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Strong organic growth and profitability increase

Order intake grew by 7.5% organically and by 8.7% including acquisitions. Sales increased by 13.1%, mostly driven by organic growth. Profitability increased to 9.0% supported by strong sales growth and continued savings from the Sulzer Full Potential (SFP) program of CHF 11 million. Free cash flow of CHF –27.9 million was in line with previous H1 performance, despite a volume-driven inventory buildup.

If not otherwise indicated, changes from the previous year are based on currency-adjusted figures. These are reported without consideration of IFRS 16, applying the same accounting policies as in the previous year.

Strong order growth

Order intake of CHF 1’933.3 million increased by 8.7% compared with the same period last year. Organic growth of 7.5% and CHF 21.8 million in orders from acquisitions drove this upsurge. Order intake gross margin remained stable at 33.8%. New orders in the oil and gas market showed better margins from improved order intake selectivity. Also the higher relative share of oil and gas orders and large project orders created an offsetting mix impact in the overall gross margin.

Sulzer delivered strong organic growth and continues to increase profitability.

Jill Lee, Chief Financial Officer

Order intake in the Pumps Equipment division increased by 5.9%. The increase stemmed from 5.5% organic growth, supported strongly by large projects in the Water market and growth in the Oil and Gas market. Order intake in the Rotating Equipment Services division grew by 7.3%: the majority because of organic growth and the remainder as a result of the Brithinee Electric acquisition. All market segments showed positive development. The Chemtech division grew by 25.9% driven by 23.3% in organic growth, with all regions contributing. The inorganic growth came from the GTC acquisition. Order intake in the Applicator Systems division remained flat. Growth in the Adhesives, Dental and Healthcare business unit was offset by a decline in Beauty. Sulzer’s total order intake grew in all regions.

As of June 30, 2019, the order backlog had increased by CHF 148 million to CHF 1’934.9 million from CHF 1’786.9 million on December 31, 2018.

Double-digit sales growth

Sales amounted to CHF 1’773.8 million – an increase of 13.1%. This rise was driven by 12.1% organic growth and CHF 15.7 million from acquisitions.

Sales grew strongly in the Oil and Gas market at 28.1%, boosted by high order backlog and supported by slight contribution from acquisitions. The Chemical Processing Industry increased by 26.1% and the General Industries market grew by 4.7%. The Power market declined by 0.5%, also due to a lower backlog at the beginning of the year. The Water market declined by 0.7% after a strong increase in 2018.

Sales increased in all regions, most pronouncedly in the Americas. The share of sales in emerging markets remained stable at 43%.

Lower gross margin due to mix

Gross margin decreased to 30.0% compared with 30.6% in the same period last year. This drop was due to a larger share of new equipment business in the lower-margin Energy market within the sales mix. Total gross profit increased to CHF 532.0 million (first half of 2018: CHF 487.7 million) as a result of the higher sales volume.

Operational return on sales increased to 9.0%

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%. Positive contributions from higher sales volume, SFP savings of CHF 11 million, proportionally lower operating expenses, and acquisitions more than offset the above-mentioned mix effects on gross profit. OpEBITA increased organically by 14.4%.

Operating expenses excluding amortization, impairments on tangible and intangible assets, restructuring expenses, and other non-operational items increased by 8.1%. This increase is mostly attributable to higher selling expenses as well as operational expenses of the companies acquired.

Operational EBITA margin (opROSA) increased to 9.0% compared with 8.8% in the first half year of 2018.

Bridge from EBIT to operational EBITA (January 1 – June 30)

millions of CHF

2019 (new accounting policies) 1)

2019 (previous accounting policies) 2)

2018 3)









Impairments on tangible and intangible assets




Restructuring expenses




Non-operational items 4)








1) According to IFRS 16, see financial review and note 13 of the consolidated financial statements for details.

2) Without consideration of IFRS 16, applying the same accounting policies as in the prior year.

3) Adjusted due to the reassessment of a customer contract. See note 13 of the consolidated financial statements for details.

4) Non-operational items include significant acquisition-related expenses, gains and losses from sale of businesses or real estate (including release of provisions), and certain non-operational items that are non-recurring or do not regularly occur in similar magnitude.

Non-operational costs impacted operating income

As well as concluding the SFP program during 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 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% compared with CHF 82.0 million in the first half of 2018. Return on sales (ROS) was 5.4% compared with 5.2% in the first half of 2018.

Higher financial expenses

Total financial expenses amounted to CHF 10.5 million, compared with CHF 4.9 million in the first half of 2018. The increase arose mainly due to negative currency effects on financial instruments.

Stable effective tax rate

Income tax expense increased to CHF 19.6 million (2018: CHF 17.8 million) mainly due to higher pretax income. The effective tax rate for the first half of 2019 was stable at 22.8% compared with 22.9% in the first half of 2018.

