Sulzer Ltd

Philippe Dewitz – Head, IR Klaus Stahlmann – CEO Jürgen Brandt – CFO

Thomas Baumann – Mirabaud Securities Michael Roost – Bank am Bellevue Bernd Pomrehn – Mainfirst Oliver Girakhou – Credit Agricole Cheuvreux Torsten Wyss – UBS Fabian Häcki – Vontobel Patrick Winters – Bloomberg Armin Rechberger – Zürcher Kantonalbank Alexander Virgo – Berenberg Bank Adrian Cattley – Citigroup Rizk Maidi – Barclays

Ladies and gentlemen, good afternoon or good morning actually and welcome to Sulzer’s media presentation 2013 here at the Stock Exchange in Zurich. The conference is also being webcasted.

The link to the webcast can be found on our corporate website. A replay of this conference call will be available on our website shortly after the end of this session.

Sulzer cares about your safety, in particular, for the people here in the room. You have received a one page here with safety instructions in the unlikely event of an emergency case.

We kindly ask you to study this document thoroughly. Also I would like to draw your attention to our Safe Harbor statements which is shown in your presentation handout on slide number two.

Please note that the statement is also valid for any verbal statements in this webcast. Today’s presentation will be held by the two gentlemen of the executive management team; Mr.

Klaus Stahlmann, our CEO; and Mr. Jürgen Brandt, our Chief Financial Officer.

Klaus, the stage is yours.

Thank you, Philippe. Good morning also from my side ladies and gentlemen, and welcome to this year’s midyear presentation of the Sulzer results.

During the first six months of this year, Sulzer had a solid start in terms of input. Our order intake grew compared to previous year.

Our book-to-bill ratio was greater than one, resulting in an increase in our order backlog. Unfortunately, our profitability was not according to our expectation.

As a result of lower sales volume in some businesses, we had an under-utilization of capacity, also a changed business mix, higher restructuring charges, and increased IT costs contributed to a lower profitability. We have taken actions and initiated tailored measures to improve the profitability, especially in the second half of 2013.

We have also decided to concentrate on three key market segments; oil and gas, power, and water. This are very attractive markets driven by mega trends.

Sulzer Metco which is active in the aviation and automation – and automotive markets is not part of this core market segments any more. And therefore, we are exploring a possible divestiture of Sulzer Metco.

But before I start with my today’s presentation, I would like to remind you of our Safe Harbor statement as shown on the following slide. The agenda of today will cover two main topics.

First, a review of the operational performance of the company during the first six months and as well a strategy update. First, I will talk about the main key figures and guide you through the areas of concern in terms of operational performance, and at the same time, talk about the tailored measures we have initiated to improve the performance going forward, in particular in the second half of this year.

Jürgen, will then talk you through some more financial details and provide more background to some of the key figures. Then I will give you an update on our new more focused market strategy, and will then end the presentation with an outlook for the full-year 2013, and conclude with some summary statements.

How do now the key figures of H1 look like? And when we are looking at the first or at the last six months, you can see that we had a very solid start in terms of the input.

Our order intake grew moderately by 4% roughly to CHF2.1 billion, compared to the previous year. Apart from Sulzer Turbo Services, all divisions saw stronger growth year-over-year, driven by the different dynamics in their key markets.

Based on our current assessment of the end markets, we expect a slight growth for order intake for the full-year 2013. The book-to-bill ratio was greater than one in the first six months, resulting in an increase in order backlog by more than 11% to now CHF2 billion.

The order backlog mainly relates to our project-related business of Sulzer Pumps and Sulzer Chemtech. The focus here is now of course on executing this backlog very efficiently.

On the output side, as shown on the next slide, the picture was slightly different. The first month of the year showed a weak start, while in recent months we were able to catch up with higher sales volume going through.

Sales slightly decreased by 1% compared to the same period of 2012, and looking at the composition of the sales, we have also seen a changed business mix in some divisions. For example, in Sulzer Pumps, the sales from service, was significantly lower than compared with previous year.

In Sulzer Metco, we have also seen more sales from the coating equipment business, and therefore a lower contribution in terms of operating income due to naturally lower margins in the equipment business. We expect a clearly higher volume for the second half of the year, based on the high backlog and the measures we’ve initiated to improve.

Therefore for the full-year, we expect sales to grow slightly compared with 2012. The EBIT shrunk by CHF45 million or 23% on a year-over-year view.

This is clearly something which we are not comfortable with. As a result from lower volumes in some businesses, capacity utilization was certainly poor, and in combination with a changed business mix, and higher restructuring charges, this led to a significant decrease in our operating income.

Most of this decrease came from the wastewater business and the electromechanical business in the UK and Australia. For the full-year 2013, we expect the profitability to be slightly lower than in 2012.

We have initiated tailored measures to sustainably improve the operational performance of the affected business going forward as shown on this slide. The main causes for the lower operational performance in the first six months of the year, and the measures taken are shown on this slide which you can see now.

Let us go to through this list division by division, and I will explain to you, what were the main drivers here. If we look at Pumps, lower sales and lower margins, especially in the wastewater business, led to the under-utilization of capacities and this were the main drivers for the profitability drop.

The engineered pumps business and this is something which I would like to stress, are performing very well. We have combined also therefore the so-called process pumps and the wastewater pumps under one combined business unit called now Configured Solutions.

We have also started with reducing manufacturing sites, and some sites have already been closed or the closing has been announced and we are proceeding accordingly. What we expect here is a clear stronger H2, and already the restructuring measures have shown the first results and we have seen the results already coming through in the last two months.

If I look at Metco, we have had one of the main causes for the decrease was the higher restructuring charge due to a site closure. What are we doing here?

We are embedding a very, very strict cost control, and what we expect here also for H2 is obviously an improved margin through this better cost base. If we look at Chemtech, one of the main causes for the EBIT decrease in the first six months was that we had lower sales, and therefore lower absorption specifically in the Process Technology business.

The reason was that in 2012 we had delayed bookings, so the order backlog was not there to actually perform those sales. This has clearly changed in the last couple of months, as you have seen we have announced the big biopolymer order which Process Technology was able to get.

