Sulzer AG (SUN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Sulzer Full Year Results 2021 Conference Call and Live Webcast. I'm Sacha, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Christoph Ladner, Head of Investor Relations. Please go ahead.

Thank you, Sacha, and good morning, everyone, and welcome to Sulzer's Full Year 2021 Results Conference Call. Today with me is our CEO, Grég Poux-Guillaume; our CEO Designate; Frédéric Lalanne; and our CFO, Jill Lee. For this call, we have prepared a presentation, which you can find on our homepage. [Operator Instructions] And as always, I want to draw your attention on the safe harbor statement on Slide #2. The call may contain forward-looking statements, contain 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 quarter. Having said that, it's now my pleasure to hand over to Grég for the presentation.

Thanks, Christoph. Good morning, everyone. 2021 was a successful and eventful year for Sulzer. We beat our financial targets, excluding Applicator Systems, which we spun off, orders were up 3.6%. Sales were up 6%. And our operational profitability for operational EBITA margin increased to 9.3%. In addition, our free cash flow was strong again at CHF 211 million or 6.7% of sales. We refocused the company on Flow by spinning off the Applicator Systems division as a separately traded company named medmix. With the renewed focus and the changed scope, we also renamed our divisions. Pumps Equipment became Flow Equipment. Rotating Equipment Services became just services. I'll give you more details on the next slide. We acquired Nordic Water at the beginning of the year, increasing our exposure to water treatment, be it waste or clean water. With this acquisition, water becomes the largest unit in our Flow Equipment division. And we renewed the team. This is my last day as CEO of Sulzer after fascinating and enjoyable 6 years. My successor, Frédéric Lalanne, is sitting next to me, and he will cover anything forward-looking in this presentation. And we'll also take your questions, as will I and Jill. Now Frédéric, as you know, ran the Flow Equipment division for the last 3 years, and he knows the business inside and out. We worked together for over a dozen years in 3 different companies. He's a strong leader, and I have complete confidence in him. Today, we also announced that Jill Lee, our CFO, has started the clock on her retirement later in 2022. Jill has been our CFO for the last 4 years and a Board member for 6 years before that, and she was the Chair of the Audit Committee. So she has a long and distinguished service at Sulzer. She's been instrumental in everything we have done. And we -- Jill and I are not only business partners, we're also great friends. Sulzer and I have been lucky to have her. And we're only giving her back to Singapore where she plans to move back very reluctantly. Jill will also be succeeded by an internal candidate, Thomas Zickler, currently our Head of Group Treasury. This will happen later this year after a seamless handover. So you'll still get to see Jill at the H1 results presentation. Finally, the Board proposes a dividend of CHF 3.50 a share. This compares to CHF 4 last year, but on a small scope. As you know, we spun off Applicator Systems, which is now called medmix. And medmix stated in its prospectus that it will pay a dividend of no less than CHF 0.50. I know the Chairman quite well, and he can confirm that. So therefore, for people that are still shareholders on both sides, it's the same last year, CHF 4, but CHF 3.50 by Sulzer and no less than CHF 0.50 by medmix. On to the next slide, Slide 5. As previously explained, we renamed 2 of the 3 divisions after the split, not only to reflect the change of scope, but also to show our new ambitions. Pumps Equipment is now Flow Equipment as it offers much more than pumps. We also sell compressors, grinders, filters, agitators and digital solutions. In water, for example, we're moving from being a pump supplier to being a solution provider for waste and clean water applications. Rotating Equipment Services is now Services, just Services. Here, we are a full service provider that uses digital and additive manufacturing to maximize the lifetime of our customers' equipment. We also increasingly service equipment that does not rotate. The name of our third division, Chemtech, remains unchanged. Although there's a quick shift towards the renewable businesses, which includes applications for biopolymers, recycling and carbon capture, and which is already 14% of Chemtech, up from 8% last year. Turning to Slide 6. Our regional order distribution has not changed significantly with the split. We continue to have a very balanced regional revenue base. Post split, we continue to be half aftermarket, half new equipment. Splitting the new equipment, you see that sales of new equipment to the water market are now as large as those to oil and gas. And if I take oil and gas out of the 12%, 8% is new equipment for Flow Equipment and 4% is a new equipment sold by Chemtech. All other industries, including chemicals or pulp and paper, are in the other segments. Now let's turn to our Flow Equipment division on Slide 7. Orders in 2021 increased by 1.8% adjusted for ForEx and declined by 3.9% organic. While Water was up 11% organically and Industry was up 7% organically, Energy was down by 23% on soft markets and continued selectivity. In Q4, we saw a significant rebound in Energy, while Water and Industry continued to grow. This latest development makes us optimistic about 2022. Sales increased by 7% adjusted for ForEx and 2% organic. Again, Water and Industry were both up 7% organically, and Energy was down 5%. Continued challenges in logistics caused delays in projects, mainly on our customer side and resulted in lower revenue on our side. The higher volumes as well as strict cost management and the positive impact of our energy resizing helped drive margins up by 160 basis points to 5.9%, despite increased logistics and raw material costs. On Slide 8, you see what I mean when I mentioned becoming a solution provider rather than an equipment supplier. But that's an example where we helped the customer in this case, Energie Fabriek West in the Netherlands to optimize their processes so they can move forward on their path to become energy and carbon neutral by 2030. The project aimed to maximize biogas production from wastewater sludge. Sulzer supplied equipment such as pumps, agitators, turbo compressor and others and its extensive knowhow to that project. Now let's turn to Services on Slide 9. In 2021, orders and sales both started growing again after 2020 year where they were both stable. Growth in 2021 was driven by Europe, Middle East and Africa and the Americas, whereas Asia Pacific was negative due to continued lockdowns in parts of that region. For the year, orders were up 2% and sales up 2.7%. In Q4, orders grew by 13% after growing 10% in Q3, which tells you that momentum is strong. In the last quarter, Asia Pacific was only slightly negative, with significant uplift to come when pandemic-driven site access restrictions in Asia Pacific are lifted. Operational profitability increased by 30 basis points to 14.2%. Our local presence limits exposure to logistics bottlenecks. On Slide 10, you'll find an example of some of the things that we do in Services besides just servicing around pumps. This is an example of a refurbishment of a generator. It's a very large generator. It's quite technical. It involves a rewinding. It involves a number of refurbishments and improvements. And what's different about Sulzer is that we're capable of doing these complicated jobs on site. I mean this is a massive piece of equipment that doesn't travel very well. OEMs have a tendency to say, let's cut the roof, get a crane and a massive truck. We do these things on site. We get you up back and running quicker, cheaper and a lot more efficiently, both from a cost perspective but also from a sustainability perspective. If I move to Page 11, Chemtech. The renewables businesses within Chemtech was one of the main drivers of order growth in 2021. The segment, which includes solutions for biopolymers, recycling and carbon capture, almost doubled in 2021 and is now 14% of overall Chemtech orders. Tendering in this business remains very active, and our renewables pipeline continues to increase. Also very successful but smaller is Chemtech's Water business, which is based on our dissolved air flotation technology. It's used for separation and industrial water applications. Overall, orders in 2021 in Chemtech were up 9% and sales increased by 8%. Q4 was a bit slower due to the high base in the previous year. Despite these challenges -- I'm sorry, logistics were and remain a challenge, mostly impacting revenue recognition. Material cost inflation is manageable, as it has been in all our businesses. Despite these challenges, Chemtech's operational profitability increased by 40 basis points to 10%. On Slide 2 (sic) [ 12 ], we remind you that most of the world's bioplastics polylactic acid plants run on Sulzer technology. Here's one of the latest biopolymer projects that we won. Sulzer will deliver equipment and knowhow to NatureWorks newest biopolymer manufacturing facility in Thailand. The new facility should deliver 75,000 tonnes of biopolymers annually. And Sulzer will design and supply the life tide purification, the polymerization and the devolatilization, all of these are critical steps to the PLA process. And Sulzer is by very far the market leader in those. And now over to Jill for the financials. Jill?

