Sulzer AG (SUN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Sulzer's Q3 conference call. I am Alessandro, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Christoph Ladner, Head of Investor Relations. Please go ahead, sir.

Thank you, Alessandro. Good morning and welcome to Sulzer's Q3 Conference Call. Today with me is our CEO, Greg Poux-Guillaume; our CFO, Jill Lee. For this call, we have prepared a presentation, which you can find on our homepage. As always, I want to draw your attention on the safe harbor statement on Slide #2. This call may contain forward-looking statements containing risks and uncertainties. These 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 in the call. Having said that, I hand now over to Greg for the presentation. Thereafter, you have the opportunity to ask questions. Please, Greg.

Thanks, Christoph. Good morning, everybody. Today is Q3 results and it's order intake only, as always. So I'll do most of the talking, but we've tried to address in the presentation some other P&L and performance elements that could be helpful to you at a time of COVID, when things are a bit harder to project. And Jill Lee is with me, and we'll be happy to take your questions on anything you want afterwards. So let's get started. For the first 9 months of the year, our order intake was down 3.6% organically to CHF 2.6 billion. Foreign exchange had a negative impact of CHF 185 million year-to-date, and CHF 16 million in Q3, so ForEx continue to be very significantly negative for us because of the strong Swiss franc. But keep in mind, it's mostly translation because we're naturally hedged. We've got our operations that are a pretty good match for where our revenues are in terms of cost base. In our Pumps Equipment and Rotating Equipment Services divisions, project shifts and site access restrictions made July and August rather soft months. We think this was the bottom and both rebounded in September. We believe that Q4 is going to confirm this. In Chemtech, after trailing our strong 2019 performance in the first half of the year by about 12%, we had a flat Q3 year-on-year. We saw commercial activities picking up towards the end of Q3, and our funnel tells us that should continue. In Applicator Systems, the rebound that we saw in June and July picked up faster than anticipated, with August and September actually above 2019 levels, in all Applicator segments, adhesives, dental, beauty. And some of that was due to restocking. There was a little bit of an effect on market reopening. It's hard to differentiate what was restocking and what wasn't. But essentially, our end markets reopened, and we are well ahead of the recovery curves we presented to you in July for Applicator Systems. While the pandemic is still impacting our lives, all our sites are currently operating, although we have some limitations in India; we're probably operating at something like 85% of capacity in India. We are on track with our cost takeout programs. We said we'd squeeze our OpEx by CHF 60 million in 2020. We reported CHF 21 million in H1. At the end of September, we are at CHF 45 million. So we're well on our way to achieving our OpEx squeeze for the year. We're also on track with the structural cost takeout in our energy-related activities. Actually, we're probably a bit ahead of schedule on this. We expect CHF 70 million of recurring savings, as you know, in total, and the majority of that will be felt in 2021. Nonrecurring cost of around CHF 80 million related to the structural changes will be booked this year. Our free cash flow generation continues to be well above last year. We were ahead of last year by CHF 45 million after 6 months, and we're now ahead by more than CHF 100 million versus last year after 9 months. So we can expect that we'll be significantly above the full year free cash flow at the end of this year -- will be significantly above last year's full year free cash flow at the end of this year, I'm sorry. Finally, we closed the acquisition of Haselmeier at the end of the quarter. On October 1, it was closed, and I'll come to the strategically important acquisition later in the presentation. Let's go to the divisions. So Pumps Equipment on Slide 5. You see that our energy business that includes oil and gas and power was down 36% in Q3. We're not particularly worried about that. As you know, we had a very strong start to the year where we were well above the market, and I think we were something like 35% up in Q2 despite the fact that the market was 25% down. What's happening is that we're catching up with the market as the countries that performed really well for us in Q2, like Saudi Arabia, Brazil and China, also slowed down in energy spending. But part of the effect is also that we launched our cost-cutting early and that gives us the opportunity to remain very disciplined on pricing. What we're seeing is that we are increasing our margin on order intake by 80 basis points year-to-date. We favor quality over quantity as we have a high order backlog after this great H1 that I've just alluded to. And the restructuring, as I said, is ahead of plan. In industry, we were only slightly below last year's Q3. I think we were minus 2% versus Q3 last year. Water was up sequentially, but down 6% year-on-year on fewer desalination projects. The core municipal water waste markets continues to be solid. And as you know, that's