So therefore going forward, we will see here again the higher sales in H2 because of this healthy order backlog. If we look at Turbo Services, what were the reasons there?

We clearly had at the beginning of the year, specifically in Q1 very lower sales in the UK and Australia. This again has improved in Q2, but this first quarter led to a clearly lower profitability which we will not be able to catch up during the next couple of months.

We have done a restructure. We have adjusted the capacities and the restructuring has been completed in the UK and in Australia, so let’s say we expect, and this is the outlook for the H2, obviously with lower costs in the second half of the year here also, and improved profitability.

On the Corporate Center side, we are doing some investments, I would call it. We are upgrading and modernizing our IT systems.

This has caused or they have also driven some costs up. We have also taken here cost measures and are doing – implementing a cost control from that perspective.

Now this would be from my side the main reasons. I would like now to hand over to Jürgen, so that he can give you a little more detail on the financial side.

Jürgen?

Thank you, Klaus. Good morning and thank you for joining us to our half year presentation, also from my side, a warm welcome.

I will provide details now on our financials for the first six months of the year. Before we go into the figures, before I show you the details, let me give you some sort of summary first.

Order intake again was solid. And you will see that sales were trailing order intake a bit.

This resulted of course in a higher backlog, about CHF2 billion which is about CHF200 million higher than what we had at the end of last year. And here as Klaus said, the main focus of course for our business is to execute this higher backlog properly in terms of volumes, but maybe even more important also in terms of quality.

As also mentioned by Klaus before, the biggest issue we clearly face is our lower operating income, and of course this also resulted then in the lower profitability. Our focus is on improving the situation in H2 going forward, and you saw that we have taken dedicated improvement measures in all of our divisions to turn the situation around and improve the second half.

The cash flow for the first six months was positive, but it was clearly not at the high – say record level we had last year. It will remain our strong focus in working capital management and we are still seeing improvements there when it comes to better manage the working capital.

The balance sheet remains strong and this is a very good sound foundation for future growth of our company, be it externally or through acquisitions. Now let us jump into the figures.

Order intake first. Three of our four divisions grew compared to last year.

The biggest growth was reported as you can see on this slide in Sulzer Pumps and in Sulzer Chemtech. Both divisions were supported by larger orders in the oil and gas markets.

Also Sulzer Metco was growing successfully, increasing their business on the already high base. They had a little support of this – of an acquisition which they made at the end of last year.

Only Sulzer Turbo Services had to report a decrease in order intake. And this was mainly related to the weaker demand in the electromechanical business, and here mainly in the UK and also in Australia.

I’ll come back to that later when we go through the divisions. The total effect from acquisitions and divestitures was around CHF15 million, and FX translations in the first half was negligible.

If we look at order intake from a regional perspective, we see that we had a good demand from North America especially in the U.S. and also from Asia Pacific, while on the other hand, Europe especially the southern part of Europe was weak, some better developments in the northern part, but as I said southern part showed a weak development again.

Now here it is important to say that if we look at Q2 for instance compared to Q1 2013, we had strong improvement in the second quarter, and this of course gave us a very good momentum which we can now build on for the second half of 2012. Moving onto sales.

Here we see that the high sales level of the previous year was not matched, basically due to a weaker start in the first month of the year. Again here, also same as in order intake, we saw a good improvement in Q2 of 2012 as compared to Q1.

The decrease was not substantial, but of course it needs to be mentioned that we have seen a change in business mix, and this was also impacting our capacity utilization. The effects from FX and M&A were only minor.

The biggest impact here came from the impact on our service business. Overall the service business for Sulzer declined by 140 basis points compared to sales, and this is significant in particular when you look at Sulzer Pumps where it declined from 38% of sales to now 34% of sales.

Now why is that? In certain areas, we noticed that customers are delaying maintenance and service work in order to save cost to save on their OpEx budget.

On the other hand, we see this only as a temporary behavior, and we do not expect a fundamental change in the demand for our service business going forward. The gross margins declined slightly from 31% to 30.4%, 60 basis points.

Two reasons, the first one, the weaker markets in regions in Europe and Australia. And secondly, also the composition of the sales due to the business mix, lower sales volumes, of course had also an impact on the gross margin.

As already mentioned before, the EBIT strongly decreased compared to the same period of previous year by 23%. The main reasons were already elaborated in Klaus’ presentation, but let me make some additional remarks especially on restructuring.

You saw that we have initiated specific measures to improve the performance in H2 going forward. Some of those related costs has been incurred in the P&L and are disclosed under restructuring expenses which you can see here on this slide amount to about CHF6 million.

In H1 of previous year, we had a much lower figure of just about CHF1 million. For the full-year 2013, the total restructuring cost for Sulzer are expected to amount to about CHF15 million, and therefore we expect another CHF9 million to come in H2 compared to only CHF5 million in H2 last year.

The vast majority of the remaining restructuring costs will be spent in Sulzer Pumps. Let’s move on to our divisions and have a closer look there.

Pumps first. We had a good order intake development for Sulzer Pumps, up 5%.

And as I said already, this was supported by some larger orders for oil and gas applications, for instance firefighting systems for the oil exploration and also pipeline pumps, and here especially in North America. We were also able to sign new strategic partnerships with customers like Sinopec in China for instance.

And you might remember we reported that together with the annual results, that we had last year signed this important collaboration agreement with FMC Technologies for the subsea pumps applications, one of the technologies for the future. The service footprint was also further expanded in Brazil, China, and South Africa.

The new Division President, Scot Smith is currently focusing on improving the operational performance of the division. Now one focus area going forward, will be to leverage cross-selling for services in the rotating equipment with our Sulzer Turbo Service division.

And Klaus will come back to that in more detail later in the strategic outlook. Now what do we expect for 2013 as a whole?

Based on the current assessment of our key markets, the higher order backlog and the initial improvement measures, we do expect order intake in sales at similar levels as in 2012. I’m glad to say that on the order side, we see a little bit more upside potential.

The return on sales however is expected to be slightly lower than in previous years. Now, Sulzer Metco.

Grew its top line on an already high base. This is due to the innovative solutions in important parts of the key markets, I just want to mention here aviation and automotive.