Well, thank you, Grég. Thank you so much for your kind words. Good morning, everyone, and welcome as well from my side. Let's begin with the overview on Slide 14. I'd like to point out that we show here only the continuing business. The APS spinoff was completed on September 20. And since then, we report APS's discontinued business in our income statement. While we did not adjust the prior year figures in our balance sheet and cash flow statements, you can see the information relating to the impact from the discontinued business in the notes of our annual report. For the full year 2021, our orders were up 3.6% adjusted for FX and 0.9% organic. In Q4, orders were up 16% FX adjusted and 13% organic, mainly driven by Flow Equipment and Services. Our order backlog has further climbed to CHF 1.724 billion, which will benefit sales going into 2022. Sales were up 6% FX adjusted and 3.5% organic, with all divisions contributing to growth. Although our divisions encountered supply chain and logistic challenges, operational profitability on group level was up 70 basis points, rising to 9.3%. This is a record for the company in its new scope, with all divisions hitting new heights in operational profitability. EBIT was also up significantly as we had less restructuring and other one-off costs compared to the year before. Our EBIT margin, therefore, increased from 4.5% to 7%. I'm also really pleased to report once again a strong free cash flow of CHF 211 million, which corresponds to 6.7% of sales. Now you might wonder about the CHF 1.4 billion of net income shown in the annual report. Well, please don't be confused and focus on the net income from continuing operations. The spin-off of medmix led to a gain on net assets recognized of CHF 1.3 billion, which shows up in our reported net income figure, including discontinued operations. It's presented this way in line with IFRS reporting requirements. Let's move on to the next slide, which shows operational profit bridge. Main positive drivers of margin expansion have been higher volumes and the CHF 14 million of structural savings from the resizing actions that we had taken on our Energy business. Margin and mix did not have a significant impact, but it's overall net positive. On the negative side was a partial reversal of the CHF 59 million of OpEx squeeze that we had done in 2020 during the pandemic. OpEx squeeze impacts like vacation leave consumption, travel stop and delayed replacement hiring are gradually normalized in varying degrees, resulting in a partial reversal impact in this year of CHF 41 million. The CHF 6 million of others include higher costs for supply chain and logistics. Acquisitions contributed a positive CHF 8 million impact and FX added another CHF 3 million. So all in all, our operational profitability increased by 70 basis points, reaching a record level of 9.3% for our new business group. Turning to Slide 16, showing the steps from operational profit to EBIT. I think it's pretty straightforward, not too much to comment. Amortization of CHF 50 million were slightly up from the CHF 47 million last year, including now Nordic Water. Restructuring, impairment of assets and other nonoperational items are significantly down versus last year, showing the good progress we have made with resizing of our energy-related activities. Moving on to Slide 17, the bridge from EBIT to net profit. Net financial income and expense were on the same level as last year. The effective tax rate on the continuing business was 28.9%. This included CHF 4.7 million of negative deferred tax impact related to restructuring expenses of closed facilities, with no corresponding tax effects. The loss on income from associates mainly relates to investment in water [indiscernible]. Both of which are involved in developing new sustainable technologies. One in the field of recycling of warm textiles and the other in oil-free compressors. Reported net income from continuing operations nearly doubled to CHF 141 million compared to CHF 72 million the year before. Discontinued operations contributed a total of CHF 1.281 billion to total reported net income, primarily reflecting the gain on net assets that have been derecognized due to the APS spinoff, as I have mentioned earlier. Now going to the next slide on the free cash flow and the bridge from EBITDA. Let me point out the bridge excludes discontinued operations. Our net working capital has increased only by CHF 13 million despite higher sales as better collections mitigated increase in inventories. CapEx was CHF 64 million, much lower than our pre-pandemic level of CHF 81 million for the same scope in 2019. And the change in all other items added CHF 25 million. This is a bunch of different items, but mostly relating to movements in provisions, accruals and some revaluation impacts. FX -- because of that, the free cash flow, excluding discontinued operations, amounted to CHF 221 million, again, a solid free cash flow generation or 6.7% of sales. Turning to our balance sheet on Slide 19. Compared to the previous year, our debt has decreased as we have repaid a bond of CHF 210 million during -- in 2021 and transferred CHF 52 million of lease liabilities to medmix. That's the part that belongs to APS. The intercompany loan provided to medmix prior to spinoff has been fully repaid in Q4, contributing a net cash-in of CHF 344 million to Sulzer after deducting cash retained by medmix entities. So all in all, our cash and cash equivalents increased to CHF 1.233 billion at the end of the year. As a result, at the end of December, our reported net debt stood at a very healthy level of CHF 67 million or 0.2x of EBITDA of our continuing business. If we exclude the cash that we hold on behalf of Tiwel, net debt would be CHF 366 million, again, on a very healthy level of 1x EBITDA of our continuing business. Now on Slide 20, you see the history of the dividend that we have paid in the past. Our Board proposes to pay a dividend of CHF 3.50 per share. This compares to CHF 4, including EPS last year. Assuming medmix pays a dividend not lower than CHF 0.50, and you've heard from someone close to the Chairman, the shareholder holding both shares would receive the same dividend as last year. And now I am pleased to hand over to Frédéric, our CEO designate, for the outlook.