what this business is about. I'm sure you also recall that we have these lumpy water infrastructure, mostly desalination orders that come in here and there. And it's -- it doesn't create an absorption issue for us because these are manufactured in the same factories as the energy pumps. It's more of an add-on. And because it's lumpy, sometimes it happens in a quarter, sometimes it happens in another quarter, and that moves the numbers around. But the main message is that water is strong and the core municipal water market continues to be solid. From a regional perspective, if we look at Pumps Equipment. In Q3, Europe, Middle East and Africa held up well at minus 3% year-on-year. Asia Pacific was down 11%, but China was up 18% and the Americas were down by 34%. Let's move to Rotating Equipment Services on Page 6. Our service orders were down 7.1% year-on-year in Q3, mostly on a soft July, but we have already seen a reacceleration in August and September. The division had a significant negative ForEx impact of CHF 22 million in Q3 and CHF 68 million year-to-date. The same is also true for the other divisions, as I mentioned. We also had a high baseline in Q3 in 2019. In Q3 '19, we booked larger gas turbine orders and that boosted the baseline, hence the unfavorable comparison. In Q3 this year, we also felt the impact of Hurricane Laura, which made landfall between Houston and New Orleans at the end of August. And that is actually where we have a lot of our service operations in the U.S. So that was an impact for us for a few days. But more importantly, continued site access restrictions driven by the pandemic shifted planned activities and outages to the right on the time axis. Some of that came back in September, so we're optimistic for the rest of the year. Some things will slip into 2021, but we still expect RES, Rotating Equipment Services, organically to be up for the full year despite the pandemic demonstrating once again the resilience of our model. If we look at the regions for RES, we saw organic growth year-to-date in Asia Pacific and the Americas and a flat development in Europe, Middle East and Africa. Let's move to Chemtech on Page 7. After a few difficult months, Q3 was flat organically year-on-year in Chemtech. The Tower Field Services business was still negative due to the continued site access restrictions. As its name indicates, this is -- these are service activities that happen on customer sites, so no site access means you shift the outages. But they'll come back. And the separation technology business was up with successes in the newly created bio-based and renewable technologies group. We've always had those activities, but we formed them into a group and we'll be following and probably disclosing those numbers in terms of activity development in bio-based and renewable technologies. That's a market that's currently buoyant, and I think this will continue. We were also driven by the chemical market, where our orders were up 6% in chemicals. Regionally, China continued to set the pace, but the rest of Asia is also coming back as well. The strong September orders and the pipeline visibility we have make us optimistic for the rest of the year. Also noteworthy, we closed a new financing round for a company called Worn Again, which is a textile recycling technology venture that we have in partnership with H&M. H&M, the fashion retailer and ourselves have together more than 50% control of that company. And it's a solvent-based technology to recycle textile into fibers that can be used for new textile again. It's very exciting. The technology is working well in the lab, and we are hedging towards a pilot plant with H&M. Let's move to Applicator Systems on Page 8. After the market stalled in April and May on lockdowns, as you recall, we've seen a progressive pickup every month since June, so every month has been up sequentially. August and September were actually above 2019 levels on continuing market reopenings and some restocking, as I previously mentioned. Overall, Q3 orders were more than twice the orders of Q2 2020 and only 2.9% below Q3 2019. So August and September were higher than '19, July was still below. And overall, only 2.9% below Q3 2019. Beauty and Adhesives were already back to 2019 levels in Q3. Dental will take a little bit longer, although in Q3, it was at 90% of the 2019 level. So all very positive signs for the rebound and reacceleration of the Applicator Systems markets and therefore, our activities. In Q3, we acquired Haselmeier to build the health care and medical device leg of APS. As I will detail on the next slide, we now have, including our existing Medmix business, a CHF 50 million revenue medical device platform that has the potential to more than double over the next 4 to 5 years. So let's get into that briefly before we conclude this presentation. On Slide 10, you see the reminder of what we said we do in 2019. We said that we were in applicators and adhesives. We were in dental. We were in beauty. And we wanted to build a leading market position in medical. So medical being mostly drug device delivery products. It's mostly pharma-oriented, but not only. We also do things like tissue repair devices and bone repair applicator devices. What we have in Applicator Systems as a model, once again, so for those of you who are less familiar with that business is that APS addresses