The Metco team has further strengthened the position of the business in China with an expansion of its footprint through a new and larger facility for production and services in the Shanghai area, also in Russia, so Metco has further invested to become stronger in coating services. So it’s smaller but strategically very important acquisition.

The investments also continued with respect to new material for interesting growth markets. I want to mention here the extension of the ceramics production facility in Barchfeld in Germany.

The outlook for 2013, we expect order intake and sales to grow moderately, and the return on sales is expected to be slightly lower than in the year before. Now outstanding growth in order intake was recorded for Sulzer Chemtech, plus 14%.

This was driven by a continued good demand in its key markets, and some large order recorded in Process Technology, one of which was the long expected additional order for industrial scale biopolymer. Remember, we sold one already about a year, one and a half years ago.

And this order booking was recorded in Q2 of this year. The division is now of course focusing on executing the higher order backlog, as well as leveraging the Asia footprint for Mass Transfer Technology where we have moved the headquarter already to Singapore, and for a static mix in products.

Based on the current assessment of the markets and the higher order backlog, we expect high-single digit growth here in order intake and in sales. And return on sales is expected to reach a double-digit level for 2013.

Turbo Services, based on the good backlog at the beginning of the year, we could increase sales volumes slightly by 2%, but on the negative side, order intake was down by about 9%. And as I mentioned already, mainly because of the lower demand in the electromechanical services in UK and Australia, the later was driven of course by the quite low activity in the mining industry in Australia, which impacted also our business.

Also here Q2, in order intake was much stronger than Q1. We also see a good momentum building up here in Turbo Services.

In addition, the first six months of previous year included some larger orders in the power business that could not be repeated during the first six months. The division continued to develop its business for these long-term service agreements which are in the power market, especially for gas turbine services, and we have currently several potential new service orders under negotiation.

One focus area going forward and here is the link again to Sulzer Pumps, will be to leverage cross-selling for services in rotating equipment. The outlook for Sulzer Turbo Services.

Based on the current assessment of the key markets and the measures taken to improve the operational performance, we expect a decrease for the full-year in order intake, and in sales, slight decrease. Return on sales is expected to be lower in – as in 2012.

So we will not be able to catch up here for the full year. As a next step I would like to show you some more details on the P&L below the EBIT line.

If we look at the net financial income, it’s more or less in line what we had last year. Now for the full-year, it’s important for your projections, we expect a level of about minus CHF25 for financial income.

Please be aware that last year we had this profit from the sale of third-party shares of about CHF30 million which we do not expect of course to come again this year. Now the positive side, if we look at the tax rate for the first six months, we can see that we are below 26%.

This is mainly due of course to the distribution – or regional distribution of profits, but also some tax optimization efforts in different countries. Now for the full-year, we expect the tax rate to be at about the 26% level.

However, the net income as such decreased substantially of course due to the lower operating income. You might remember that we reported a record high free cash flow last year.

This level was not matched in the first six months driven by the lower operating cash flow. On the other hand, we have made good progress towards net working capital efficiency.

We remain focused on further improvements in this area, and of course we closely monitor the development within our Cash for Growth Project which has started about two years ago. CapEx spending was lower than last year.

Main spending again for maintenance, and for the full-year we expect here CapEx in the range of about CHF130 million. Let me move on to the balance sheet and capital structure.

Both remain solid. The net debt position as of June was at CHF176 million.

Of course the maturity of the external debt as you know is related to our Swiss Francs denominated bond of 500 million. Now the equity ratio remains solid with close to 50%, 49% to be precise, and the gearing ratio also stable, 28%.

Now generally speaking, our strong balance sheet builds a solid foundation to support organic growth investments, but also targeted acquisitions to strengthen our strategic position. And with this, I would like to hand back to Klaus who will give you a strategic update for Sulzer.

Thank you, Jürgen. Now, ladies and gentlemen again at this chapter, I would like to give you a strategy update and concentrate on our focused market strategy, which is the third point on this slide.

As you know that back in 2012, we set a new vision. We kept our strong values, and this would follow up our strategic priorities.

Now as I mentioned today, I would like to add an additional item to our strategy, in terms of focusing on the three key attractive markets. And this is what we want to do.

We want to focus our activities in these three key markets meaning oil and gas, power, and water. And as also mentioned before when I started, as a consequence therefore, we are exploring the divestment of our Sulzer Metco division with half of its sales in the automotive and the aviation markets, and one-third in the general industries markets.

We will serve and this is also something which I would like to stress – we want to serve now our key markets as one focused company, leveraging synergies across all our businesses, but before I do that, let’s recap on our vision and values. The vision remains our customers recognize us for our leading technologies and services, delivering innovative and sustainable solutions.

And they got it reported [ph] for me is that everything what we do is orientated towards the customers and the people, and making sure as well that we act in this regard excellently. If I move forward now to the strategic priorities which we announced last year.

Those four were; technology leadership, outstanding services, continuous operational improvements, and collaborative advantage. They again are all orientated towards our customers with a focus of value creation and profitable growth.

I would like to get you now some updates and some more information of the progress made on each of those strategic priorities. And if I start with the technology leadership side, that is something which we will continue to do.

We will continue to invest in our R&D expenses. And this is specifically important to secure our leadership position also in the future.

We have in this space started or acquired for the companies, if they improve our technology position. One example is the acquisition of Krøger last year.

Also partnership which we announced last year like with FMC on the subsea pumps, as well as the contract which we recently won on the biopolymer production, document that we are keeping this leading position also going forward. If I move onto the outstanding services side, this is also something which we will continue to do, is to expand our service footprint, strengthen our service network to be close to our customers.

And here we have added a couple of centers in specifically the emerging countries like Brazil, China, South Africa and Russia. And we will also continue to expand with acquisitions in emerging markets specifically, and this we did last year with the expansion and acquisition of service centers in China and in Russia.

If I move on the continuous operational improvements side, and here we are focusing basically on the KPIs like safety, like on-time delivery, and we’re also going to put a focus on the quality side and on those areas we were in fact able to improve our performance if I compare those KPIs last year just as an example, severity rate went down from 55 to 44, and we were able to improve our on-time delivery by 500 basis points. If we move onto the strategic priorities collaborative advantage.

