Sulzer : Midyear results 2020 presentation (pdf)

H1 2020 results

Greg Poux-Guillaume, CEO | Jill Lee, CFO | July 24, 2020

The safe harbor statement under the

US private securities litigation reform act 1995

This presentation may contain forward-looking statements, including but not limited to, projections of financial developments, market activities or future performance of products and solutions, containing risks and uncertainties. These forward-looking statements are subject to change based on known or unknown risks and various other factors, which could cause the actual results or performance to differ materially from the statements made herein.

Note on Alternative Performance Measures (APM):

All bridges from APM to reported figures can be found in the financial section of Sulzer's annual report 2019

H1 2020 results

July 24, 2020

2

Business Review

H1 2020 results

3

H1 2020 highlights

• Orders up 1.7% YoY (-0.6% organic), record backlog of close to CHF 2bn
• Sales down 3.9% YoY (-5.5% organic) on lockdowns / supply chain
• Operational profitability1 7.5%, -160bps YoY, 80% from APS lockdown impact
• Dental and beauty outlets reopened, APS demand rebound has started
• PE and RES outperformed during Energy market correction
• FCF 37m, 45m up YoY, highest for H1 since 2014 on good cash collection
• OPEX 60m squeeze on track, 21m delivered in Q2
• 70m structural savings in Energy-related activities initiated, 50m uplift in 2021, full effect in 2022. One-off costs 80m, of which 53m booked in H1
• High FX translation impact on strong CHF

1. Operational EBITA as % of sales

July 24, 2020

4

COVID-19 impact on Sulzer

Employee safety achieved while maintaining business operations

• Keeping everyone safe always our first priority
• • Currently 36 confirmed COVID-19 cases, mostly in US and Mexico
  • All Sulzer sites are operating although India only at half capacity
  • Supply chain still bumpy but Sulzer agility helping rebalance
• Cost actions launched in March delivering tangible results
• • 21m of 60m announced FY20 OPEX squeeze achieved in Q2
  • In equal parts hiring freeze, travel stop and compensation & vacation
• Different end-markets impacted in different ways
• • Aftermarket and Water going strong
  • O&G dropped 25% in Q2 (big geographical disparities), will stay depressed through 2021
  • Chemicals holding up (booming in China) although larger projects drifting
  • Short-cycle"human interaction" markets (e.g. dental, beauty) essentially stopped, now rebounding

H1 2020 results

July 24, 2020

5

Structural savings plan well underway

CHF 70m savings in Energy-related activities, to be delivered mostly in 2021

Cost

In CHF millions	2020
		30%
PE	32
		OPEX
RES	9

CT	9		80m
H1	53
		70%
H2	27
	Footprint
Total Implementation Cost	80

Already announced / under discussion with social partners

• Closure of a PE Energy factory in Europe
• Resizing of a PE Energy factory in the USA
• Closure of a CT factory in the USA
• Closure of a RES Turbo Service facility in Europe
• Resizing of Corporate and Divisions overheads
• Other local actions

Savings

CHF		~70m
70m	~50m
~10m
2020	2021	2022

All remaining actions

announced and launched

by September

H1 2020 results

July 24, 2020

6

Pumps Equipment

Water outperformed, Industry 4% down but record profitability, Energy resilient

Key figures

In CHF millions

Order intake

Sales

opEBITA

operational profitability3

Restructuring

EBIT

					Order intake by market
H1 20	H1 19	YOY	adj.1	org.2
744	753	-1.1%	6.0%	7.3%
617	690	-10.7%	-4.4%	-3.1%
19	20	-3.8%	-4.5%	6.3%	H1
3.1%	2.9%				2020
-29	-1
-27	-0

Highlights

"Energy"

• Orders:
• • Municipal and Wastewater up 2.5% organically
  • Chemicals up 27% on continued market momentum
  • Energy up 34% on geographical exposure despite market 25% down in Q2
• Sales lower on lockdowns and supply chain challenges
• Op. Profitability: up 20 bps despite unfavorable mix and lower volumes