distinct technology-intensive niche markets through a shared industrial base. So all APS segments develop handheld, plastic injection molded applicators for sensitive applications. Each segment is independent in its product development, sales and marketing. And scale is created through the mutualization of intellectual property and industrial resources, shared factories, joint procurement and the likes. That's the APS model, and it's worked quite well to date. If I go to the next page, no page number, but that's Page 11. Haselmeier is, we believe, in a sweet spot for growth. It's a very strong company in injector pens for hormonal treatments like fertility, growth disorders and osteoporosis. The market for those treatments is driven by long-term mega trends such as population growth and aging. Add to that the fact that more and more drugs like biologics and biosimilars have complex active substances that need to be injected. Together with the trend for self-medication, this drives the demand for pen and auto injectors. We see that market growing something like 5% to 10% per year and more actually in some segments. If we have specifically a look at Haselmeier on the next page, Page 12, this is a short spotlight on D-Flex, which is the new Haselmeier product platform -- product pen platform. So D-Flex is something that was launched recently. It's gotten good traction commercially in the market. And I'll focus on what makes D-Flex unique. Orphan drugs for rare diseases necessitate small- to mid-sized volume injectors, calling for flexible platforms. And Haselmeier has developed this platform with D-Flex. The IP-protected D-Flex pen platform works for fixed or variable dosage and allows manual multiple injections with a single pen. It can be easily adapted to different requirements and allows connectivity and smart data management. So the flexibility of the D-Flex platform does not only offer great opportunities to develop customized solutions for clinical studies but will also help patients track injections and share data with their doctors to increase efficiency of the therapy. As you see, this is squarely in line with what's needed in today's environment where people are potentially less mobile, have less access to their doctor and will increasingly rely on self-medication or at least self-injections. So on the next page, Page 13, the ambition for Haselmeier, where do we see this business going? Well, it brings certain things to us like IP in pen drug delivery systems, a clean room, expertise and environments and a growing number of pharma customers. And what we bring as applicator systems to Haselmeier is this industrial base, which we can mutualize and high-volume in injection molding, which can also be used as a supplier to Haselmeier and also financial firepower for growth. In the past, Haselmeier was a family-owned business, and it was capital restricted. It had a tendency to limit its volumes and global development because it was constrained in what it can invest at a capital level. We will expand the business internationally and will complement Haselmeier with our scale and our expertise in high-volume, high-precision injection molding and assembly. As I said, Haselmeier brings us this IP, which is unique because not many companies in this space have their own IP, a lot of companies that you know are actually using the pharma companies' IPs -- IP and, therefore, are more dependent. And Haselmeier is involved in a fast-growing number of pharma customers' projects. So what's our ambition? Our ambition for Haselmeier is to more than double the size of the business from EUR 35 million in 2019 to about EUR 90 million in 2025, and we'll do that while we take the EBITDA margin from 15% to 30%. So lots of exciting prospects for Haselmeier. Now let's go to the summary and the outlook to wrap up this presentation. Our orders bottomed over the summer and reaccelerated in September, and we expect that recovery to continue in Q4. Applicator Systems has recovered faster than anticipated, with August and September already above last year, and the acquisition of Haselmeier adds an important new segment to Applicator Systems. So all positive in terms of developments and boding well for the rest of the year. So what do we think about the rest of the year? We expect orders to be down 3% to 4% organically on a continued rebound in Q4. There could be some impact to lockdowns if they accelerate in businesses like beauty, for example, as beauty retailers shut down, but as you saw from what was announced over the last few days, there's a partial lockdown in Germany, but the retailers remain open. There's a partial lockdown in France, but some retailers are closed, some retailers remain open. It's a mixed bag of things. But overall, we believe that order intake should be down 3% to 4% organically for the full year. We believe that sales should be down for the full year by around 5%. Most of our sales for the rest of the year are already in our backlog, so we have pretty high visibility on this. And therefore, we have high visibility on our operational profitability, which we expect to be near the middle of the 8.5% to 9% range that we previously indicated to you. For 2021, we continue to expect our operational profitability to rebound towards the pre-pandemic levels that we had. And on those words, I'll -- Jill and I will now take your questions.