This is something where we are putting a focus as a company to increase our company-wide collaboration across the different divisions and businesses. And here I would like to highlight two major initiatives which we are pursuing.

The one is the cross-selling initiative for services for rotating equipments. This is something which Jürgen already mentioned a couple of times during the presentation.

And the other one is the shared service initiative for support functions, and here specifically, we are concentrating on areas like finance, HR, and IT infrastructure. Other initiatives like for example, purchasing and others are also underway and are making good progress.

But now I would like to really explain to you our new bullet point which we added and this is the focus on three key markets. We at Sulzer made a strategic decision to concentrate on three attractive key markets; oil and gas, power, and water.

This are obviously attractive growth markets that will benefit from the global developments and the mega trends like population growth, the urbanization, increased energy demand and scarcity of water. As mentioned before, transportation were Sulzer Metco generates half of its sales is outside the key markets for Sulzer.

This is the reason why we are exploring the divestiture of Sulzer Metco. Let me now show you how our market share would look like if we concentrate on these three markets.

If we place the focus on those three key markets, you can see that the share in these markets will clearly increase. Oil and gas will go up from 40% to 48%, power from 15% to 16%, and water from 12% to 15% and our exposure to the general industry will go down from 24% to 21%.

So this is going to be an important focus on those key markets which we believe are very attractive. With this one as I mentioned before, we decided to explore the divestiture of Metco.

Metco in brief, we are not doing this because of any performance issues, you’ve seen specifically the performance of Metco shown by Jürgen. We are doing this because this is a strategic position from that perspective.

And what we are trying to do is we are trying to leverage the strengths of Sulzer Metco in the best possible way. And for us, Sulzer Metco is still a very well performed division with outstanding solutions also for attractive key markets.

And obviously it would be our intention to use the proceedings of a possible sale for an acquisition strategy. And where we are trying to put the focus and you can see that in this chart is, that we are looking specifically at the rotating equipment space and on the flow control space.

And we’re looking here as well as equipment and services in this space. But also and I think this is also for me very important is that by focusing on these three key markets, we also want to grow together as one company and collaborate and work closely.

And this is exactly those type of initiatives which we are starting. The first important step we have already did is that we are exploring a more stronger collaboration and cooperation between Sulzer Pumps and Sulzer Turbo Services, that they are now offering to their customers, a combined service offering for rotating equipment ranging from pumps to turbines, compressors, motors, and generators.

And furthermore, we are also looking how to share services and functions like finance, HR, IT infrastructure are shown on this slide. And with all this initiatives, we want to assess potential synergies and support functions, and obviously the main goal here is to secure cost benefits and to improve the processes in this regard going forward.

Now let me come to the outlook, and the summary where we are. And I think if I would like to summarize the market developments in the first six months and what do we expect for the remainder of the current year.

Let me maybe start with our largest key markets, the oil and gas segment. And as you know, presently this market accounts roughly for 40% of Sulzer.

And for us, this market overall has developed in line with expectations, and has showed a very good growth in selective areas and regions. The main drivers for us arguably found upstream, with very good activities in FPSO.

And in midstream, where we have position with pipeline pumps, specifically North America and obviously this is driven by the fracking initiatives there. Here in this space, we have recorded some major projects in the first six months, and the oil price at its current level is also very much supportive for most of those projects.

Activities for us in the downstream sector are mainly driven by investments in the chemical sector, and here is where Chemtech is very much in this space, less than for example, the pumps business. And obviously what we expect based on what we know for this market will continue at this current high level for our space.

In the power, and this accounts as you know for 50% of Sulzer today, we are not going to see really a pickup in this space, and we don’t expect this to happen in the other way. The level of activity specifically on the new build side remained generally low in most of our regions, and having said this one, although the number of new projects increased, in particular for us in Asia Pacific for coal and nuclear, we do not expect a big recovery in H2, and therefore we expect the similar levels to continue at this level as before.

Water, the next important market segment accounted for some 12%, is mainly served by the pumps division. This has clearly decreased compared to the previous year, particularly driven by the low levels in Europe.

What we see here though is a slowly picking up trend specifically in the wastewater side, and overall we forecast this market to be at a very similar level for the full-year. Transportation, the market segment where Metco is basically active, accounts for a 9% of Sulzer today.

And here we saw the automotive still growing versus the high base of the previous year, but we also see some negative signals from the market, and this is something which obviously we have to watch and monitor very, very closely, specifically finding out here the developments in the German automotive market. Aviation for us grew.

It should continue to grow based on very stable passenger miles. Now, what is our outlook and our guidance for the full-year?

What is our expectation for H2? And in terms of our outlook guidance, order intake side, we expect for the full-year 2013 a slight growth.

There is as we mentioned before specifically on the pump side, a positive outlook here, so that this could be something which could go up. On the sales side, we expect only a slight growth.

And return on sales, I think this was mentioned already by Jürgen also a couple of times. We had a very weak Q1.

Q2 improved, but it will be very, very difficult for us to catch up what we lost in the first month in terms of that on going forward, that’s what we expect here, only slightly low or we expect a slightly lower return on sales compared to the previous levels. The financial targets, this is something which we will now review based on our performance as well as on the sale of Metco and the new strategy which we are planning.

So we will come up here with a new guidance and new targets in due course. So what is the summary and the conclusion going forward?

For the first half, just stress again, we had a very solid order intake. Sales decreased slightly.

We saw a better pickup in the last couple of months. We had a significant decreasing of EBIT.

I think we will try to show you the exact reasons for that one, and what are the measures which we took, and what are the expectations for the next six months to come. We clearly expect a better operational performance for the remainder of the year.

We’re continued to focus on net working capital management, and our balance sheet remained very strong, and I think that is also very good foundation for future growth. On the strategy side, I think we have the clear vision and strong values.

We have now further progress – or we’ve made further progress with our strategic priorities. And I think where we introduce new, the focus on the three key markets would also held up as a company to focus on those very attractive markets.

The outlook again for the year, slight growth of orders and sales, and a slightly lower profitability expected compared to the previous years. And as mentioned before, the midterms will be under review and will be mentioned in due course.

