Operational EBITA and operational ROSA continued to be stable in the first half of 2016. Order intake, impacted by oil and gas market headwinds, decreased, but increased by 8% sequentially in the second quarter of 2016. Significant savings from the Sulzer Full Potential (SFP) programme offset the impact from market headwinds.
For the full year 2016, Sulzer is updating its guidance on order intake. The updated guidance indicates that order intake will be at the higher end of the previously communicated range of -5% to -10%, now closer to -5%. The company confirms its guidance on sales (-5% to -10%) and operational EBITA margin (approximately 8%).
Performance in the first half of the year
Sulzer’s order intake of Sfr1,423m was 9.1% below the same period last year (nominal: -10.1%). However, it improved by 8% sequentially in the second quarter of 2016. Order intake gross margin increased nominally by 1.7 percentage points to 34.6%, mainly due to a higher share of aftermarket business. Growth in the water, power, and general industry markets positively affected order intake.
Growth in the water and power market largely related to Pumps Equipment. Chemtech’s Sulzer Mixpac Systems (SMS) business unit drove growth in the general industry segment. Market headwinds affected oil and gas order intake substantially in the first half of 2016. In the oil and gas market, the company recorded significantly fewer new equipment orders in Pumps Equipment and Chemtech. Order levels just slightly decreased in Rotating Equipment Services and the Pumps Equipment aftermarket business. Compared with the first quarter of 2016, oil and gas order intake grew in the second quarter. Regionally, order intake from China continued its rebound. Orders were up in the second quarter both year on year, as well as sequentially from a very low base.
Sales amounted to Sfr1,381m and were stable compared with the first half of 2015 (- 0.1%). The currency translation effect totalled -Sfr10.9m. Operational EBITA (opEBITA) remained on last year’s level; it amounted to Sfr98.7m compared with Sfr98.3m in the first half of 2015. Significant savings from the SFP programne compensated for the effect of a lower gross profit. Operational ROSA remained stable at 7.1%.
Cashflow generation is back-loaded this year and includes, to date, Sfr24m of an SFP cash-out. As such, the company delivered a slightly positive free cash flow in the first half of 2016.
Sulzer acquired PC Cox Group and signed a binding agreement to acquire Geka. With these transactions, the company doubled the size of its most profitable business unit, SMS.
The Sulzer Full Potential Program is progressing well
The SFP program is running at full speed. In the first six months of 2016, Sulzer has realized savings from SFP of Sfr36m. The company expects savings to be in the range of Sfr60m to Sfr80m by the end of 2016 and annual savings of about Sfr200m in a steady state from 2018 onwards. The global procurement organization is operational and is leveraging scale effects. The IT department is working on a new organizational footprint with improved cost structures.
The Pumps Equipment division is further refining its global operations network. It introduced a new production planning system to improve profitability and on-time delivery. The Rotating Equipment Services division restructured its activities and simplified its footprint. The Chemtech division, facing sustained pressure on manufacturing costs in Switzerland, announced the closing of its manufacturing facility in Oberwinterthur, Switzerland, in March 2016.
Outlook
For the full year 2016, Sulzer is updating its guidance on order intake. The company previously communicated that order intake would be in the range of -5% to -10%. The updated guidance indicates that order intake will be at the higher end of that range, closer to -5%. The company confirms its guidance on sales and operational EBITA margin. Sales are forecast to decline in the range of 5% to 10%. The operational EBITA margin (opROSA) is expected to be approximately 8%.