Thank you, Jill. Good morning, everyone, and a warm welcome to all of you. But let me start with a couple of words about myself. I started at Sulzer 6 years ago as the Chief Commercial and Marketing Officer and reshaping the commercial functions across all the businesses. And 3 years ago, I took leadership of the Flow Equipment division and turning it around from a breakeven to a record profitability in 2021 close to 6%, 5.9% exactly. Prior to Sulzer, I was the senior executive at Alstom and General Electric. And I've lived and work around the world with a special focus on Indonesia and India during 6 years. At Sulzer, we do have a lot of promising technologies, and we have a strong position that we can build on. Our strategy, which Grég and I defined together as part of the executive team in the last years and that the Board fully endorsed is the following: First of all, growing the Water and Industry businesses in Flow Equipment. And here, we have a unique value proposition and a lot of growth opportunities ahead of us. We will continue to grow the Service faster than the market by leveraging our unique digital tools and geographical setup. And finally, we will defend our legacy in Chemtech in both chemical and in the Chinese market where we -- while we continue to boost our biopolymer and recycling activities. On top of that, our strong focus on ESG is key to identifying the markets we play in and will lead to strong and sustainable financial performance for the group. We will publish soon a separate sustainability report, mainly at the end of Q1. But our 3 pillars are unchanged, as you can see on the Slide 23. First, we aim to minimize our carbon footprint and target to reduce our CO2 emissions by 30% until 2030, with the aim to become carbon neutral by 2050. And we are already making excellent progress on this. We also want to enable a low-carbon society, and our solutions support a circular economy. We bring an important piece of the sustainability presence to our market with property technologies in areas like water treatment, biopolymers and recycling. But last not least, we are also engaging our employees and communities. We aim to make life better for those around us by delivering improvements across all key indicators every year. Some of the leading rating agencies have recognized our efforts. MSCI, for example, gave us this year AA. Our guidance on Slide 24. We see all division growing their orders in 2022. In Flow Equipment, we see continued growth in Water & Industry and Energy is expected to rebound. In Services, growth will be supported by easing site access restrictions, I already explained, and particularly in Asia. And in Chemtech, we see further growth in renewables while China remains robust and other region also expecting to grow. Overall, we do see orders up in the range of 3% to 5% in 2022. For sales, we see Flow Equipment to be flat while Services and Chemtech are expected to grow. Sales in Flow Equipment are held back by the flowback in energy where, in 2021, order intake was down by 23% compared to 2020. And this leading sales at Auto almost 100% million lower in 2022. Growth in Energy will resume in 2023 on a rebounding 2022 market and backlog as well. We had -- this is a one-off soft landing. We anticipated this in our cost and food reductions. The decline in Energy is and will be compensated by further growth in Water and Industrial segments. We also expect operating profitability to continue to go up in all 3 divisions, resulting in an operating margin close to 10% and in line with the guidance we gave at the Capital Market Day a few months ago. Mid-term targets. Our mid-term target, as just explained, remain more than valid. We see Sulzer sales growing mid-term by 4% to 5% in average. And our operational profitability hitting a corridor of 10% to 11%, where -- with the bottom of that range almost as reached as early as this year. So let me summarize now on the Slide 26. After the split of medmix, we are well positioned as a pure play flow control company, and we will accelerate growth in sustainable application. We have also demonstrated the high resilience of our business model during the pandemic. The fluctuations have been minimal, and we beat our guidance in 2021. We expect continued growth in order and sales as well as further improvement in our profitability in 2022, as just explained, with significant strides being made towards our mid-term targets. Supply chain and logistics challenges will still be present in 2022, but we expect them to hit during the year, especially in H2. Raw material and component inflation have been successfully managed at Sulzer to date, and we do see that continuing. And finally, you will see soon new faces at Sulzer this year, with a new generation of leaders taking over from a successful team led by Grég. Tim Schulten, myself, also Thomas Zickler, who will take over from Jill as CFO later this year, are all excited about picking up the mantle and running with it. Sulzer is in a great shape, but we aim to take it higher still. On these words, we will open the call now for questions. Operator, over to you.