Nevertheless, with all of that, I think and we still believe that we have all the ingredients and that we are very well positioned for sustainable future success. Thank you very much.

With this, I would like to open the floor for questions for Q&A session. I will first take some Qs here in the room and then we’ll follow-up on the Qs in the webcast line.

Please wait for the microphone just so that we can start. Thomas?

Yes, Thomas from Mirabaud Securities. Three questions to start with.

First of all, have you already elaborated what kind of additional revenue synergies you would expect from this new or let’s say more pronounced cross divisional collaboration, I suppose you’re going in particularly for revenue synergies there, or in other words what have you left on the table so far? Second question obviously the sale of Metco – excuse me, the question, but how much was that position influenced by your major shareholder, yes, just to know that.

And I suppose Mr. Browne [ph] have to look at this as discontinued operations going forward?

And the third question goes to Sulzer Pumps. We saw that FMC has captured significant orders for subsea trees.

And my question there is, has Sulzer already been able to participate in these orders with its share of subsea pumps? Thank you.

Okay, let me start with the first question which you said regarding the revenue sales and the cross-sales specifically on the pumps and service side. We have made an assessment.

It is in the high two million digit range. We are now assessing specifically on different regions which impact this will have.

So before I really quantify this one exactly, we will do now the assessments on all the regions, but we have made an preliminary assessment in this regard. Regarding the question to Metco, clearly no.

The decision in terms of focusing on (inaudible) market segment was done by the Sulzer management team, and proposed to the board of Sulzer and they all agreed to this part of equation. We are excluding just to make this one also clear and sure, we are excluding the representative of Renova of any of those discussions regarding any sales, because the governance decision is going forward regarding Metco.

That was made clear and they were not participating in this discussion from that side. For the Pumps, I do not know exactly how much the order backlog would start with FMC is with pumps to be quite honest, I would have to check, but I know that our partnership with FMC is very good.

So I would expect that something is there on the books, but I cannot tell you that exactly.

But it hit the revenues already, this cooperation. I mean there is actual sales or is – are we still in the (inaudible) R&D?

We’re only delivering on the FMC portion, the internals which is our core. So the total volume is not a very significant volume-wise in sales.

It is more on a different level. So that’s what I said, you will not see even if it’s a lot of pump trees which you will get, internal support is lower from that perspective in terms of revenue, but I cannot quantify that one now to be very honest.

Next question, over there. Mike.

Michael Roost from Bank am Bellevue. First question, just to go back to the Metco divestment.

I have a question regarding the timing of the communication. Can you give us a bit of an idea of why you’ve already communicated now the plan to divest before there are any potential suitors?

Are their suitors? Can you give us a bit of an idea there?

Second question is on the pump service reduction, so from 38% to 34%. Can you give us a bit of a better idea in terms of regions and end markets where this is actually coming from?

And then the final question is on Brazil in general. What you’re seeing in that region currently?

Thank you.

Okay, I think on the timing of the Metco. It is good governance to announce the said process when they are starting it, and we are going out with the information and we’re onto a lot of buyers in any case.

So we are making that public so that everybody knows what we are doing. We did specifically not want to do a closed room type of process, also out of governance situation.

We believe there is an interest there – enough interest with parties which would participate in this process. So it’s good governance to make that open when you know it.

In terms of the service pumps, yes, that’s revenue. Yes, I know that it is mainly – there are just in areas.

The biggest drawback in the first month was coming out of the EMEA region, which is roughly European region. And this was specifically in a lot of the service areas.

You can see the same theme with the UK on the Turbo Service side. So that’s what also Jürgen mentioned in his presentation.

We have seen a downturn in the market. Our customers were very reluctant to spend money on the service side.

And if you look our comparable figures from our competition which we also look, you will see the same pattern there as well. So for whatever reason, the markets specifically in Europe had a little bit of a downturn in that regard.

We had seen a pickup in the last couple of months, and specifically that division was able to grow on a double-digit basis. And so when compared Q1 to Q2.

So it was something like somebody stopped and it turned back again. And I also visited some customers and tried to understand what was the specific reason, nobody could really tell me why there was a sudden – some stop from that but I think that again, so Europe is the main situation there.

Brazil, we were able to get some FPSO contracts recently. And that was mentioned also in the presentation.

One of the very good order intake from engineered pumps side was specifically upstream oil and gas, from FPSO business in Brazil and midstream pipeline business in the US. So for us, engineered part of the business is doing very well on pumps.

Next question? Over here.

Sorry, it’s me. It’s Bernd Pomrehn from Mainfirst.

Two questions please. First one on costs.

General and administration expenses, and the R&D expenses increased by both about 10%. How much was driven by an increase in IT costs?

What is the underlying inflation level, and could you elaborate a little bit on this? And the second question again on Metco.

What was really the main driver for the decision to sell this business? Was it, the view that another owner could probably increase the value of the business, or was it the view that transportation is probably not the most attractive markets you are currently in, or thirdly, was it more view that you need actually more funds to grow the other three businesses?

Thank you.

And I will take that Metco and then I will ask, Jürgen, to answer the cost side. I think the decision to explore – and I would just stress that one again to explore possible divesture of Metco was driven by a strategic decision to concentrate on three key attractive markets.

And I think at one point in time, as a company you need to make sure is, where do you want to spend your money, where do you want to concentrate your efforts, and that was the basis of the decision going forward. And as I said, the management and we as executive committee had a couple of retreats where we discussed, where do we want to go.

And that’s when we defined, let’s say build three key markets are for us the best ones to grow and that triggered the decision to explore this divestiture of Metco. So there was no other considerations, and as I said, I want to stress it again, there was no performance issues.

And at this moment, those markets are also attractive, but we want to leverage those strengths maybe with somebody else who could leverage those strengths even stronger than what we could do from the Sulzer perspective. As it was shown, I don’t think that let’s say that we need the cash or anything else.

We could leverage in a year and create funds if we would go for the transaction. But our sense was that was not that made the decision.

It was clear strategic decision.

On the OpEx side, if you look at the figures, you see that the percent of sales increased from 21.4% to 23.2% above CHF30 million compared to last year. We had several acquisitions not bigger ones but two or three in the range of CHF10 million, CHF20 million sales, of course which contributed here.