H1 2020 results

26% Water	14% Upstream
16% Chemicals	8% Midstream
11% Pulp & Paper	5% Power
10% Others	10% Refineries

1. Adjusted for currency effects
2. Organic: adjusted for currency and acquisition effects

3. opEBITA as % of sales

July 24, 2020

7

Pumps Equipment Energy BU vs. Market

Orders and gross margin up on favorable geographies despite steep market drop

Market Capex1 vs. PE Energy Orders and Margin		PE Energy Orders by Geography

+35%

Sulzer

+4%

-25%

Market

1H19

2H19

1H20

Q1 19

Q2 19

Q3 19

Q4

19

Q1 20

Q2 20(E)

KSA

China

Brazil

US

Other

O&G Capex

PE Energy order intake

PE Energy OI gross margin

1. O&G Capex: actual figures and estimates summed for RDS, BP, Total, Eni, Chevron, Exxon Mobil and Aramco

H1 2020 results

July 24, 2020

8

Rotating Equipment Services

Jump in orders, unchanged sales and profitability despite pandemic disruptions

Key figures

In CHF millions

Order intake

Sales

opEBITA

operational profitability3

Restructuring

EBIT

					Order intake by product line
H1 20	H1 19	YOY	adj.1	org.2
617	602	2.5%	10.2%	6.3%
528	561	-5.9%	1.3%	-1.2%
64	68	-5.7%	3.8%	1.0%	H1
12.1%	12.1%				2020
-8	-0
51	64

Highlights

• All product lines up YoY, all regions performing well
• Declared essential service provider by national governments during lockdowns
• More agile than OEM competitors in Turbo Services and EMS
• Op. Profitability resilient, in line with previous years and last downturn
• Optimizing cost base through selective footprint measures

54% Pumps Services

29% Turbo Services

17% Electromechanical Services

	1.	Adjusted for currency effects
H1 2020 results	2.	Organic: adjusted for currency and acquisition effects	July 24, 2020	9
3.	opEBITA as % of sales

Chemtech

Chemicals growth and big China rebound mitigating India shutdown and FIDs shift

Key figures

In CHF millions

Order intake

Sales

opEBITA

operational profitability3

Restructuring

EBIT

					Order intake by market
H1 20	H1 19	YOY	adj.1	org.2
319	350	-8.8%	-3.2%	-12.0%
288	304	-5.3%	0.2%	-7.7%
23	27	-15.8%	-9.6%	-22.3%	H1
8.0%	9.0%				2020
-3	-0
11	24

Highlights

• Lower order intake and sales due to lockdowns particularly in India, shift of large projects and a high H1 19 base
• Growth in Chemicals, decline in Refineries and Upstream
• Strong rebound continuing in China, Q2 25% up sequentially
• Acquisition impact 30m related to GTC 20m and internal business transfer 10m

64% Chemicals

24% Refineries

6% Upstream

6% Others

	1.	Adjusted for currency effects
H1 2020 results	2.	Organic: adjusted for currency and acquisition effects	July 24, 2020	10
3.	opEBITA as % of sales

Applicator Systems

Q2 market pause on customer lockdowns, pricing intact, rebound underway

Key figures

In CHF millions

Order intake

Sales

opEBITA

operational profitability3

Restructuring

EBIT

					Order intake by market
H1 20	H1 19	YOY	adj.1	org.2
160	228	-29.9%	-27.3%	-27.3%
166	218	-23.9%	-21.0%	-21.0%
20	47	-58.7%	-58.3%	-58.3%	H1
11.8%	21.7%				2020
-1	-14.4
9	15.9