[Operator Instructions] The first question comes from Walter Bamert from Zürcher Kantonalbank.

This is Walter Bamert from Zürcher Kantonalbank. Would you please share with us your review on 3 important new equipment end markets? The first is oilfield water injection pumps, what is the main driver for the pickup we saw in Q4? And will this be a multiyear driver? The second is pulp and paper. Is this additional capacities or rather technology change? And finally, is the feeder pumps business for coal and nuclear dead? Or do you see project activity there?

Okay. Thank you, Walter. I think Frédéric and I will take this together. I mean pulp and paper, the world is moving towards a fiber-based economy. You can see the trend towards replacing some plastics by either bioplastics or by paper-based products. And therefore, that creates a lot of tailwind for the pulp and paper industry. We're right in the heart of that. I think in the last presentation, we gave an example of biorefinery in Finland where we're supplying all the equipment essentially. So that's a good market for us. We have a leadership position, and we're excited about it. In terms of the boiler feeder pump business, I mean, there's not a whole lot of places that are building coal plants, and that's become a minor business. But I'll hand over to Frédéric, and he can also talk about something which is not hugely significant for us, which is the oilfield water injection pumps. But Frédéric, do you want to comment?

Yes. On the boiler feeder water, it's clear that the long-term opportunity will be in the nuclear area, as you have seen a wave of rewards very often of nuclear application. But here, we talk more for the end of the year '20, but we are preparing ourselves for this wave. But to answer your first question, on the oilfield water injection, this is a key activity. And we do see a rebound in our activity at present time for offshore and onshore upstream market, led by a wave of FPSOs in Brazil, but also in West Africa. And with our technology, we are well positioned to catch from this rebound. Yes, an important piece of activity for our factory in U.K.

Walter, anything else? Did we answer your question?

Perfect. I'll let somebody else the chance to ask questions now.

The next question is from Aurelio Calderon from Morgan Stanley.

I've got three, if I may, and I'll take them one at a time. The first one is around pricing. I think you may see to defend pricing quite well. I wonder how much of your -- how much in your embedded 2% to 4% sales growth is pricing and how much is volumes.

Let me take that one. We managed to defend pricing quite well. But if you look at these Sulzer mix of businesses, most of our businesses are tender-based businesses, i.e., you supply quote to a customer as part of a tender process. And therefore, pricing can evolve quite naturally every time you submit a bid. There are some exceptions to that. For example, if you take on Water business, a lot of it is a price list type of business. And so if I take the example of water, where we sell through distributors in some countries and a lot of the products are based on price list, we had 2 price increases in 2021. We had a third one in January 2022. And there's another one coming a little bit later this year, pretty much in line with what the market is doing in water. If I take the rest of our businesses, as I said, it's not really easy to isolate because, at the end of the day, we're just submitting bids. And in some cases, we are just benefiting from the cost savings that we've generated, which are quite significant. So I would say that the price impact is less than 1%, and this is why we're not breaking it out. Did that answer your question?