[Operator Instructions] The first question comes from Patrick Rafaisz from UBS.

A few questions, please. The first one would be around the order trends going into October, and what you're expecting for November and December, do you think that this will be rather flat as implied by your guidance? Or will there be maybe more volatility in the monthly order intake? Then the second question would be around maybe even not just for this year but more midterm organic growth expectations for the Pumps business. If we factor in the cost takeout for energy-related activities, your ability to cherrypick orders, does that mean that we will see a period where you will generate margins at the expense of organic growth for that business? And the last question is on free cash flow. Obviously very strong performance year-to-date here. And you did say that you expect to end the year significantly up versus last year. But what's your -- what's the take on Q4 here with the cash collections, et cetera? Do you think Q4 will again be ahead of last year? Or will there be maybe a normalization?

Okay. Thanks, Patrick. I'll take the first 2 questions, and Jill will answer the free cash flow question. So the trend in orders, when we project the last few months of the year, based on what we saw at the end of the summer and in September and in October, we probably would have had a tendency to be a bit more bullish, but we're straddling defense in a way. We -- the news over the last few days in terms of increased lockdowns made us think about how we could dampen that a little bit to be -- to introduce also some element of caution. So where we came out is we came out with something that says essentially flat, as you said, in Q4. But the momentum that we have up till now has been better than that. What's really hard to predict is the impact of increased lockdowns. As you recall from Q2, the lockdowns didn't have a whole lot of impact on our -- on most of our businesses because these are essential services/infrastructure businesses, water, energy, the industry spend continues despite the lockdowns because factories are still operating. But in Q2, we had an impact on dental because dentists were closed and on beauty because the beauty retailers were closed. Well, it doesn't look like the dentists are going to close this time around. I think this is something that will continue in all countries. It looks like there might be some impact on retail, certainly in France. It sounds like there's going to be some impact on retail for at least 2 weeks and maybe a month. So it was just trying to find the balance in all of that so that we wouldn't betray the momentum that we're seeing, but at the same time, we wouldn't come across as delusional and not in tune with what's happening in the world. So it's not a great answer, but that's the best I can explain at this point. If I look at your second question, your -- what's the midterm guidance on PE? And will we sacrifice growth for margin? At this point, we are sacrificing growth for margin. We could have done better in Q3, but we chose to stick to our guns in terms of pricing to make sure that we continue building a backlog at a good margin level. It's important because we -- I think we've made a lot of stride in that business in terms of improving the operational execution of that business and improving the commercial discipline of that business. But we've also resized the business, and we're ahead of the market in terms of resizing the business. So if we don't use that opportunity to make sure that we maintain the right level of backlog, I think it would be a missed opportunity. Now if you try to project that further out, despite the fact that we're closing factories and we're taking theoretical capacity out, we continue to debottleneck our business. And I'm very comfortable that if the market rebounded, we could rebound our volumes also without rebuilding factories or without adding machines or without capital investment essentially. So what we're really doing is we're absorbing the downward force of the market currently by aggressive and anticipated cost out, and we're building the operational leverage that will benefit us when the market rebounds. And we do think that the market and energy will rebound probably towards the later part of 2021. So that's the thinking on that. Now the final point on this is that keep in mind that in pumps, our energy business is dilutive. And therefore, it really is a question of how do we continue to maintain the right level of business in this environment. But what I believe we'll see is that we'll see that Pumps Equipment overall will continue to improve its margin overall as a business. So I expect that despite the downward force in Pumps Equipment, that you will see because of the cost takeout and therefore, that mitigation that you'll see the margin of Pumps Equipment continuing to go up. We'll talk some more about that next year when the clouds dissipate, and we are able to give you a little bit more visibility. But the short answer is that the improvement story in Pumps Equipment continues even during the pandemic and beyond. Jill, free cash flow?

Yes. So on the free cash flow, we have very strong free cash flow, taking payoffs from our very tight control and management of the net working capital. Already last year, if you recall, we have taken activities to improve on our inventory management, on our collections and supply chain. And what we see this year is we are able to continue to progress on that front. And that's the reason why we have seen 2 development. One, basically, our networking capital improving. And at the same time, it is a smoother curve than we had in the past. So all in all, what we have seen is a continuous improvement of free cash flow quarter-on-quarter. If you see that in Q1, we had CHF 15 million plus against previous year Q. H1, we had CHF 45 million, and now we are more than CHF 100 million. We certainly expect the full year, as mentioned, to be significantly better than previous year. But Q4 last year, we had a stronger spike. Now this is something we will continue to have the improvement, but it may not be the same magnitude as we have in Q3, depending on the conditions of COVID-19 too. And that's why in all full year, we will continue to have the uplift versus previous year. I hope that answers the question.