The IT – additional IT costs also contributed, but this is not a substantial amount yet in the first half. There is more to come in the second half, but the reason of course or the main – let’s say reason for our restructuring which we are now pursuing and have started already in several locations is also that we have too high spend now although [ph] compared to lower sales.

That’s why we have initiated those actions.

Okay, thank you.

Next question from Oliver. Please stand.

Thank you. Just coming back to your guidance in the pumps and the implication for H2, you guys expect basically sales at a similar level as 2012 which implies some 5% organic growth in H2.

We’re now looking at the EBIT guidance and that’s basically you guys guide for only slightly lower compared to 2012. That looks quite, I think as a big catch up year-over-year, and actually that would almost imply a record absolute EBIT in the second half of this year.

And I mean looking at then combining these two elements, I think I am just lacking to see whether operating leverage should come from, or are there any other elements in there which improves basically your EBIT in the second half to almost the record levels?

H2 was always back-loaded. And if you look at last years, we always had a record H2 from all perspectives.

It is driven by the demand on the certain projects side, so that is the first one. So historically H2 was always back-loaded.

Second one is we expect a change in the business mix going forward for pumps in H2. It was mentioned that our service mix was very low.

We have clearly installed the measures to improve that one and we’re seeing an improvement in the EMEA region, in particular in here as well, but also in the other areas. So there is going to be a change in the mix which again will increase profitability.

The third one, the under-utilization of capacities which drove the bad results, specifically on the wastewater side, has all been auctioned and corrected. So that we are in the process and we have adjusted the capacity.

And the first positive signs have already been shown in the last month. So with all of those type of things, we believe that our guidance on the pump side will yield a result which we expect.

That implies basically a recovery in the water and wastewater markets business in terms of volumes? Correct?

Yes, exactly.

Can I just follow-up quickly on the Metco divestiture, I mean obviously we have done also some calculations, but what would expect apart from certain end markets sort of having a bigger weight or less overweight. What would you expect personally in terms of value accretion to your underlying business focusing on the three regions, but also in terms of intensity, where do you see profitability sort of heading, I mean that’s something you guys wanted to look at basically when doing the math, right?

We actually would say – from our perspective, it is important to concentrate on the very key attractive markets. And then to understanding what are you going to be leveraging in terms of synergies, if you concentrate on those type of things.

And I think what I try to explain in my strategy update focusing on those markets is that we want to create synergies by working in one company, leveraging our sales, front-end to put more products through because we are serving the same markets. You are seeing those initiatives already with the combination of the offering on the service side.

And the further you go and the further you expand your portfolio in this regards, the further you can leverage. So I think that is where the value creation will come from, so simply using those synergies going forward.

From the underlying sales, you don’t expect any value creation?

From the underlying service, we expect sales synergies. And if I use my footprint, and I can’t put through my footprints, the same products in more areas, I will get their synergies out of that.

Okay, thank you.

Next one, Torsten here in the front seat.

Yes, Torsten with UBS. Do we have to expect different reporting going forward so we will not see any more pumps, Chemtech and Sulzer – Turbo Services sorry, and we will see the end market?

And if that happens what does it mean in terms of costs to let’s say change the reporting? And the second question is more in regard to your potential acquisitions.

Where do we stand in the strategic redo – you showed that you had some ideas where you want to expand, but can you give us a bit more clarity what does it mean in terms of how much money we might need to invest there, because still the balance sheet is quite solid. So a little bit to Metco divestment related to potential investment, or is there other ideas to return money to shareholders if you have – if the divestment goes through.

A little bit better understanding where do we stand there?

I would not like to speculate going forward specifically any reporting on market segment things we will have to look at now because I said it’s a potential divestiture and whatever happens, we will then look what are implications to the organization. And when we are ready to disclose those type of things, we will disclose, anything else is (inaudible).

So you can still expect those type of divisional level at least as we know where we are. I can also – would not like to speculate in any acquisition targets in what we do.

We are always looking at what I would call big transformational acquisitions and smaller ones. And this is obviously something where you can never speculate when will this happen or not, because there are always a lot of players involved, and at least two, the one which likes to sell their own which likes to buy for decent price from that perspective.

So it’s speculation, that’s all.

Next question. Fabian?

Yes, I got a following question on pumps and your loss and how your second half margin will significantly improve to a record level. So when I read this correctly, the earnings guidance is reported figures including the restructurings?

Okay. So what I actually see is that in the second half the restructuring items, the pumps, they should probably double or even triple if it takes the full-year guidance for the restructuring costs and this stuff includes – this means that even gets much more challenging in the second half to reach this target.

So to me, this is still not fully clear. Secondly, is the impact of these restructuring measures will probably not be fully materialized already in the second half?

I think this is too early, so we don’t – cannot expect really positive impacts from these measures. Then thirdly is pumps, I mean you are saying that you – one of the key reason is under-utilization of capacity, but if I look overall on the pumps, sales were only down 3%.

What was the impact of the newly opened Chinese plant for Cardo [ph]? Could you please also give a bit more of quantification here?

And then also on pumps, the last question, you are saying that you will now integrate the Cardo basis with the existing Sulzer Pumps business into this Configured Pumps. What is the potential level of integration?

Can you combine manufacturing under one roof? Is this possible or those businesses – the process pumps and the Cardo pumps two different?

Thank you.

Jürgen?

Yes, so on the restructuring of course your calculation is right, we will spend more in the second half of the year which – and that is clear. It makes an ambitious target to reach the – to improve the level of EBIT and return on sales to that level which we are now guiding.

So we need lot of recovery and we also need already some positive impact out of this restructuring measures. It’s clear that most of them especially, let’s say more in the European countries come later, but there are areas in restructuring where you quickly need to benefit and those of course will contribute.

But it is an ambitious target, that’s clear.

Now, the other question was on the Chinese factory of Sulzer Pumps. It’s in Suzhou.

The Cardo factory in (inaudible) which we have opened about a year ago, and of course we are still in the ramp up phase, so there is not really a positive impact yet to be seen there after 10 months. I think the other one was Configured Pumps integration?

Sorry, the restructuring efforts. When will they start to fully materialize?