Yes, it does. It's helpful. And I guess linked to that question is around savings. I think you've done quite a good progress there. And you mentioned that you wanted to resize the energy business to -- by 1/3. How much is less in bank? What should we expect in terms of savings for 2022? And are you happy with the size of the Energy business right now?

So maybe Grég, let me take the question. I think the question that you've asked is to pass around how you expect our profitability to be affected by the higher input prices. And what I can say is that, overall, we do continue to see the CHF 20 million of incremental structural savings in 2022 coming from actions that were taken in the past, structural actions on the energy-related bit, potentially a little bit more from additional improvement actions that we always continue to take. And if you are modeling, you can assume that, net-net, in the combination of what Grég has said, how we typically price based on the quotations that come to us, the -- based on order specification as well as quoted component purchase price, plus a little bit off the price list related type of adjustments. And the cost savings, we should come up with a slight net positive in terms of mix and margin in 2022.

So Jill, CHF 20 million still to come in 2022 from the cost savings. Frédéric, do you want to add a bit of color in terms of the Energy resizing? Is it done? Or you still have things ongoing? Anything still needed to -- needing to be announced?

No. Nothing significant to be announced. Our resizing plan has been completed, in fact, this year successfully with the footprint, which is now more aligned with the new market reality. But also, we are also in a position to grasp any rebound in the market if this rebound is coming. So overall, we are now well positioned.

So the tail end of the savings, CHF 20 million to come in 2022. And we will benefit from operational leverage because, although we've compressed our footprint, we're able to scale up volumes on that shorter footprint -- on that smaller footprint that we have. Other questions related to that or your next question?

No. That's great. And maybe one last question from my side, and that's around Services. And I think you mentioned that site access has been a challenge, especially in APAC. I wonder how much of an improvement you saw sequentially. Or was it more or less stable? I'm referring to APAC, which is in that seems to be the weakest one.

Yes. And it's really -- in large part, it's a service challenge because it's a challenge for Services division because we either maintain equipment on site or we need to go to site to pick up the equipment or to analyze the situation. So if you can't access sites, then that business is less accessible. The challenges haven't eased in APAC. It's still complicated in a lot of countries. We expect most of that to go away in the course of 2022. So we expect a clear rebound in our APAC region in services.

The next question is from Arben Hasanaj from Vontobel.

Yes. I would have 2 questions. The first one would be on your order guidance. So I think market expectations were rather on the higher end of that guidance. Can you maybe elaborate a bit what are the drivers there? Is it that you really expect to remain selective in Energy? Yes, if you could elaborate on that. And maybe -- or I -- maybe you can answer this question, and then I'll have a second one.

I'd say the order guidance, and Frédéric will jump in on Energy specifically. But the order guidance is maybe I have a track record or Jill and I have a track record of starting conservatively and raising things halfway through the year. We think that the guidance is a solid one given what we see out there and also given the fact that we don't intend to chase business in energy. The market is rebounding, but we will only go for things that we think we can get good margins from. So that's really our thinking on this. Frédéric, are you going to be less conservative than I am? And are you finally going to answer Arben's wishes?

No. We gave a corridor of 3 to 5. What is clear that we -- you have seen a fantastic improvement in the Water business, organic and inorganic, in 2021. And we will capitalize on this very strong foot. And the need for infrastructure in Water is there, so we expect good things from Water. Industry, as explained before by Grég, we have a leadership position. And we do see some positive development as well in the mining and fertilizer activity. And to answer your point on Energy, with the price of oil close to $100 per barrel and consumption back to pre-pandemic level and significant under CapEx in the last 2 years, we expect some rebound. But as we said, we will be selective in our approach.

And Chemtech is doing great and should continue to be great. And in our services business, if the restrictions -- site access restrictions lift earlier than we think, then this will be also a tailwind. So Frédéric, is it fair to say that the moment I leave at the end of today, you'll be a bit less conservative on guidance than I am? And you think you can do better?

The only thing I can say at present time that we expect a very solid quarter 1. With the growth indication we have at half February, we have a good prospect for this quarter.

All right. You heard it first from Frédéric. Other questions, Arben.

My second question will be around Chemtech. I saw that the headcount there increased quite a bit. So I was wondering if it -- has this to do with kind of a ramp-up in renewables? Or...

Yes. Headcount -- Arben, headcount in Chemtech is always really misleading because we've got a services business in there, Tower Field Services. And when we win jobs into our field services, the way these jobs are structured is that the management layer of these teams -- if you do a Tower Field Services job, sometimes you have to provide hundreds of people on the site because the aim is to go in, open the tower, make the changes, close the tower, and get the plant back and running really, really quickly. So you do that by having a lot of resources, so you can keep that to the minimum amount of time. Now -- so that we don't carry these resources full time, we only employ full time the management layer. And all the field labor are people that we find on the market, and we employ on short-term contracts or for the job. And therefore, when we start winning jobs in Tower Field Services, it makes our headcount go up in Chemtech. But maybe what we'll do in the future is we'll -- Frédéric might consider splitting out the Tower Field Services part of the headcount in Chemtech, so that you guys don't fear that we're suddenly adding massive amounts of people. That's just not the case. We're adding people in Chemtech because our renewables business is growing fast, but the main fluctuations are linked to Tower Field Services. And they're variable, they're not fixed. Does that answer your question, Arben?

