Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sulzer AG (SULZF, Financial) reported a strong order intake growth of almost 9% in H1 2024, despite a high baseline from the previous year.
- The company achieved a significant increase in profitability, with operational profitability rising by 130 basis points to 11.4%.
- Gross margin improved by 140 basis points, attributed to better pricing strategies and operational excellence.
- Order backlog increased to CHF 2.4 billion, providing strong visibility for future operations.
- Sulzer AG (SULZF) updated its guidance, expecting order intake growth between 9% and 12%, and sales growth of 9% to 11% for the full year.
Negative Points
- Negative foreign exchange impacts affected both order intake and sales, reducing nominal values by approximately 4%.
- Free cash flow was lower due to increased net working capital, higher tax payments, and increased capital expenditures.
- The services division did not see an increase in profitability due to significant investments to meet growing demand.
- Return on capital employed remained stable due to increased asset values from currency remeasurement, despite higher EBIT.
- The company faces challenges in repatriating cash from countries like Brazil, China, and India, which incurs higher effective tax rates.
Q & A Highlights
Q: You have increased your profitability despite a negative product mix. Have you booked more services or aftermarket business into flow divisions instead of the services divisions?
A: No, there is no rebooking done to make figures look better. The improvement is linked to operating excellence, strict cost discipline, and strong pricing. (Thomas Zickler, CFO)
Q: The order backlog margin is higher than the reported gross margin. Is this a good proxy for future expectations?
A: Yes, as we focus on operational excellence, the gross margin should always be better than the order intake margin. However, short-term projects may incur costs that are recorded as operational costs. (Thomas Zickler, CFO; Suzanne Thoma, CEO)
Q: Services orders slowed down in Q2. Were there any specific events, and what is the expected run rate for the rest of the year?
A: There is no fundamental slowdown in the services division. We expect an acceleration in APAC, and a slight increase in margins towards the end of the year. (Suzanne Thoma, CEO; Thomas Zickler, CFO)
Q: Working capital increased, impacting free cash flow. What are your expectations for the second half of the year?
A: We aim to reduce net working capital by around CHF50 million by year-end, similar to our performance in H2 last year. (Thomas Zickler, CFO)
Q: How many months of visibility does the current order book provide?
A: Overall, it provides about six months of visibility, varying by division. Large orders in energy and industry will be executed over 18 months, while services have shorter visibility. (Suzanne Thoma, CEO; Thomas Zickler, CFO)
Q: Do you have any refinancing plans for the CHF250 million bond due in October?
A: Yes, we intend to refinance the bond fully to maintain flexibility and liquidity, despite having cash in countries like Brazil, China, and India. (Thomas Zickler, CFO)
Q: How has order intake developed in July?
A: We see no slowdown in order intake in July, with strong pipelines for major projects across divisions. (Suzanne Thoma, CEO)
Q: What percentage of cash is trapped in China or other difficult jurisdictions?
A: We have more than CHF100 million in China, but it is not trapped. We can repatriate it, though it incurs a cost. (Thomas Zickler, CFO; Suzanne Thoma, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