The next question comes from Armin Rechberger from ZKB.

I'm trying to find out now which question I still have. Yes, first, I'm scared a little bit. You generate 40% in Europe, 34% in the Americas. You sound very optimistic -- quite optimistic about Q4. But I mean, the COVID-19 cases are exploding in Europe and in America. You expressed that concern as well, but I don't see -- I can't explain your optimistic views. I mean November, December, I'm rather pessimistic, but that's my view. Maybe you can shed some points here again. And then some minor questions, maybe restructuring. You mentioned in your presentation, a closure of PE energy factory in Europe, which factory is that? You were mentioning you are booking all the CHF 80 million for the restructuring costs in 2020, nothing in 2021, you shift nothing over to '21, I mean. Then yes, this bio story in Chemtech, how big is it? I assume it's very minor till now. That's all for the moment.

Okay. Thanks, Armin. I'll take them backwards. The -- if I take bio renewable or recyclable technologies in Chemtech, so it's a combination of things. It's biopolymers, like plastics from polylactic acid, which is essentially sugar or starch, in which we're a market leader and plants are being built every year. And I think about 80% of the plants in the world have Sulzer's technology. But it also counts things like our recycling technology that we are currently implementing for ArcelorMittal on one of their steel plants where we take carbon monoxide and we transform it into biofuel. The work that we're doing with Quantafuel in the Nordics, where we take plastics and we transform them into biodiesels. So there's quite a few things that are actually commercial and generating business. And there are a few technologies that are in the late stages of development like our PEF technology for bioplastics or the developments that we have for textile. So it's a combination of commercial things and things that will be commercial in the next few years. It's actually quite exciting. And if you have a look at what it means for Chemtech overall, it's a bit early to give you numbers, but it's close to CHF 50 million of business when you sum everything up. So it's not there yet, but it's in that ballpark. So it's not negligible in the sense that I'm not one of these guys talking about hydrogen, that doesn't have a percent of its revenue in hydrogen. This is actually real stuff that exists, real technology that's sold. We just haven't done a very good job of communicating about that because you guys are still of the belief that Chemtech is a refining business, which it isn't. It's kind of like 20% refining and 70% chemicals and 10% everything else. And in that 70% chemicals, historically, we also count the biorenewable green activities. And what we'll probably start doing is start splitting that out because I think we do a disservice to that business. I don't think the market understands how exciting Chemtech is. If I take your restructuring questions, the factory that we're closing in PE in Europe is in Belgium. It's -- it was part of the Ensival Moret acquisition, but it's redundant with other factories that we have. We had the volume that justified that factory. We no longer have the volume that justifies that factory. And therefore, we're shifting the volume to other existing Sulzer factories. But we're also making significant cuts to our factories in Brazil and the U.S. Really, these adjustments are happening around the world. And most of the restructuring provisions will be taken in 2020. I wouldn't swear on my life that there won't be a few million of tail end in 2021 because of -- you never know how these restructuring programs progress, either the opportunity to do a little bit more in something that's already announced or something that ends up costing a little bit more than you planned through social discussions. But most of it should be in 2020, and I don't expect 2021 to be significant from that perspective. And then I'll finish with your optimism question. I mean it's hard to be an optimist in this world, and I struggle with that too. What I tried to explain to you is if you look at what we're saying about -- if you look at our guidance, forget the order intake for 2020 for a second. Sales for 2020, there's 2 months left in the year. We are a backlog business. Most of our sales are already in our backlog. I don't think the pandemic will lead to customers asking us not to deliver products because most of what we do, as I said, is essential and infrastructure related. So if we do deliver the sales and we don't screw up the execution, which we have no intention of doing, we'll deliver the profitability. And if I look into next year, CHF 70 million of cost takeout, even with lower volumes, which I mean volumes are under pressure, you see it in the market. But even with lower volumes, we believe that we can deliver the type of profitability that we are alluding to. And you'll notice that we don't give volume guidance for the time being for next year. But we do say that whatever happens to the volume within reason, obviously, we think that we're able to mitigate that through the cost actions that we have. So where does that leave us? That leaves us with a little bit of uncertainty on the order intake for 2020 because there's 2 months left to go and lockdowns can be more or less harsh. They can be more or less all encompassing. From what we've seen to date, it doesn't seem that there'll be a lockdown in the U.S. before the end of the year. I don't -- I mean I'm not a politician, but a politician that will lock down the U.S. during an election is probably an ex-politician pretty soon. It doesn't seem like -- it seems like many countries in Europe are taking targeted measures. France is probably the extreme case. France is going into something more significant. But once again, if you look at what's -- what a lockdown in like France means for Sulzer? And I'll take that as an example. Factories are still open. Companies are still running. Essentially they're closing restaurants, they're are closing retailers but not food retailers. The medical services remain open. So parts of our business that should be impacted significantly by that. As I said, I can think of beauty, for example, I can think a little bit of dental, if people are scared to go out again. But it's hard to predict these things. We're not looking very far out, and we think that with the information that we have, we -- and the momentum that we've had until now, we're actually a bit conservative based on the momentum that we have. But we might be a little bit optimistic if you read yesterday's press. So we'll see where it lands. But there's 2 months to go, and it's just a way to help you guys understand, once again, that Sulzer is a resilient model. The view of Sulzer, which is highly cyclical, the bottom drops out whenever anything happens in oil and gas. I think that's a very dated view, and that's what we're trying to demonstrate this year. And hopefully, that we've demonstrated by our performance up to date. Did I answer your question, Armin?