Higher core net income

In the first half of 2019, net income amounted to CHF 65.3 million compared with CHF 60.0 million in the previous year. Core net income, which excludes restructuring expenses, amortization, impairments, non-operational items and the tax-adjusted effects of non-operational items, totaled CHF 113.6 million, compared with CHF 104.4 million in the first half of 2018. Basic earnings per share increased from CHF 1.81 in the first half of 2018 to CHF 1.88 in the first half of 2019, primarily due to higher profit.

Key balance sheet positions

Total assets as of June 30, 2019, amounted to CHF 4’931.0 million, which is a nominal increase of CHF 32.7 million from December 31, 2018. Non-current assets remained broadly stable at CHF 2’061.1 million, because lower goodwill (CHF 15.4 million) was offset by higher property, plant and equipment (CHF 15.6 million), and deferred income tax assets (CHF 5.0 million). Current assets increased nominally by CHF 29.2 million. Inventories (CHF 31.9 million) and supplier advances (CHF 7.1 million) grew on the back of an increase in order backlog of CHF 148 million since the end of last year. Trade accounts receivables decreased by CHF 20.6 million despite sales growth. Cash and cash equivalents decreased by CHF 156.6 million.

Total liabilities nominally increased by CHF 98.0 million to CHF 3’355.3 million as of June 30, 2019. The main reasons were an increase in contract liabilities (CHF 105.8 million) due to higher sales of project business, as well as the CHF 41.7 million in outstanding dividend payments to Tiwel Holding AG.

Equity decreased nominally by CHF 65.3 million to CHF 1’575.7 million. This was mainly driven by the Sulzer dividend (CHF 119.2 million) and currency translation effects (CHF 26.5 million). These were partly offset by net income (CHF 65.3 million), and the remeasurement of the defined benefit obligation (CHF 15.5 million).

Volume-driven inventory buildup impacted free cash flow

Sulzer’s free cash flow generation is usually back-end loaded. Excluding the positive impact of 16.3 million on free cash flow from IFRS 16 implementation, free cash flow amounted to CHF –27.9 million in the first half of 2019, slightly better than the CHF –29.8 million reported in the same period last year. Free cash flow was negative because the higher order backlog of CHF 148 million necessitated inventory buildup.

Cash flow from investing activities totaled CHF –85.0 million compared with CHF –242.5 million in the first half of 2018. In the first half of 2019, cash flow from investing activities was influenced by CHF 33.7 million for the acquisition of GTC and CHF 51.7 million for purchases of property, plant and equipment. In the first half of 2018, cash flow from investing activities was driven by CHF 209.2 million for the acquisition of JWC and CHF 42.4 million for purchases of property, plant and equipment.

Cash flow from financing activities totaled CHF –94.5 million compared with CHF 118.1 million in the first half of 2018. In the first half of 2019, Sulzer mostly compensated mature borrowings. The net change in cash since January 1, 2019, amounted to CHF –156.6 million, including exchange losses on cash and cash equivalents of CHF 3.9 million.

Outlook 2019

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, it does not see at this point signs of a slowdown in its leading indicators.

At half year 2019, Sulzer has already achieved its incremental full-year savings target of CHF 10 million as a result of the timing of initiatives. The company therefore expects the cumulative savings for the SFP program to be slightly above the overall target of CHF 240 million by the end of 2019. This will help to compensate for continuing margin pressure in the energy markets.

Based on sustained customer inquiries and the company’s strong performance in the first half of this year, Sulzer is increasing its guidance. The company raises its forecast for order intake to grow by 6% to 9% (previously 2% to 5%), and sales to grow by 7% to 9% (previously 3% to 5%), adjusted for currency effects and including acquisitions. Sulzer forecasts reaching an opEBITA margin (opEBITA in percent of sales) of around 10%.

Impact of IFRS 16 “Leasesˮ

Sulzer has adapted its reporting to reflect the application of IFRS 16 “Leasesˮ. It replaced IAS 17 “Leasesˮ. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months. A lessee is required to recognize a lease asset representing its right to use the underlying lease asset and a lease liability representing its obligation to make lease payments.

In the first half of 2019, IFRS 16 had a positive effect on opEBITA (CHF 2.7 million) and free cash flow (CHF 16.3 million). Consequently, the application of IFRS 16 increased opROSA by 0.1 percentage points. The difference in the profit is related to the recognition of depreciation and interest expenses, instead of operating lease expenses. The difference in the cash flow is related to the recognition of payments for leasing as part of the financing activities, instead of cash flow from operating activities.

The information presented for 2018 has not been restated. In the business review, the group disclosed the figures for the first half of 2019 according to the new accounting standards and the old accounting standards. The changes in percent shown in the tables and mentioned in the text compare 2019 figures according to the previous accounting standard with 2018 figures as previously reported (like for like). In the interim consolidated financial statements (note 13), a table summarizes the impact of the new accounting standards on the financial statements.


EBIT: Operating income

ROS: Return on sales (EBIT/sales)

opEBITA: Operating income before restructuring, amortization, impairments and non-operational items

opROSA: Return on sales before restructuring, amortization, impairments and non-operational items (opEBITA/sales)