I see. Very clear.

The next question is from Dominik Feldges from NZZ.

I have a couple of questions. Logistics wise, I mean, could you please elaborate a bit on what the challenges there were and what the -- how they might still look like in the current year as we speak? Then regarding restructuring, could you please elaborate a bit again what exactly you did? I mean, which plants that are now may be closed? How many staff? In staff numbers, I mean, how much that impacted the staff number? And now this question was answered. Then please, a new question to the new CEO, also with a bit of a request. If you could just talk a bit not as fast as before. I mean there are people maybe in the call, which are not all experts on your business so it was a bit difficult to follow, I have to admit. But what really needs to be changed at Sulzer, so that Sulzer can be taken to a higher level? And then two last questions. You've not really talked about the geopolitics. I mean, obviously, we are -- we have a conflict between Russia and the Ukraine. Yes, I mean what's your feeling there? I mean how might that impact still especially your Energy business as we go forward? And very last question, regarding the share price, I mean, which has really been flat, I mean, since the merger -- at the spin-off of medmix. I mean what do you account this for?

All right. Thank you, Dominik. We'll take all of your questions one by one, and all 3 of us will jump in at different times. I'll start with the share price. Our job is to run this business to the best of our ability and to invest the shareholders' money wisely. We feel that we're doing that, and we're certainly confident that Frédéric and his team will continue to do that. We've improved our results year-over-year, and we have once again in 2021 a year of record results. That it doesn't translate over the last few months in the share price is -- it's regrettable, but there are market events currently. I mean, the markets are quite volatile. And I think everybody is suffering from a share price perspective. And as a Sulzer, so we expect our efforts to be reflected in the share price when the market stabilize, but we also had a really strong run in 2021. I think if you include medmix from 1st of January to the 31st of December, you're talking plus 50% pretty much. So yes, we'd like to see our efforts reflected more significantly in the share price since the beginning of the year, but we also understand that the market impacts everybody. And we don't have a timing or a number. I think this is -- the volatility that we have currently is here to stay for a while. And that ties into the geopolitical question that you asked. I mean some of the concerns are linked to inflation and interest rates or as the Fed, as the European bank, are they raising interest rates, and they are, and what's happening in Ukraine. And clearly, as we're all business leaders at Sulzer, we're also individuals and we're all concerned about what's happening in Ukraine. If you look at it though from a business perspective, our Russia business is a Russia for Russia business. So we have factories and service centers in Russia, and they produce for the Russian market. There's very little in terms of import and export across the Russian border at Sulzer. So I don't think this is a conflict that will disrupt our ability to run our operations or will impact our businesses significantly. To your question as to whether a conflict between Russia and Ukraine would help our Energy business, I mean, if I'm completely oblivious to everything else, I'd say it probably would because it would generate a need for investments elsewhere and would probably have an upward effect on oil prices. But I mean, I kind of feel horrible having even a discussion about that. I certainly hope there's no conflict between -- that the conflict between Russia and Ukraine doesn't escalate. And that's certainly our wish, our desire, and everything else is -- would be bad news for the world. The logistics question, the challenge has been not so much on our side. We've managed that quite well. We've been flexible. And for example, we have components and materials that go from China to our factory in Finland. We used to do that by shipping. Now we do that by train. Then the trains got complicated, and we did it by trucks. Now I think we're back to trains. We're quite flexible, and we've managed pretty well the flows. Our issue has been on our customer side. Customers, because when a customer is not ready with a project because they're missing another piece of equipment or they can't get certain things to site, then they have a tendency to slow down everything else. We've also had customers that were just weren't able to get a truck to our facilities to pick up the equipment because of all the constraints on logistics. So that's been the story in '21. It's the story in the beginning of '22. I know a lot of people have said things will normalize or start to normalize after Chinese New Year. It's a little bit too early to say whether that's happening. Our working assumption is that logistics will continue to be difficult until the summer and will start easing progressively in the second part of the year. That's our working assumption. In terms of restructuring, I mean, most of it was in Frédéric's business. But to keep it short and tight, we closed the factory in Belgium and we closed the factory in the U.S. in Portland. And Belgium is -- we're -- is pretty much done. We're stopping production. Frédéric, when in February?

Done, It's completely finished.

We've just got production. And in Portland, when are we stopping production?

June.

We're stopping production in June, but we've already pretty much completed the downsizing. We're just executing the tail end of the backlog. And in general, we don't give headcount numbers associated because it kind of feels like tendering to the markets. We don't like doing restructuring. We don't like laying off people. And we don't like to brag about the number of people that are part of that just to show that we're taking action. What we try to do is to do it in a way that was fair and -- to our people and gave them opportunities to find other jobs elsewhere. The positive is that in both these markets, the job market has never been as active as it currently is. So we feel that our people will land in good positions in other companies when we're not able to provide something else for them in Sulzer. Frédéric, do you want to take the question about what needs to change at Sulzer? How do you get the company to a higher level?