Sorry?

The restructuring efforts. When will the cost savings…

That’s what I’ve said. Some of the positive impacts you will see this year already, but a lot of areas of course we have to spend money first, and then you see the benefits later.

So it’s basically a mixture between some immediate impacts, but also lot of later on expected impacts next year.

The Configured solutions combination is we have combined a so called process pumps and the wastewater businesses. Those pumps are very similar.

They are both not engineered. They are in a certain way done and not necessarily made to order but – or not engineered from that perspective.

There are a lot of synergies, for example on the procurement side. There are things which you can leverage on the casting side.

There are things which you can leverage on the business model and system. And you also leverage things on the state [ph] channel because you go sometimes again to the same customers.

So it’s a clearly synergy case, that was the reason why we combined process pumps and wastewater business. We basically now have two different type of pump businesses, the Engineered Pumps which is this firefighting pumps, engineered for one specific contract which is more of a package, and the Configured Solutions which is more of a serial or very near to single production pumps which are lower in size and more of a transactional business.

So there is a clear synergy case on that one.

One more question here in the front.

Hi it’s Patrick Winters, Bloomberg. I have a question about the possible divestments.

Is there a timeline for it? Could you tell us roughly what stage we’re at now, and if you’ve hired banks, if you’ve sent out the information memorandums, is that kind of now been done, just some kind of color there?

And secondly, does it put you in a new league in terms of buying power for possible pumps acquisitions. Will there be deals which you couldn’t have done before, which you can now possible could do, after Metco has been divested obviously?

With regards with the timeline, we are announcing that we had started exploring the process. In fact today, we have already appointed financial advisors to do that.

We are also doing like a VVD [ph] type of approach. We are expecting to send out memorandums in the course of end of August, beginning of September.

So they get in offers in the end of September, beginning of October timeframe. So that we expect signing towards year-end, and closing in the first quarter of 2014.

This is the rough timeline from that perspective. Metco is already a division.

And as you know, Sulzer has kept their division fairly separate. So they are – there is very little carve out from that perspective.

We’re looking at all those type of things, but basically it is already a division, a legal entity in that perspective by Sulzer, so that’s easier to do any of those call for type of thing. By power, obviously we will have more cash available if this is set to go through, but nevertheless also at the beginning we were already quite powerful in terms of being able to do certain acquisitions.

And I also think, we have also from the shareholder side enough possibilities. People would have liked to do there something.

So this is not necessary changing the game specifically from end, and that was not a decision – or let’s say instrumental to any of the decisions which we took regarding Metco.

From what you’re telling me about the possible timing of this, it sounds like you’re pretty confident you can find a buyer or perhaps you’ve already had some kind of informal discussions, would that be a fair assessment?

No, that’s not a fair assessment. We are really starting the process.

Everybody has the same chances. Obviously believe that they are interested parties and that’s what it is.

Thanks.

Armin here in the front.

Armin Rechberger from Kantonalbank. When you say, you focus on oil and gas, power, and water, how does then Sulzer Innotec fits into this picture?

Do you sell Sulzer Innotec now? Then how does Mixpac fit into this picture?

Are you going to sell Mixpac and all these related businesses you acquired there? Then how does biopolymers fit into this business and all the very downstream activities you have in Chemtech.

Are you selling all these business now? I mean for me this sounds sort of a bit strange, I mean you focus on these three parts, but you have in these three businesses, already business which do not fit in?

Innotec, we already – I’d say Innotec was the part which was doing the R&D. We already last year in August integrated the different portions of the Innotec into the division.

So this has already been done. And let’s say the part which belonged on the materials or on the flow technology side went to pumps, materials went to Chemtech and a certain portion remained with Chemtech.

So Innotec is not any longer there from that perspective. And obviously you will always have in account – and also let’s say if we acquire a business, you will have parts which are not necessarily a 100% pure play in any type of terms.

So yes, you have one point in time, can start to think if this makes sensible to keep it or not, but I think it will be – I have not seen any company which because they come from acquisitions are a clearly pure play. And you can always debate how much downstream, where you want to make the cut on the downstream side.

So you include chemicals and CPI, yes or not. And I think that’s a discussion which you will have to take at one point in time.

At this moment for us is clearly oil and gas, and it is oil and gas meaning upstream, so it takes the American definition, upstream, midstream, downstream.

And regarding communication question, I mean you already saw in Q1 that your profitability was very, very low, very weak then. So I am a little bit disappointed to learn now that you saw that fact already three months ago, and they didn’t give us any clue, yes.

I mean you said there was improvement in second quarter now. So well, you disappointed the market as we can clearly see.

Well the point is taken. It’s clear.

I mean it’s clear that we will not – we cannot show good figures here and we would of course certainly disappoint. On the other hand I mean we are disclosing in the first half the order intake figures which you saw in April.

And we do not normally disclose any other financials in that period regardless of whether we have strong January and weak May or just the opposite. So that’s why we stick to our calendar, and we disclose now the results for the first six months on that day.

Oliver in the back. And then we take some questions in the call.

Maybe to switch to a bit more positive elements here. I think looking at your Q2 pumps order intake which was I think very strong with 8.5% organic, basically very too strong comparables last year and the year before.

Can you maybe comment a little bit on the mix, because that includes obviously maintenance and services as well, so we are not maybe surprised again that this mix effect should impact your profitability, but also looking at your backlog going basically into the second half of this year, maybe also on the bigger projects, the profitability there. You have mentioned that you have been taking on some larger projects in Q2.

How is the profitability there? We have also seen some negative comments in the market, where basically companies disappointed saying larger projects come with lower profitability or higher project risk.

So what is there – what are sort of your measure is to ensure that actually these projects run out smoothly, and that the profitability to actually improve from here?

I think what we also mentioned is obviously that we need to put exactly that focus in delivering that all the backlog efficiently and the increase of building the backlog to now almost CHF2 billion is significant. I mean there was an increase of 11%.

And it’s coming basically out of the two divisions which we have also seen which is Pumps and Chemtech. Chemtech, one of the process technology side, that’s because of the – let’s say low backlog they will be able to do that along on a diligent basis.

