization of capacities

Higher restructuring expenses

Higher IT cost

14

millions of CHF H1-2013 H1-20121)Change

in %

20121)

Full Year

Sulzer Pumps 53.7 84.0 36.1% 191.2

Sulzer Metco 31.8 34.6 8.1% 68.7

Sulzer Chemtech 35.0 36.6 4.4% 70.7

Sulzer Turbo Services 18.2 24.9 26.9% 54.9

Others 9.5 13.0 23.3

EBIT Sulzer 148.2 193.1 23.3% 408.8

1) Restatement of prior year figures regarding IAS 19 revised; see midyear report note 04 on page 15

Restructuring expenses 5.9 1.0 6.2

Total EBITR Sulzer 154.1 194.1 20.6% 415.0

ROS Sulzer 7.8% 10.0% 10.2%

ROSR Sulzer 8.1% 10.1% 10.3%

Measures taken:

Strict cost control

Adapting capacities to lower

demand

Footprint adjustmentsFurther increase of efficiency

in sales and service networks

Tailored measures initiated to improve performance going forward



Sulzer Pumps

Review H1-2013 and outlook 2013

16

Order intake growth supported by large

orders in oil and gas

Sales started slow into the year, but

improved recently

Operating income decreased significantly

mainly due to lower volumes, changedbusiness mix, and the under-utilization of

capacities

New strategic partnership agreements

signed with customers (e.g. Sinopec)

Further expansion of service footprint

Outlook 2013Full Year:

Order intake and sales expected at similar

levels as in 2012. Profitability forecast to be

slightly lower than in the previous year.

Review H1-2013: Leveraging of synergies by combining

wastewater business with process pumps

into Configured Solutions

Adaptation to lower demand in certain

markets; reducing number in manufacturing

sites in Configured Solutions

Focus on backlog execution and increase

efficiency of sales and service network

Cross-selling of services for rotating

equipment with Sulzer Turbo Services

leveraging cross-divisional cooperation

Current focus areas:

Orders +5% Sales3% ROS 5.7%



Sulzer Metco


18

Growth in orders and sales

Return on sales lower mainly due to

higher restructuring expenses (site

closure)

Reinforced position in China with a new

and larger production and service facility

Acquisition of a small service company in

Russia

Enlargement of ceramics production

facility in Germany to serve growing

demand in semiconductors and fuel cells


Moderate growth in order intake and sales

expected. Profitability is forecast to be

slightly lower than in the previous year.

Review H1-2013:

Targeted measures toward capacity

adaptations and cost reductions

Continue with LEAN-principles


Orders +3% Sales +5% ROS 9.0%



Sulzer Chemtech


20

Strong growth in orders while sales were

stable

Profitability slightly decreased

First large industrial scale order for

biopolymer plant (bioplastics) awarded

Acquisition of Krger A/S, a leading

manufacturer of dispensers to strengthen

the position in one-and two-component

mixing system applications


High single-digit growth in order intake and

sales expected. Profitability is forecast to

reach a double-digit level.

Review H1-2013:

Focus on processing the high order backlog

Leveraging the new headquarter setup in

Singapore for Mass Transfer Technology

Further footprint development of China


Orders +14% Sales stable ROS 9.6%



Sulzer Turbo Services


22

Decrease of order intake while sales grew

slightly

Profitability lower due to reduced capacity

utilization in the electro-mechanical

business in the UK and Australia

Continued to develop the Long-termService business (LTSA)


Decrease in order intake anticipated. Sales

expected to decrease slightly. Profitability is

expected to be at a lower level than in 2012.

Review H1-2013:

Targeted measures to improve operational

performance in particular in the electro-

mechanical business in the UK and

Australia

Cross-selling services for rotating equipment

with Sulzer Pumpsleveraging cross-

divisional cooperation


Orders9% Sales +2% ROS 7.6%



Consolidated income statementbelow EBIT line

23

millions of CHF H1-2013 H1-2012Change

in %

Operating income (EBIT) 148.2 193.1 23.3%

Financial income, net 13.0 14.9 +12.8%

Income before income tax expenses (EBT) 135.2 178.2 24.1%

Income tax expenses 34.7 46.5 +25.4%

Net income 100.5 131.7 24.0%

Attributable to shareholders of Sulzer Ltd. 99.5 129.4 23.1%

Attributable to non-controlling interests 1.0 2.3

Earnings per sharebasic (EPS) in CHF 2.92 3.81 23.4%

Slight improvement in net financial income due to lower interest expenses on pensionobligations and debt