So thanks, Grég. So my answer to that question is the following. So first of all, I have been part of the Executive Committee over the last 6 years. And together with Grég and the Executive Committee, we'll put in place that strategy. And this strategy has been validated for the Board. And as I explained before, we will go ahead with our key priorities in the business of infrastructure for Water, for Industrial application and, for sure, for renewables. And what need to change? In fact, it's a continuity here, but a continuity with a new team. And as you have heard also, we have a new team in place. And what we will make different a little bit is to accelerate the transformation of Chemtech towards new renewable application, recycling and circular economy. So I would say we have a clear path for our pumps, our Flow business and Service, but we will -- would like to put a booster a little bit on Chemtech. You have seen that the part of renewables have reached 14%, starting from very small percentage years ago. And we clearly target to be at 20% in the renewable business very soon. And thanks to addition in our portfolio and organic development, and our guys here are very well set to grasp this renewable and circular economy.

Dominik, did we answer your questions? Or do you want to ask a follow-up?

Yes, maybe just one more. But I mean, obviously, since you're -- maybe you can share with us a bit the view of Mr. Vekselberg about this -- I don't know whether that is possible, but I mean whether you might have talked with him about conflict recently. But that -- otherwise, I mean all questions have been answered.

We haven't. And we -- I don't have a view. I don't have any knowledge of Victor's view on the geopolitical conflict that we have currently between Russia and Ukraine. So I'm sorry, I can't help you with that.

Next question is from Alessandro Foletti from Octavian AG.

I also have 3 or 4. Can I take them one by one, if you don't mind?

Yes.

Yes. Okay. First of all, on the sequential order intake in the 3 divisions, there were some ups and downs. But you mentioned that in general, your momentum is improving. I see that in Flow Equipment, I'm not sure about Chemtech. Can you maybe give a little bit more indication there? Why do you feel that the momentum is building up? And why this low Chemtech in Q4 is not an issue? And then I have a follow-up on the site restrictions again.

Yes. Frédéric and I will answer it together. I'll answer Chemtech, and he'll answer about the momentum in Flow Equipment. Chemtech is really easy. Chemtech market is really active. Our growth engines are China and the renewables businesses. Both of them are doing really well. And the only thing that makes the sequential orders in Chemtech sometimes a little bit hard to read is that you've got some big projects in there that are lumpy. And when they hit, it kind of moves the needle a little bit. So for example, I can think of a project in the U.S. which is a $23 million project that we could have booked in Q4. But we -- it slipped by a few days because we were still tidying up a few things on the terms and conditions with the customer and will end up booking it in Q1 instead. I mean, these things, when you have something lumpy like that, $23 million, it kind of moves the needle a little bit. But there's really good momentum in Chemtech. It's -- there's really nothing to be gleaned from the sequential in Chemtech. The market is active. China is doing well. Renewables has pretty much doubled in '21, and the momentum is good. Frédéric, do you want to talk about the momentum in Flow Equipment?

Yes. In Flow, in fact, what is striking that we had a Q4 year-on-year, which is plus 50% in Energy. And some people have noticed that. And it's clear that, again, it's a project business. We have received 2 very large order for FPSOs during the month of December. And thanks to that, it has created that momentum in Q4. But overall, we are on a stable path growth for all the 3 segments in Flow. And if you look at quarterly in 2021, every quarter has shown some steady improvement. So we're in steady trend.

And Services, maybe to wrap up your question, Services will accelerate as Asia kind of modifies. So that's going to happen in the course of 2022. So we -- I mean, I was going to say, we feel good about 2022. I mean, Frédéric, do you feel good about 2022? Because I'm going to be a man of leisure, but you're going to be running the show and...

No. I feel good about 2022. And as just said before, January is great, and we do expect a very solid Q1 in 2022.

Alessandro, what's your next question?

Yes. Just continuing on this subject. On the site restrictions, maybe more specifically, you mentioned across Asia. But I wonder how the -- if you can differentiate between what goes on in China and what goes on in the rest of Asia and what -- if there's a difference now...

We have challenges in Indonesia, for example, where we have a large service center that covers big jobs across the region. And some of the movement restrictions that we have in Indonesia are impeding our ability to drive the business as we'd like to. And you've probably followed with some of the other companies that you cover, Alessandro, that China is a bit choppy right now because there's still this approach to COVID, which has zero COVID. And whenever there's a few cases that pop up, they lock up parts of cities or entire cities and introduce restrictions. So we're running our businesses, our plans, and we're doing that well. But I know that this week, for example, in Suzhou, we had some of our people that couldn't come to the factory because they've locked up part of the city because they've been, I think, 7 COVID cases. And therefore, we had to scramble to keep with our load plan. So it's -- these are examples. I mean the Suzhou example is not so much a site access, but just a general restriction in China example. It's going to continue like that for a little bit. But I think we all understand at this point that COVID is in the process of normalizing and that the world is reopening up. That will be a tailwind for our Services business in 2022, clearly. Other question, Alessandro?

