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, 2024 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. Sulzer was founded in 1834 in Winterthur, Switzerland, and employs 13'409 people. The company serves clients 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).

Sulzer is a global leader in fluid engineering and chemical processing applications, developing innovative products and services that drive sustainable progress.

The consolidated 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 12.

2Segment 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 2023.

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 

The Flow division (renamed in 2024 from Flow Equipment) 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 over 100 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 and liabilities 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 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 location of the 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

Sales by market segment — Services

Sales by market segment — Chemtech

3Acquisitions and disposals of businesses, transactions with non-controlling interests

Acquisitions in 2024

The table below presents the amounts of the assets acquired, the liabilities assumed, the goodwill recorded and the consideration transferred on the date of acquisition. If new information is obtained within one year since the date of acquisition about facts and circumstances that existed on the date of acquisition and, if this information was known on the date of acquisition would have resulted in additional assets and liabilities being recorded or a different measurement, then the accounting of the acquisition will be revised.

Owatec Group Oy

On April 3, 2024, Sulzer acquired a controlling stake in Owatec Group Oy ("Owatec"), a provider of mobile water treatment solutions headquartered in Finland. Sulzer acquired shares representing an ownership of 60 percent in Owatec and entered into a binding agreement to transfer the remaining 40 percent of the shares over the next five years. The total consideration amounts to CHF 15.4 million, of which CHF 6.9 million was paid in cash, CHF 2.9 million results from a contingent consideration agreement and CHF 5.6 million relate to the purchase price not yet paid. The purchase price not yet paid represents a liability for the estimated payments for the remaining 40 percent shares not yet transferred. 

The goodwill is attributable to the skills and knowledge of the workforce and favorable synergies. The goodwill is not expected to be deductible for tax purposes. The fair value of the trade accounts receivable amounts to CHF 0.4 million, which is equal to the gross contractual amount.

Contingent consideration and purchase price not yet paid

The contingent consideration depends mainly on the achievement of an operating income (EBIT) target for 2024. Because of the small number of possible outcomes, the contingent consideration was estimated based on the most likely amount. It is expected that all targets could be achieved and the liability reflects the maximum amount payable.

The liability for the purchase price not yet paid was recorded in other non-current liabilities. The shares were agreed to be transferred in four tranches, with payments expected each year in the years 2026 to 2029. The payments depend on the achieved average operating income (EBIT) in the two years before the payment, with an agreed minimum and maximum payment amount for each tranche. The recorded liability consists of the discounted expected payments estimated with the expected value method.

Others

On April 30, 2024, Sulzer acquired assets and liabilities that constitute a business, from Texas Electric Equipment Company Ltd. in the USA. The acquisition contributes to the group's Services business footprint in the USA. 

Cash flow from acquisition of subsidiaries

Contingent consideration

Disposals 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 contractual requirements and the 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. 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 was recorded in other operating income. The total net cash outflow from divestments of subsidiaries in the first half of 2023 amounted to CHF 32.0 million, with cash and cash equivalents in the amount of CHF 32.3 million derecognized as part of the divestments.

Transactions with non-controlling interests

In the first half of 2024, a payment of CHF 0.3 million in connection with the acquisition of the remaining 25 percent ownership in Sulzer Saudi Pumps Company in 2023 is reported in the cash flow statement in divestiture (acquisition) of non-controlling interests.

4Financial instruments

The following tables present the carrying amounts and fair values of financial assets and liabilities as of June 30, 2024, and December 31, 2023, 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 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. The level 3 financial assets at fair value through profit or loss are non-current and comprise unquoted debt or equity instruments, including private equity and fund investments. Additionally, in the first half of 2024, the group recorded a contingent consideration liability amounting to CHF 2.8 million as of June 30, 2024. The contingent consideration depends mainly on the achievement of an operating income target for 2024. For further information see note 3.

Financial assets at fair value through profit or loss - level 3

Fair value table

Fair value table