Yes, very much so. I have 2 more.

Yes, go ahead, go ahead.

Okay. Pumps Equipment. You mentioned a weak August. You were already explaining the situation like now in September and October, but now specific on Pumps Equipment, as I was a little bit disappointed with the Q3. What do you see in September, October there? And then you mentioned also significant FX impact, where -- which currency, most probably Brazil maybe? I don't know.

So Jill will take the ForEx question. It's everybody's favorite financial question in our team because ForEx is such an impact. When you report in Swiss francs, your life is complicated these days. But once again, it doesn't really impact our margin because we're naturally hedged. Your question on Pumps Equipment, if you go to -- we like the specialist presentations that don't have page numbers, but it's Page 5. If you go to Page 5, which is the Pumps Equipment slide, you see that we gave you the order intake for September. So we gave you the monthly order intake, which I -- hopefully, you guys find that helpful. It's more than we usually do, and I don't think Christoph is happy with me because it's -- you guys will ask me questions about this stuff for ever. But it's a way to show you what the momentum of the rebound is. And you see that the rebound in September was pretty good. We were at a roughly CHF 100 million for the month in our Pumps Equipment business. And you also see that water and industries, if you take them together, have held up quite well. A little bit of weakness in the industry in August, but the rebound in September. And really, the story of the drop in PE is the managed drop in energy. And once again, we could grab more volume. We could make those numbers look better. But it'll be at the expense of the quality of our backlog, and we don't need to because we are doing the cost takeout and building the operational leverage for when the volume comes back towards the end of next year. So that's the thinking on that. It's -- we -- once again, I understand your comment that it might be seen as a little bit disappointing. But I think that it's -- we have to accept collectively that the energy market will be depressed for a while. We took those actions very early at a time when orders were still booming, and I think it raised some questions as to why we were doing it. And this is the reason why so that we don't have to take business that we think is bad business for Sulzer.

How was October? Or will be October? What do you think, rather like August or rather like September?

I certainly hope that it's rather like September. I don't have the latest numbers. I haven't chased them, but I haven't heard anything from the guys. You can imagine that I'm harassing people around the company, but I haven't heard anything that leads me to believe that it's not going to be in line with what we saw in September. Jill, do you want to take the ForEx question?

Yes. So in general, on the ForEx, I mean, again, to reinforce what Greg says, it's pretty much translation that you see. And we have, say, 1/3 of our exchange in U.S. dollars, about 20% euro. And then you have probably like 15% of the British pound. And we have the rest, like maybe 10% in China, and you have another close to that in Brazil and the rest of the world. So truly, if you look at that, it's just because we have a very strong Swiss franc that's moving in relation to the rest of the currency, but it's not Brazilian. Your point was, is it particularly exposed to Brazil? It's not because it's actually a mix of different currencies. But in general, the Swiss franc has strengthened across most of the currencies.

