Notes to the consolidated financial statements

– Financial reporting – Notes to the consolidated financial statements

1General information

Sulzer Ltd (the “companyˮ) is a company domiciled in Switzerland. The address of the company’s registered office is Neuwiesenstrasse 15 in Winterthur, Switzerland. The unaudited consolidated interim financial statements for the six months ended June 30, 2023, comprise the company and its subsidiaries (together referred to as the “groupˮ and individually as the “subsidiariesˮ) and the group’s interest in associates and joint ventures. The company specializes in energy-efficient pumping, agitation, mixing, separation, purification, crystallization and polymerization technologies for fluids of all types. Our solutions enable carbon emission reductions, development of polymers from biological sources, recycling of plastic waste and textiles, and efficient power storage. Sulzer was founded in 1834 in Winterthur, Switzerland, and employs 12'981 people. The company serves customers through a network of 160 production and service sites around the world. Sulzer Ltd is listed on the SIX Swiss Exchange in Zurich, Switzerland (symbol: SUN).

The interim financial statements have been prepared in accordance with the requirements of IAS 34 “Interim financial reporting". Details of the group’s accounting policies are described in note 14.

2Significant events and transactions during the reporting period

The financial position and performance of the group was not affected by any significant event during the period. As disclosed in the Annual Report 2022, Sulzer signed a sales agreement to sell its business in Russia on February 3, 2023, and deconsolidated the business in the first half of 2023. Further details are provided in note 5.  

For a detailed discussion about the group’s performance and financial position, please refer to "Financial review".

3Segment information

Segment information by divisions

Segment information by divisions

For the definition of operational profit, operational profitability, currency-adjusted growth and organic growth, please refer to "Supplementary information" in the Sulzer Annual Report 2022.

Information about reportable segments

Operating segments are determined based on the reports reviewed by the Chief Executive Officer that are used to measure performance, make strategic decisions and allocate resources to the segments. The business is managed on a divisional basis, and the reported segments have been identified as follows:

Flow Equipment

The Flow Equipment division specializes in pumping solutions specifically engineered for the processes of its customers. The division provides pumps, agitators, compressors, grinders, screens and filters developed through intensive research and development in fluid dynamics and advanced materials. The focus is on pumping solutions for water, oil and gas, power, chemicals and most industrial segments.

Services

The Services division provides cutting-edge parts as well as maintenance and repair solutions for pumps, turbines, compressors, motors and generators, through a network of some 130 service sites around the world. The division services Sulzer original equipment, but also all associated third-party rotating equipment run by customers, maximizing its sustainability and life cycle cost-effectiveness. The division’s technology-based solutions, fast execution and expertise in complex maintenance projects are available at its customers’ doorsteps.

Chemtech

The Chemtech division focuses on innovative mass transfer, static mixing and polymer solutions for chemicals, petrochemicals, refining and LNG. Chemtech also provides ecological solutions such as biobased chemicals, polymers and fuels, recycling technologies for textiles and plastic as well as carbon capture and utilization/storage, contributing to a circular and sustainable economy. The division’s product offering ranges from process components to complete process plants and technology licensing.

Others

Certain expenses related to the Corporate Center are not attributable to a particular segment and are assessed as a whole across the group. Also included are the eliminations for operating assets and liabilities.

The Chief Executive Officer primarily uses operational profit to assess the performance of the operating segments. However, the Chief Executive Officer also receives information about the segments’ order intake, backlog, sales and operating assets on a monthly basis.

Sales from external customers reported to the Chief Executive Officer are measured in a manner consistent with the measurement in the income statement. There are no significant sales between the segments. No individual customer represents a significant portion of the group’s sales.

Operating assets and operating liabilities are assets or liabilities related to the operating activities of an entity and contributing to EBIT.

Segment information by region

The allocation of sales from external customers is based on the ship-to location defined by Sulzer’s customer, which does not necessarily correspond with the location of the end customer.

Sales by region

Segment information by market segment

The following table shows the allocation of sales from external customers by market segment:

Sales by market segment — Flow Equipment

Sales by market segment — Services

Sales by market segment — Chemtech

4Acquisitions of subsidiaries, associates and transactions with non-controlling interests

Transactions with non-controlling interests

The following table summarizes the effect of changes in the equity attributable to owners of Sulzer Ltd: 

In January 2023, the group acquired the remaining 25% in Sulzer Saudi Pump Company Limited for a total consideration of CHF 22.8 million. 