And on the Pump side, it is again, it is two areas which we need to concentrate which is the midstream portion which impacts basically the North American facility of Portland and it is the Brazilian facility which is in Jundiaí in São Paulo. We have now included some measures to make sure that we have the capacity in Portland, and we’re sharing some capacity with other factories worldwide here as well, specifically in fact in the UK we’re transferring some of the pumps to make sure that this type of things happen.

On the mixed portion, we have seen a pick up on the service side. It is not yet there, as strong as we would like to see it, but we’ve seen an impact or let’s say a pickup in the different areas or from the service side, but that is clearly something which we’re still working on that let’s say this materializes the way how we want to see it also going forward.

There are all the measures in place. The focus is there.

And as I said, I also expect with a cross-selling initiative, that this will also start to yield a result not maybe in the first month, but going forward.

I would like to now have one or two questions from the call also considering the time, because we have a media conference at 11:00. So we should take the next question from the call please.

Yes, good morning. I just wanted to try and understand a little bit more around your deal [ph] criteria and the discipline with respect to what you are prepared to pay.

Obviously you’ve focused a lot on emphasizing the strategic nature of what you’re doing, which end markets you want to invest in, but I think that the performance in H1 stands from Cardo and Dowding & Mills, both of which were fairly sizable acquisitions. And I just want to understand what you’re using as criteria to define what you’re going to spend, and how you’re going to spend it?

And then second question, clearly services has been a big focus for you for sometime with the expectation that it is a more robust less cyclical business, and clearly showing in H1 and Q1 in particular, that it’s perhaps not as robust as you had expected. Can you please talk a little bit about what you’re doing with respect to trying to improve that if you like, because I understand from what you are saying that a lot of emphasis has been placed on the benefits in H2 of you being able to improve the service business, but that suggests it’s an execution issue and not a demand issue, because there is only a limited amount that you can do with respect to customer demand?

So I appreciate your thoughts on that. Thank you.

All right, let’s start with the service one and you are right let’s say we were a little bit surprised and maybe a couple of things came up at the same time, what we did on the service side specifically, and if I talk now about Turbo Services, we adjusted very, very quickly the capacity in those countries where we believe that the demand will not come up as quickly as we expected. Australia with the mining situation is one of those.

And that’s why we reacted. On the UK side, we are increasing our sales efforts to come back to the levels which we believe were prior to let’s say with the first month, and we have seen already some of the things coming back on that perspective.

Certain project business which was the comparison against previous year, there was specifically projects in Americas, that is restored in the comparison for Americas. So services in general, Turbo Services specifically is what driven now by a lower demand in the market, and we have adjusted the capacities to let’s say have our OpEx in line with what we believe is going to be going forward, so that we can grow there again, and this is something which happened very swiftly and rapidly.

On the Pump side, more differentiated I think that was more of the timing execution that was also mentioned by Jürgen in his presentation. So there we believe that this was – let’s say a cyclicality in the year, but there is demand from the customer perspective will come, and as I also said, we are seeing already those signs there.

In terms of our acquisitions power, and what we expect to spend, I think no change to what was communicated before. And now also I specifically mentioned that any decision on Metco was not driven by any of those considerations going forward.

Just to sort of pick back-up, sorry, on the Australia in particular in mining, what exactly are you seeing from your customers, where is the – I mean your products are – is this wastewater pumps, is it servicing compressors, what exactly is your exposure there and what are the customers saying?

Sorry, the comment to Australia was specifically related to generator and motors. It was the Dowding & Mills that you rightly mentioned before.

So those were this type of business which we were seeing in Australia.

Okay, thank you.

Next question from the call please.

Yes, good morning. I just wondered if you could just give me a bit more detail.

So, on the first half, if I take out the restructuring kind of CHF40 million EBIT shortfall, if you could just write that down kind of very broadly between, how much was under absorption, how much was mixed effect? And then secondly, sort of to follow on from that, your guidance implies that you’ll do about CHF30 million better in the second half.

Can you give us a feel for – under those same headings what you’d expect, where the better form comes from?

The split between under absorption and mixed effect, generally we do not disclose that in detail, but of course the mixed effect comes mainly from the service business and if we have – if you see that we lost 1.4% to sales in service and knowing that of course the margins there are higher, then you have quite a substantial impact coming from there. The underutilization as Klaus said, already was mainly in the configured – in the pumps business, the Configured Solutions business, and also in the Dowding & Mills business, but also there we do not provide details on the capacity utilization for our factories.

One more call from the call?

Yes, good morning gentlemen. This is Rizk Maidi from Barclays.

Most of my questions have been answered, but I still have couple. So firstly, just on the pricing environment, how did pricing developed in H1 given the lower volumes you’ve been experiencing especially in the project-driven businesses?

So I’m talking here about Pumps and Chemtech. And how does pricing look like in your backlog currently?

And the second question is on the M&A strategy. Now that the balance sheet is net cash, so plus CHF176 under potential divestments of Metco.

Are there any gaps in your portfolio that you see or areas that – I mean gaps in the portfolio?

Maybe I would start with answering the gap in the portfolio strategy. There are no eminent gaps in our portfolio.

I mean you know that let’s say we – if you look at oil and gas from the pumping perspective, we have quite a comprehensive offering in that regard. So there is no immediate – there are always adjacencies which could make sense regarding any type of strategy which you go in – either into the oil and gas, water, or power space.

So yes, we are obviously looking at a certain products which we would like to have, but there are no eminent gaps which I would say this is something which we need dramatically to either, you go to our customers with one or the other one. Regarding the pricing environments, it is a competitive environment, nevertheless.

And if you specifically talk about the project business, we have not seen a huge duration from that perspective. If we look at the overall, it’s more again a mixed story line with a drop from the service side which has impacted the percentage on a mixed type basis, but it is a competitive environment and as also said I think before this is where we are playing and this is a space in which we are in.

Okay, thanks.

Okay. With this, I see no further questions in the call.

We can always follow-up bilaterally of course, give me a call – give us a call and we’ll try to answer your questions. We would like to close the session for today.

Thanks a lot for your appearance and your patience and have a great day. Enjoy the beautiful weather here in Switzerland.

Thank you.