All right. Maybe for Jill now, I guess. On the -- I have 3 quick questions on your financials. Number one, on the margin bridge -- EBIT margin bridge that is, do you have more OpEx reversal coming up in 2022?

Yes. So on the EBIT bridge, I mean, obviously, there will be some OpEx increase in terms of labor costs. I think you have seen through that with the inflationary part. But as said, we also have cost savings coming onboard, the CHF 20 million, plus we always continue to -- with the increase in volume, we will have operating leverage, and that should all be negated and the -- in terms of the inflation impact.

If I can jump in for a second, and Frédéric will -- may chime in also, Alessandro. I know a lot of companies are commenting on labor inflation and the fact that this is impacting their bottom line. Labor inflation at Sulzer and raw material inflation are things that we managed to absorb in 2021 and to mitigate. And we I mean, Frédéric, I've seen his budget, and I know that he intends to also mitigate that in 2022.

Then one other question. On the bridge, Slide 17, maybe, you have the -- mentioned the CHF 195 million core net profit. Can you bridge for me just quickly how you get from the CHF 140 million to the CHF 195 million? You have mentioned on Slide 14, you have core net profit from continuing of CHF 195 million. And then in your bridge on Slide 17, you have income from continuing of CHF 141 million. So there are CHF 44 million.

Yes. Income from continuing on Slide 17...

That's the net income, the income from continuing.

And 14?

Slide 14, you have core net income.

Okay. So the core net income is essentially net income adjusted for the one-off as well as amortization, and we took out the net -- the tax impact of that. And therefore, you're right at the core net income. So if you take your net income and you add on the amortization, impairment as well as the restructuring costs and one-offs, less the corresponding tax impact, you will arrive at the core net income, which is relevant because it's the -- connected to our dividend policy.

And Alessandro, historically, we have a dividend policy on core net income. We define core net income the way Jill described it. I mean if you take 2021, there's not a whole lot in terms of restructuring and impairments and one-offs. So you're talking really about amortization, essentially amortization net of tax is the delta. Is that correct?

Yes, that's right.

That's the difference between core net income and...

My very last question, sorry to cut you off because I think you want to go. The -- on free cash flow, can you give an indication of CapEx, what the new level of CapEx and also the new level of leasing payments now that APS is gone?

Well, these 2 years, because of the COVID impact and our cautiousness in spending, we have a lower CapEx level of around CHF 60 million to CHF 65 million. And I expect in 2022 to go back to our normal of around CHF 80 million.

So about CHF 65 million in '21 and close to CHF 80 million in '22 as we start growing again and then when we get back to a more normalized level. Does that answer your, Alessandro? Or do you have anything else?

Yes. The first part is answered. The second part on the leasing payment, am I correct to assume that they will go down from CHF 40 million to, I don't know, CHF 28 million or something like that?

I'm sorry. We couldn't hear your question because we were speaking at the same time. What's your second?

On the leasing payments, am I correct in assuming that they go down from CHF 41 million now to maybe 28-ish or so?

Yes. I think yes, that's right. We have the impact from a medmix spinoff, and so the remaining part is around CHF 25 million to CHF 30 million, yes.

Yes.

We have a follow-up question from Walter Bamert from Zürcher Kantonalbank.

You mentioned that there is pent-up service demand. Can you please help me to better understand the dynamics in the Service business, in particular the Tower Field Services in this current market environment? Are companies reluctant to schedule maintenance shutdowns as they are running at full capacity?

Well, it's a trade-off though because companies are running at full capacity or fuller capacity, but they also delayed quite a few things during the pandemic because they didn't want to take the risk to have people on site. So in a lot of these chemical facilities or big plants, you have legal requirements just from an insurance perspective to do certain things. So that business, net-net, the Tower Field Services business is actually picking up significantly currently. And '21 was a good year for the Tower Field Services business, and we expect that '22 will also be a good year. Other questions? Or are we done?

There are no more question at this time.

All right. Well, look, we'll wrap up, and I'll let Frédéric wrap up in terms of talking about the future. But before we do that, I just wanted to thank you, guys. It's been a pleasure for the last 6 years. I've really enjoyed these interactions and the thoughtful questions and the level of knowledge that you guys all have about the company. I hope we were able to be good partners in terms of answering your questions and giving you visibility and transparency on the business. And I'm sure that Frédéric will not only continue that, but actually improve it. So Frédéric, do you want to say a few final words on '22 and the way forward?

Yes. Thanks a lot, Grég. And as we just said at the beginning and during this call, we had quite a successful and eventful year 2021. And we plan to go ahead with -- from strength to strength in 2022 and the years to come. And we have built a very strong position, and we will capitalize and grow further on this strong foundation that built under the leadership of Grég during his 6 years. I really want to remind that. And of course, we will update you on the progress during the year, for sure, for the order intake announcements after Q1. And with that, I will -- we'll close the call today. So thanks a lot for your interest in our company. And for sure, I hope to see you soon on the next call or in the next interaction. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.