So Jill is not saying that we intend to change our reporting currency to the Brazilian real. It -- and make our numbers look really good, but we'll stick with the Swiss franc, but bear with us on the ForEx. It doesn't hurt the profitability. I mean it has a marginal impact on the profitability. It mostly makes us have to focus on the ForEx adjusted numbers because the nominal numbers don't mean a whole lot, given the strength of the Swiss franc. Armin anything else or...

No, for the moment, I'm fine.

The next question comes from Alessandro Foletti from Octavian.

Yes. I have 2 of them. Greg, one on oil and gas that I know you don't like so much, but the next one will be something you may appreciate more. So starting with on APS. So maybe starting with the oil and gas. The Chemtech business, now you said, obviously, that there are still delays in the Tower Field Services. I remember in Q1, I think, or Q2, you said that you had these delays where clients were sort of booking the slots -- maintenance slots into September. Did that happen? Or did they wrongly speculate and now they have to postpone again?

We got a little bit more business in the U.S. It picked up a bit in the U.S. in Tower Field Services. I think we had a decent summer, but there's still a shifting effect. It's -- it continues to be difficult for customers to get comfortable with the idea of bringing multiple 100 people into their site for a short period of time for an outage. When they can avoid it, they have a tendency to try to avoid it. So it came back a little bit. I mean Tower Field Services is not doing badly, but it's -- in a normal year, it'd certainly be better.

But I was trying to understand a little bit your sort of -- I'm not sure if it is optimism again, which is a good thing. But your outlook that you said energy markets should rebound by the end of 2021. I wonder how long can these people be it on the oil side or on the refinery side, postpone service, right, is it related to that? And then, hence, is not only a question for Chemtech, but maybe also for Pumps and Rotating Equipment Services that you may have, at some point, an avalanche of service that you have to do. Are you already thinking about that or not?

This is like the one avalanche as a skier that I'd be excited about. But Chemtech is really being -- is really a business that's driven by chemical spending, more than anything, oil and gas related. So it's really chemical plants. And if you see the driver of what's happening in Chemtech is, China, in particular, but also Asia more widely is making a big play on chemical capacity. And therefore, there's investments happening and that's what's driving the business. The Tower Field Services stuff is a bit anecdotal in the sense that it's probably more geared towards -- it's more impacted by the U.S. refinery world, and that's the part that's kind of shifting. And I think you're correct, you can only delay these outages if only for insurance reasons for so long. So there's a moment where there will be a catch-up effect. But that catch-up effect, I think at this point, I believe, will not happen before 2021. And I don't know exactly when in 2021. The service question in general, I mean, our service business, if you take a look at Rotating Equipment Services, our service business continues to do quite well. I think without the pandemic, this would have been a year where we would have been -- we would have had growth. I mean look at the half year, I think we were at plus 6% organic for the service business. We'll still end up positive organic for the year for service. But clearly, site access is an issue, that has slowed down, and that has -- that is impacting our ability to grow faster than what we're doing today. And as -- I agree with you, I do think that's going to come back at one point. I don't know if it'll come back as an avalanche because what I see is that countries seem to be staggered. One country comes out of the lockdown, another one goes into a lockdown. So not everybody will reactivate their spending at the same time. But I do think some of that stuff will come back in 2021. And then the overall comment on oil and gas. Oil and gas, new projects in oil and gas is about 14%, 15% of Sulzer. So it's not very large. And you're right. I'm often a little bit defensive when I'm asked the question because our share price tells me that people still think Sulzer's oil and gas because there's really no other way to explain where we're trading at. But if I take the oil and gas question, you look at the capacity that's been taken offline. It's very significant capacity. And I think the U.S. shale patch will be impaired in its ability to rebound because it has been financed by the financial markets, and I think there's a lot less appetite for these plays today. So I think there's a moment where there will be a need for spending around the world to address a rebounding demand. We were already seeing it in this later part of the year that might be dampened a little bit by what's happening with lockdowns. But I do think there's a moment where you'll see oil prices moving up simply because supply will still be depressed, but demand will have recovered to the point where it makes sense to invest again. That will be when we get the operational leverage on our Pumps Equipment business. So that's kind of the same thing overall. Rambling question -- rambling answer to a good question. Do you have a follow-up? Or did I address your question?