Highlights

• Q2 collapse in demand amid closures of beauty retailers and dental offices
• Pricing not impacted as no elasticity against lockdowns, gross margin on orders stable
• June rebound in all segments, will accelerate after summer
• Op. Profitability affected by temporary volume fall of high-margin Dental and Adhesives

34% Beauty

38% Adhesives

22% Dental

6% Healthcare

	1.	Adjusted for currency effects
H1 2020 results	2.	Organic: adjusted for currency and acquisition effects	July 24, 2020	11
3.	opEBITA as % of sales

Applicator Systems

Demand recovery underway in all segments

Market development YTD and expected development (as % of 2019)

indicative

100%

Ø month	April 20	May 20	June 20	Ø month	Ø month
Q1 20								Q3 20	Q4 20
			Adhesives		Dental			Beauty

Dental

• US rebound drawn out until mid 2021 (loss of health coverage)
• US dental OEM and Distributor customers ended furlough in July, EU customers still on short work
• EU recovery strongest in Germany (80-90%), UK, France, The Netherlands (40-60%), slowest in Southern Europe
• US: FL, NY, CA still heavy COVID impact

Adhesives

• Construction, electronics, automotive aftermarket recovering
• Handheld electronics, automotive, aerospace remain slow
• Europe recovers faster; USA, APAC (OEM) slower
• China up high single digit YoY
• Pace of rebound tracks industrial production

Beauty

• Divergent customers have different approaches to recovery (new product launches, restocking, etc.)
• Recovery faster in eyes and mass, slower in lips and prestige
• China market up high single digit, US continues to be slow

H1 2020 results

July 24, 2020

12

Financial Review

H1 2020 results

13

Overview

Record high order backlog and strong H1 FCF

Key figures
In CHF millions		H1 20		H1 19		YOY		adj.1
Order intake		1'841		1'933		-4.8%		1.7%
Order intake gross margin		33.3%		33.8%
Order backlog		1'946		1'7933		8.6%
Sales		1'599		1'774		-9.9%		-3.9%
opEBITA		120		162		-25.6%		-20.5%
operational profitability4		7.5%		9.1%
Restructuring		42		16
EBIT		36		99		-63.6%
ROS %		2.3%		5.6%
Core net income		82		115		-28.9%
Core EPS (in CHF)		2.4		3.3
Free cash flow		37		-8
FTEs		15'600		16'5063

org.2

-0.6%

-5.5%

-22.5%

Comment

• Gross margins on order intake lower on mix effect (less APS)
• Backlog 8.6% higher compared to pre- pandemic level (Dec 31, 2019)
• Sales down 5.5% organic on lockdowns and supply chain impact
• Restructuring up on resizing of Energy- related activities (in 2019 APS related)
• FCF 45m ahead of last year at 37m
• FTE lower on hiring freeze, attrition and contract staff reduction
• FX impact -126m; acquisition impact +42m (on orders)

H1 2020 results

1. Adjusted for currency effects
2. Organic: adjusted for currency and acquisition effects
3. As of December 31, 2019

4. opEBITA as % of sales

July 24, 2020

14

Quarterly order development

Q2 2020 orders show impact from lockdowns after very strong Q1

Quarterly order intake

Comment

(in CHF millions )

Q2 down 4.6% organically

-4.6% org

984

994

• PE +10% on Energy and Chemicals

949

925

900

901

874

856

889

•

RES flat despite lockdowns and limited

847

site access. YOY Energy and General

Industry up, Chemicals down

• Chemtech -12% with Chemicals up and

Refineries down

• APS -55% with Dental, Beauty and

Adhesives down on lockdowns;

Healthcare up

•

FX impact -71m

•

Acquisition impact +11m

Q1 18

Q2 18

Q3 18 Q4 18 Q1 19 Q2 19

Q3 19 Q4 19 Q1 20 Q2 20

Organic	Acquisitions 2017	Acquisitions 2018	Acquisitions 2019
			1.	Adjusted for currency effects
H1 2020 results			2.	Organic: adjusted for currency and acquisition effects	July 24, 2020	15