Contingent consideration from the acquisition of subsidiaries

In the first half of 2023, the group paid a contingent consideration in the amount of CHF 1.3 million and recorded a release to other operating income amounting to CHF 0.5 million, both related to an acquisition in 2021. 

Investment in associates

In February 2023, Sulzer acquired a strategic stake in Fuenix Ecogy Holding B.V., a circular technology company. The partnership aims to drive the development, commercialization and adoption of advanced, fully integrated solutions for plastic waste processing. The investment of CHF 10.1 million was classified as an investment in an associate.

5Disposals, loss of control and disposal group held for sale

Loss of control in 2023

In February 2023, the group entered into an agreement with a third party for the sale of four legal entities in Russia. From the date of the sales agreement, the group lost power over the relevant activities of these entities due to the contractual requirements and legal environment. Consequently, these four entities were deconsolidated in the first half of 2023, resulting in the derecognition of the assets and liabilities previously classified as held for sale. Upon deconsolidation, a loan with one of these former subsidiaries was measured at a fair value and recognized as a current financial asset.

The deconsolidation resulted in a gain on deconsolidation amounting to CHF 8.0 million, of which CHF 11.2 million resulted from the reclassification of accumulated currency translation differences and CHF 0.6 million from the reclassification of cash flow hedge reserves, net of tax. The gain on deconsolidation is recorded in other operating income. The following table presents the assets and liabilities derecognized, previously classified as assets and liabilities of disposal groups held for sale. 

Cash and cash equivalents in the amount of CHF 32.3 million were derecognized as part of deconsolidations in the first half of 2023, and consideration amounting to CHF 0.3 million was received for a divestment in prior years. The net cash flow of CHF 32.0 million was presented in the statement of cash flows as "Divestitures and deconsolidation of subsidiaries, net of cash derecognized".

Disposals, loss of control and disposal group held for sale in 2022

In the first half year of 2022, the group sold its 100% shareholding in the Brazilian subsidiary Sulzer Services Brasil, Triunfo. The disposal resulted in a loss of CHF 0.6 million, including a loss of CHF 1.0 million from the reclassification of currency translation differences into the income statement. The deconsolidation of two Polish subsidiaries resulted in a loss of CHF 6.2 million, including a loss of CHF 1.2 million from the reclassification of currency translation differences into the income statement. The investment retained is valued at zero. The losses are recorded in other operating expenses (see note 7). 

The cash flows resulting from disposals in the first half of 2022 amounted to CHF 3.1 million, consisting of CHF 7.8 million cash consideration received and CHF 4.7 million cash disposed. They are presented in the statement of cash flows as "Divestitures and deconsolidation of subsidiaries, net of cash derecognized".

In the first half of 2022, the four legal entities in Russia were classified as 'held for sale,' and impairments of CHF 88.9 million were recorded, of which CHF 32.2 million was recorded in other operating expenses, CHF 38.8 million in cost of goods sold, CHF 15.7 million in general and administrative expenses, and CHF 2.2 million was recorded in the income tax expenses line. The write-downs included mainly impairments of goodwill, other intangible assets, property, plant and equipment, and write-down of inventory. The total net impairment loss recorded on contract assets and receivables amounted to CHF 37.9 million.

6Financial instruments

The following tables present the carrying amounts and fair values of financial assets and liabilities as of June 30, 2023, and December 31, 2022, including their levels in the fair value hierarchy. For financial assets and financial liabilities not measured at fair value in the balance sheet, fair value information is not provided if the carrying amount is a reasonable approximation of fair value.

Fair values are categorized into three different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

The fair value of financial instruments traded in active markets, including the outstanding bonds, is based on quoted market prices at the balance sheet date. Such instruments are included in level 1.

The fair values included in level 2 are based on valuation techniques using observable market input data. These may include discounted cash flow analysis, option pricing models or reference to other instruments that are substantially the same, while always making maximum use of market inputs and relying as little as possible on entity-specific inputs. The fair values of forward contracts are measured based on broker quotes for foreign exchange rates and interest rates.

Fair values measured using unobservable inputs are categorized within level 3 of the fair value hierarchy. Level 3 investments consist of non-current financial assets measured at fair value through profit and loss, amounting to CHF 21.3 million as of June 30, 2023, compared to CHF 22.6 million as of December 31, 2022. Unrealized fair value losses recorded in other financial income / (expenses), net, amount to CHF 1.7 million for the first half year of 2023 (first half of 2022: CHF 0.0 million). A fair value gain of CHF 0.5 million was recorded in other operating income related to the settlement of a contingent consideration amounting to CHF 1.9 million as of December 31, 2022 (see note 4).

Fair value table

Fair value table