Effective income tax rate at 25.7% (H1-2012: 26.1%) slightly lower due to different

geographical distribution of profits

Lower EBIT driving down net income


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Cash and debt overview

25

Cash and marketable securities

Debt

Net liquidity

Net liquidity (millions of CHF) Balance sheet (millions of CHF)

Equity ratio at 49% | Gearing at 28%

Solid balance sheet remained as a basis for further growth

-97 -128

-768

-609 -630

767 681

431 513

454

671

553

-337

-96 -176

-800

-600

-400

-200

0

200

400

600

800

2009 2010 2011 2012 Jun 30,2013

Equity

Liabilities

Equity in % of total assets

Gearing in %


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Agenda


Financial review

Strategy update

Outlook and summary

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Strategy update

28

Strategic priorities2

Strategy oriented toward our customers with

a focus on value creation and profitable growth

Vision and values

Focused market strategy3

1


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Vision and values

Vision:

Our customers recognize us for our leading technology and services,delivering innovative and sustainable solutions.

29

We are committed to high

standards and show

respect for people.

We exceed theexpectations of our

customers with

innovative and

competitive solutions.

We perform on the basisof structured work

processes and

LEAN principles.

Values:

Customer and people oriented, making sure that we act excellently


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Strategic priorities

30

Outstanding services

Continuous operational

improvements

Technology leadership

Collaborative advantage

Profitablegrowth

Customerorientation

Oriented toward our customers with a focus on

value creation and profitable growth


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Technology leadership

31

Continued investments in R&D

Further expansion of technology portfolio

Direction:

Increased R&D spending resulting in market success

Progress update(mid-year 2013):

Increased R&D spending by 10% toCHF 48 million

Smaller technology acquisitions

such as Krger A/S

Subsea pumps collaboration

agreement with FMC Technologies

First industrial-scale biopolymer

production plant order recorded

Test bed facility for subsea pumps Plant to produce biopolymers


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Outstanding services

32

Further strengthening of service network

Expanding service offering

Direction:

Continuous expansion of service footprint


Addition of new service centers toglobal service network in Brazil,

China, South Africa, Russia

Smaller service-related acquisitions

and expansion of locations in China

and Russia

New service center in Durban, South Africa New service center in Chengdu, China New service center in Nova Lima, Brazil


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Continuous operational improvements

33

We strive for continuous improvements in what we do


Improved KPIs such as AccidentSeverity Rate from 55 to 44

Based on LEAN-principles, on-time

delivery was further improved by

500 bps

Lean site in Sulzer footprint We care about our employees: social sustainability enjoys high focus at Sulzer

Direction:

Improvement programs for safe behaviorand safety KPIs

Leverage on-time delivery potential

S


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Collaborative advantage

34

Increasing focus on company-widecooperation

Seizing additional opportunities for

shared services

Direction:

Better results through collaboration; acting as one company


Cross-selling initiative on services in

rotating equipment started

Shared service initiative for support

functions started

Sharing and leveraging complementary know-

how between the divisions

Leveraging the synergies also in support functionsworking

as one company


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Focus on three key marketsStrategy for future portfolio

35

Oil and gas Power

Equipment

Services

Water

We want to be both an equipment and a services company

for performance-critical applications in three key markets

oil and gas, power, and water

We want to leverageexisting assets and capabilities and

look for synergies across the divisionsact as one

company

Focusing on three

key markets and

exploring divestiture

of the Sulzer Metco

division

Transportation


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WaterPowerOil and gas

Focus on three key markets

Focus on three key markets oil and gas, power, and water plus activities in selected general

industrial markets offers an attractive growth potential based on: Global megatrends and general industry trends

Leading and competitive positioning of our divisions

Sulzer offers both performance-critical equipment and related services in these key markets

36

1) share of sales based on full year 2012 2) pro-forma calculation based on full year 2012 after a potential divestiture of Sulzer Metco

Transportation General industry

40% 15% 12% 24%9%

WaterPowerOil and gas General industry

48% 16% 15% 21%

Focusing on three attractive key markets

Current end market distribution1)

Future end market distribution2)Three key markets


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Realignment of the portfolio to match new market strategy

37

Sulzer Metco is a well performing

business and has outstanding solutions

for attractive markets, namely automotive,

aviation, power, and the general

industries

The divisions strength include

Industry-leading and most complete portfolioin surface technologies

A combined offering of coating solutions,

equipment, materials, and services, as well as

components

With its strong customer partnership,

broad global presence, and competentand committed teams, the coatings

business has excellent prospects for

continued profitable growth

Potential divestiture of Sulzer Metco division

Sulzer Metco in brief

Sulzer is looking for a

potential solution that

leverages the strengths of

Sulzer Metco in the best

possible way

1) share of sales based on full year 2012


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Acquisition strategy

38

Targeted acquisitions to strengthen strategic positioning

Focus areas:

Equipment and associated services in the rotating equipment and flow control space

Market position:

Leaders with differentiated offering/technology or potential to become leaders

Characteristics:

Small to mid-sized, bolt-on; larger deals possibleFunding:

Given a healthy balance sheet and profits, significant external funding capacity available

W ki t th


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Working together as one company

Cross-selling of services for rotating equipment

39

Services for rotating equipment

MechanicalTurbines and compressors Generators and motors

Electro-mechanical Pump servicesPumps

Strengthening Sulzers position in services for rotating equipment

Cross-divisional collaboration

Sulzer Pumps and Sulzer Turbo Services work together more closely to cross-

sell services

Initiative aims to leverage the complimentary technical know how and offering

for services with the combined global footprint and customer base Providers of a full service portfolio to our customers from one single source

W ki t th


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Working together as one company

Shared services in support functions

40

Shared services

Finance Human resources Information technology

Leveraging synergy potential in support functions

Group-wide support functions

Initiative aims to assess potential synergy potential through increased

collaboration and standardization in support functions

The scope currently included Finance, HR, and IT areas

Main goals are to secure cost benefits and improve processes


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Agenda


Financial review

Strategy update

Outlook and summary

41


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Market update

42

Oil and gas

Power

Water

Development

year-over-year

Expected trend for

remainder of 20131)Assessment Full Year 20132)

Further growth

for parts of the market

Forecast at similar levels



Transportation

1) published on July 23, 2013; based on present knowledge and excluding major changes in the general economic conditions; 2) assessment for full year 2013 vs. 2012

Some growth

Remained at low level

Decreased vs. high base

Stable at high levels

Continue at similar levels




with some signs for a picking-

up trend in wastewater


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Outlook 2013

Outlook Full Year 20131):

43

Orderintake

Sales

Returnon sales

H1-2013year-over-year

1) published on July 23, 2013; based on present knowledge and excluding major changes in the general economic conditions;

nominal growth for order intake and sales; Full year 2013 vs. Full year 2012; Basis for ROS: EBIT as stated all-in

Slight growth

Slight growth

Slightly lower

+3.8%

Moderategrowth

Decreasedto 7.8%

1.1%

Slightdecrease

H2-2013expectation1)

Similar levels ofactivity expected

Better levelsexpected based onhigh backlog

Expected toimprove based onhigher volumes andinitiated measures


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Financial midrange targetsby the year 2015

44

Midrange

targets2012-2015 Sulzer Pumps Sulzer Metco Sulzer Chemtech

Sulzer Turbo

Services Total Divisions

FY

2012

Target

corridor

by 2015

FY

2012

Target

corridor

by 2015

FY

2012

Target

corridor

by 2015

FY

2012

Target

corridor

by 2015

FY

2012

Target

corridor

by 2015

Sales

growth1+5.9% 6-8% +2.3% 5-7% +4.0% 6-8% +0.8% 5-7% +4.2% 6-8%

EBIT

margin

(ROS)29.5% 11-13% 10.0% 11-13% 9.8% 12-14% 10.8% 12-14% 9.8% 11-13%

Return

on capital

(ROCE)2

13.6% >20% 17.1% >20% 16.3% >20% 14.8% >18% 14.7% >20%

1) Targets 2015: compound annual growth rate in %; base year 2011; organic; portfolio as of December 31, 2011; constant FX

2) Basis: EBIT before major non-recurring items (major restructuring, M&A related expenses such as step ups, integration, transaction costs etc.);

from 2012 including 0.5% higher corporate charges to divisions compared with 2011; Capital Employed including Goodwill and other intangible assets.


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Summary and conclusion

45

Solid order intake growth, while sales slightly decreased

Significant decrease of EBIT, tailored measures to improve initiated

Better operational performance expected for remainder of the year

Continued focus on net working capital management

Balance sheet remained strong; solid foundation for further growth

H1-2013 review

Strategy

Outlook

Clear vision and strong values; remained unchanged

Further progress made in strategic priorities

New focus on three key markets

Full year 2013: slight growth of orders and sales

and a slightly lower profitability expected compared to 2012

Midterm targets: under review

Sulzer has all the ingredients for sustainable future success


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Midyear Presentation 2013
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Sulzer MYR 2013 Presentation