No, no. That's fine. On the Applicator Systems business, when I look at the Haselmeier acquisition, it seems to me now that it's not -- let's put it differently, sorry, when you started to do that, it used to have some sort of technological connection with Chemtech or with mixing with technology that you said you already mastered, so in the adhesives, in the dental. Medical -- beauty as well, but medical, in particular also, Haselmeier particularly seems to me kind of outside that.

Yes, you're right.

So this broadens up the field to the whole industry. So can you lay out now what will be the strategy there?

Yes. You're totally correct, Alessandro. A long time ago, Applicator Systems started as a development that came out of Chemtech. And if you look at the Adhesives business, it still had something to do with the knowledge from Chemtech. But that's -- these businesses have developed. And today, Applicator Systems is really self-sufficient. It doesn't -- Applicator Systems doesn't really benefit from being part of Sulzer apart from having the balance sheet of Sulzer for acquisitions. So what we've tried to do is we've tried to build 4 solid legs in Applicator Systems, dental, beauty, adhesives and now this medical leg, which is essentially pharma, drug delivery, medical, whatever you want to call it. And we believe that with those 4 legs, Applicator Systems is a pretty solid business. I mean ForEx has moved around quite a lot, but if you take the 2019 numbers and you added Haselmeier, I mean essentially -- it's essentially, what, it's a CHF 500 million business. Now you got to adjust it for whatever, 8% ForEx impact we've had since. But it's a sizable business that is self-contained in terms of the technology knowledge that it has. And the technology knowledge in all 4 of the segments is related to applying fluids in the sensitive space in a repeatable manner. So whether it's a drug or whether it's some sort of active component for dental or whether it's an adhesive to make the iPhones. It's all the same skill set and industrially, it's very similar. So I think it leads to the question, not so much of is that too much of a diversification away from Sulzer? You really should have a look at Applicator Systems as a business of its own because as -- you've asked me the question before, and I think I've already told you, I believe Applicator Systems is a stand-alone business in the medium term. In the long tradition of Sulzer, which is we pioneer stuff, we developed these businesses, we reach a level of maturity or a level at which these businesses are able to function on their own. And if there is no value to shareholders to these businesses being inside Sulzer, we're quite happy spinning them off to shareholders. So I think this is probably what you're going to see down the road. You'll see -- you'll probably be making comparisons between Haselmeier and Ypsomed or Haselmeier and Nordson in the U.S. rather than me having discussions about Haselmeier and our fluid control business -- I'm sorry, I said Haselmeier, I meant Applicator Systems. If you have comparisons between Applicator Systems and Nordson, Nordson in the U.S. is a very similar business to Applicator Systems. It's a multisegment business along the same logic. Ypsomed, if you look at what we're doing in Applicator Systems in terms of the medical part and the dental part, it's quite similar in terms of the business type. So I think these are the peers down the road. And probably, this is a business that will be outside of Sulzer sometime in the future. I don't want you guys to start the countdown because it's a year where we still have a lot of things to do, and these things have to be well thought out. But it doesn't -- well, the logic of keeping Applicator Systems long-term in Sulzer is not very strong logic. Because once again, the comment that you made, it doesn't benefit from the rest of Sulzer, but also, it be trading at a very different multiple. I need to shorten my answers because I kind of said the same thing twice. But anyway, hopefully, I covered everything, maybe overcovered.

As of right now, this was the last question. I would like to turn the conference back over to Sulzer. Please go ahead.

Okay. Well, thank you very much everybody for taking part. We tried to bring more substance than we usually do to the Q3 presentation, so you'd have more to chew on. We've done well as a business for the first 9 months of the year. I believe that we've demonstrated resilience that should really lead investors to rethink who our peers are and maybe take us out of that highly cyclical oil and gas bucket, where we still seem to linger with some investors, at least if I believe our share price. So that resilience is paying off, will continue to pay off. We certainly see the clouds on the horizon in terms of new lockdowns in Europe, but we also try to bring you a balanced view of where we think the business is going. And we look forward to talking to you guys again for the full year results. Thank you again.

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