Operational Profit

Hit by COVID-19 partly mitigated by swift cost actions

Op. Profitability1

9.1%	7.5%

(in CHF millions )

162					Cost		8.4%
					savings
		3			in Q2			3	120
	-34						117
		-10			-8
				-17	21
H1 2019	Volume	Margin	Mix	Under	Cost Actions	FX	H1 2020	Acquisitions	H1 2020
				absorption			organic		total

COVID-19 Impact

H1 2020 results

1. Operational EBITA as % of sales

July 24, 2020

16

Operational Profit to EBIT

Restructuring up on announced Energy resizing

(in CHF millions )

120	-32
		-42
PE	-15		-4
RES	-4		-6
CT	-3			36
APS	-9
Other	-1	PE	-29
		RES	-8
		CT	-3
		APS	-1
		Other	-1
opEBITA	Amortization	Restructuring	Impairment of assets	Other non-	EBIT
H1 2020				operational items	H1 2020
H1 2020 results					July 24, 2020	17

EBIT to Net Income

Core net income down 29% to 82m

(in CHF millions )

36
	-12
		-0
			-7	17
	Unchanged			-1	15
	from prior year
		Effective tax rate 28.4%
		Normalized tax rate 23.1%
EBIT	Financial result	Income from	Taxes	Reported	Minorities	Reported
H1 2020		associates		net income		net income
				H1 2020		shareholders
						H1 2020

Core net income

82

H1 2020 results

July 24, 2020

18

Balance sheet

Solid balance sheet continues to support selective acquisitions

(in CHF millions )
				June 2019	Dec 2019	June 2020
	1093	962
939	218	Net debt	485 / 7111	347 / 5651	475 / 7361
226	260
	875		Net debt / EBITDA	1.2x / 1.8x1	0.8x / 1.4x1	1.3x / 2.1x1
712	702

-1317-1330-1333

	-107
		-110		-103
-1424		-1440		-1437
June 2019	Dec 2019	June 2020

Cash & Equivalents

Tiwel Payable

Debt

Leases (IFRS 16)

Balance sheet June 2020:

• Total net debt of: CHF 475m
• FCF of CHF 37m
• Ordinary dividend payment of CHF 93m (net dividend to Tiwel held back = CHF 43m)
• Acquisition payments of CHF 12m
• Non-interestbearing CHF 260m payable (including above CHF 43m) in favor of Tiwel linked to share repurchase and 2017/2018/2019/2020 dividends

1. Excluding cash held on behalf of Tiwel

H1 2020 results

July 24, 2020

19

Summary

H1 2020 results

20

Summary

• Demonstrated solidity of our business model in H1, supported by the performance of service and aftermarket (45% of Sulzer)
• RES, PE Water, and CT China (chemical-driven market, 30+% of CT) performed particularly well
• Energy market corrected 25% in Q2 but Sulzer still grew its backlog at good margins and maintained profitability
• Structural savings program to yield recurring 70m per annum and further reduce exposure to O&G
• H1 160 bps Operational Profitability drop mainly due to APS end- market freeze, rebound underway (confirmed by July trading)
• Balance sheet very strong
• Based on current outlook on macro and cost savings, Operational Profitability expected at 8.5-9.0% for FY20 and back around pre-pandemic levels in FY21

July 24, 2020

21

Your Investor Relations contact

Christoph Ladner
Head of Investor Relations	Sulzer Management Ltd
Phone:	[phone]	Neuwiesenstrasse 15
Mobile:	[phone]	8401 Winterthur
E-mail:	[e-mail]	Switzerland

www.sulzer.com

Supplementary Slides

H1 2020 results

23

FX Exposure

32% USD & related

18% EUR

13% GBP

9% CNY

8% BRL / RUB / INR

6% CHF

14% Others

H1 2020 results

July 24, 2020

24