Start of Profitability Rebound and Return to Organic Order Growth

 

Last year, organic order intake grew 2%, and 12% with acquisitions included. Entering the year with a low order backlog, however, meant that sales lowered organically, despite growing by 5%.

Despite lower organic sales volumes and a Sfr10m one-off charge linked to a discontinued activity, operational profitability rebounded slightly. The positive impact of the Sulzer Full Potential (SFP) program more than compensated for continuing market headwinds. The program will be extended by a year and the total savings target increased to Sfr230m.

Financial Performance 2017

Encouraging organic order growth and strong contribution from acquisitions
Order intake increased by 11.8% (nominal 12.8%), with 2.2% coming from organic growth and the rest (Sfr269.1m) from acquisitions. Order intake gross margin increased nominally by 0.4 percentage points to 34.4% as business mix effects more than offset the margin erosion from price pressure in the energy markets.

Order intake in Pumps Equipment increased by 8.1%, with 6.6% coming from the acquisition of Ensival Moret and 1.5% from organic growth. Organic growth was driven by oil and gas and general industry orders, which compensated for a sharp organic decline in power orders. Orders in the water market remained broadly flat on fewer large infrastructure projects, while municipal water order intake grew by 3%.

In Rotating Equipment Services, order intake grew by 4.9% as a result of the Rotec acquisition. Orders decreased organically by 0.9%, which compared well against the broader market. This was mainly due to lower orders in the turbo services segment in a weak and highly competitive power market. Order intake in Chemtech grew by 5.9% (organically 5.1%) supported by the rebound of the Chinese market and strong growth in Europe.

In Applicator Systems, orders increased by 55.7%, with 6% coming from organic growth and the rest from the acquisitions of Geka, PC Cox, and Transcodent. Overall, Sulzer order intake grew in all regions, except the Middle East and Africa.

Higher sales due to acquisitions and operational return on sales increased slightly

Sales amounted to Sfr3,049m, an increase of 5.2% (nominal: 6%). This rise was driven by Sfr276.4m of acquisition-related sales, which offset an organic sales decline of 4.4%. The organic decline resulted from a low order backlog entering the year.

Positive currency translation effects totalled Sfr23.8m.

Higher net income

As part of the SFP, Sulzer has continued to adapt its global manufacturing capacities and streamlined its organization. Restructuring expenses significantly decreased from 2016. Consequently, EBIT amounted to Sfr136.5m compared with Sfr115.3m in 2016. Return-on-sales (ROS) was 4.5% compared with 4% in 2016.

In 2017, net income amounted to Sfr87.2m compared with Sfr60.1m in the previous year. Core net income excluding the tax-adjusted effects of non-operational items totalled Sfr178.3m compared with Sfr153.8m in 2016. Basic earnings per share increased from Sfr1.73 in 2016 to Sfr2.44 in 2017.

Solid free cashflow

Free cashflow amounted to Sfr127m compared with the Sfr200.5m reported in the prior year. The decline was mainly due to higher cash-out for restructuring and lower contribution from net working capital improvements. The lower contribution from net working capital came from higher inventories on strong 2017 order growth, while inventory levels had decreased in 2016.

Outlook 2018

Sulzer expects that the oil and gas market, which accounts for approximately 40% of its sales, will gradually recover and translate into a commercial rebound mostly visible in 2019. The power market is expected to decline, while all other Sulzer markets are forecasted to continue on their current growth path in 2018. This should lead to a slight increase in organic order level for the company, supplemented by additional volume from newly acquired businesses.

For 2018, including acquisitions signed last year and adjusted for currency effects, order intake is expected to grow by 5% to 7% and sales to grow by 4% to 6%. Sulzer expects opEBITA margin at 9.5% (opEBITA in percent of sales).

Divisional results

Pumps Equipment
In 2017, the Pumps Equipment division reported growing order intake on a currency-adjusted basis (8.1%) and organically (1.5%) compared with the previous year. The organic increase was largely triggered by the improved oil and gas market. Orders in the water market remained flat on fewer large orders for the engineered water business in 2017, despite 3% organic growth in Municipal Water. Order intake in the power market decreased due to project delays in a highly competitive market. Order intake in the general industry markets grew organically and was supplemented by the Ensival Moret acquisition.

Regionally, Europe, the Middle East, and Africa grew on a currency-adjusted basis but decreased organically. Demand in the Americas and Asia-Pacific grew significantly.

Rotating Equipment Services

In 2017, order intake increased on a currency-adjusted basis (4.9%) and remained broadly stable organically (-0.9%), which compared well against the broader market.

Regionally, the Americas and Asia-Pacific grew. Europe, Middle East, and Africa also increased on a currency-adjusted basis but decreased organically. The organic decline was due to lower orders in the turbo services business, impacted by a challenging market environment for gas turbines.

Rotating Equipment Services reported an increase in sales on a currency-adjusted basis (1.6%) and an organic sales decrease (–2.1%) compared with 2016. Lower volumes in the oil and gas, as well as in the power markets drove the decline.\

Chemtech

In 2017, order intake increased by 5.9% on a currency-adjusted basis and by 5.1% organically, driven by the rebound of the downstream market and the chemical processing industry, mainly in China. Growth was also supported by the introduction of new technologies. Order intake in the Separation Technology business unit was strong, especially for installations in the Asia-Pacific. Order intake in the Tower Field Service business unit remained on last year’s level.

Europe and Asia-Pacific grew strongly. The Middle East and the Americas remained flat. Africa declined from a high base caused by one big project in the previous year.

Applicator Systems

In 2017, orders increased on a currency-adjusted basis (55.7%) and organically (6%) compared with 2016. Sales, which track orders closely in this division, increased by 54.9% and organically by 5%. The acquisitions of PC Cox, Geka, and Transcodent contributed Sfr135.8m to sales in 2017. All product lines, particularly the industrial adhesives segment, and geographies contributed to growth.

In 2017, operational EBITA increased significantly, both on a currency-adjusted basis (34.8%) and organically (10.3%). Operational ROSA, while diluted by the Geka acquisition, which closed in Q3 2016, actually increased on a comparable basis from pro forma 20.1% in 2016 to 20.5% in 2017.

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