Sulzer AG (SUN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Sulzer's Full Year Results 2022 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christoph Ladner, Head of Investor Relations. Please go ahead, sir.

Thank you, Sandra. Ladies and gentlemen, Good morning. Welcome to Sulzer's Annual Results Presentation 2022 here in the Zurich. After 2 years of virtual events, I'm happy to see you all physically again that this is a great pleasure to us. With me today, our Executive Chairman, Suzanne Thoma and our CFO, Thomas Zickler. Before we start, I would like to draw your attention to the safe harbor statement on Slide #2 in the handouts. Please note that this statement also applies to any verbal statements made during today's presentation. Please also note that we will show so-called alternative performance measures as defined by 6 Swiss Exchange. You will find these all the breaches on how you can calculate these alternative performance measures from reported figures in the financial section of our annual report. So for today's agenda, we will have the presentation followed by Q&A. And thereafter, we will serve upper reach at the back of the room. Maybe for the media guys, please turn to my colleague, Domenico Truncellito, if you want to get over an interview, and he will coordinate everything. Thank you for that. So that's now for my housekeeping point. It's a pleasure to hand over now to our Executive Chairman, Suzanne Thoma. Suzanne, the stage is yours.

Thank you very much, Christoph. Ladies and gentlemen, welcome. Thank you very much for your interest in Sulzer. It is my pleasure today to announce results of 2022, results that have been achieved in a rather challenging economic environment with fluctuating market conditions and many unseen events, as you know very well. Nevertheless, we have shown us sought a very resilient performance throughout the year. You can see that in our operational results, you can see that in our very high order intake. Also, the underlying operational profitability is at the highest level, at least since 10 years. Nevertheless, also our results have been impacted to a certain degree by -- not to a certain degree. They have been impacted clearly by one-off effect, 1 one-off effect is our exit from Russia, which we have decided on early in the year 2022 and which we have carried out consequently thereafter. Also, we have experienced an increase in our net working capital, which is due to the situation in the market through the problems in China, through the problems in the supply chain issue. Nevertheless, we cannot be quite happy with our performance in the area of net working capital management. All in all, a very nice result, I believe, we can say plus 9% in orders, plus little less than 2% in sales and which we are very proud of and operational profitability of 10%. So the company is healthy, and the company is strong and the company has a high net core income, which leads us to propose or the Board of Directors has proposed to have suggested or will suggest to the general assembly to propose an unchanged dividend of CHF 3.50 per share. This is based on our core net income and the dividend policy that we follow. Now let's go and look a little bit more at the financial details and how these overall figures come together. And so I hand over to my colleague, Thomas.

Thank you very much, Suzanne. And ladies and gentlemen, also from my side, welcome. And let me present to you now the overview of the Sulzer Group talking about the development in 2022. As you can see and already said by Suzanne, we had an order intake growth of 9.1%. The growth was mainly coming from Chemtech and from Flow Equipment. Services was also growing, but to a lower extent because Services is our division, which is most impacted by our decision to exit the Russian market. When we look to the sales side here, you see that we have grown by 1.8%. And this is mainly because of the supply chain issues and the energy BU within the Flow Equipment division. Some of you maybe remember in 2020, we had in energy, a slowdown of more than 23% compared to the prior year. This was 2019 because of the pandemic and because of less infrastructure investments in this year. And seeing the longer lead times in the project business in energy, we have seen then in 2022 the impact on the sales side. Talking about operational profitability, you can see here that the operational profitability went up by 70 basis points we are talking now about an operational profit of CHF 380 million. And this was caused most of all by our cost discipline. And we also had many operational improvements, and we were very selective on the order intake that we achieved this very well also to see our pricing handed forward to the customers. You see that our order intake gross margin grew by 40%. And this also shows that we are able in a competitive market because of our strong market position to forward price increases, the higher input prices to our customers. It is also reflected in the gross margin, excluding the impact from Russia, you will see then in the financial statements that our gross margin increased by 1.1% to 31.1% compared to the prior year. Now let's go to the divisions and start with Flow Equipment. So in Flow Equipment, the main message here is that we have a drop in sales, but a significant rise in order intake. And when we talk about order intake, you see here on the chart that we have 8.9% higher order intake compared to prior year. We have in industry and in energy double-digit increases, whereby in water, we had only an increase of 4.4%. Why only 4.4%? Here, we have seen especially the impact from the exit in Russia because we lost the municipality business in Russia. We also saw some timing issues from municipalities in China because of several lockdowns there. And additionally, for sure, we had also the supply chain issues there. Coming to the operational profitability, you see that inflow, the operational profitability went up by 70 basis points. So we have now profitability of 6.6% inflow. And here, we see a strict cost discipline, but also the focus on a more selective order intake when it comes especially to the energy business. Then let's come to the next division, Services. As said, Services is most impacted by our one-offs. However, Services did a very solid performance in the year 2022. We have talking about orders and sorry -- we have when we talk about orders, an increase of 1.6%. We have seen in Americas order increase of 11.1% and in Asia Pacific of 2.4%, but this all was offset by the lower EMEA region which was impacted by the Russia exit. When we talk about sales, we are on the sales side, 0.7% higher than last year. And sales basically reflects the same story, as I explained to you on the order intake side because the time from order intake to sales is much quicker in services. And here a hint on the slide because if some of you may wonder that we are showing here a plus 0.7% and the number actually is lower. This is because we had in Services, a minus CHF 10 million FX impact on the sales for 2022. Then the operational profitability in services remained flat. This is a big achievement because having the same sales and revenues living in a world of increasing input costs, energy prices, salary, wages and so on. So here, we did an excellent job in getting these higher input prices forwarded to our customers. Then we come to the star of our divisions. This is Chemtech. Chemtech really performed very well last year. You see here order intake of 22.5% growth. We have here all the regions, all the segments growing chemicals, gas, refining, services and renewables are all up double digit. Also, on the sales side, we are almost 15% higher than we were the prior year. The operational profitability as a consequence, rose by 80 basis points to nowadays, then 10.8%, and this is mainly a volume impact and also a strict cost discipline and the capability of pricing power of Chemtech in certain markets. We are extremely proud of our increase in the renewable business, where we saw 37.8% order intake in the renewables. With this, we have now 15.4% renewables stake in Chemtech total of CHF 128 million, compared to 13.4% renewable stake last year. Then coming to EBIT and net income which are both impacted, you all know the story by one-offs. Let me start with net income, compared to last year, where we had CHF 141 million. You see that this year, we end up only with CHF 28 million since we had CHF 134 million one-off impacts. The same accounts for EBIT. The EBIT more or less halved because of CHF 147 million one-off impacts. And I think it's needless to say, and this is what we tried to indicate here with the light blue columns that without the one-off impacts our EBIT would have grown 16% and our net income by 15%. Then free cash flow. So on the prior slides, I have already explained to you that because our order intake has grown much faster than our sales grew, we have built up a high order backlog. We are sitting on a high order backlog of CHF 1.85 billion, plus we have the challenges on the supply chain side. So what does it mean? As a consequence, we have a massive buildup in our net working capital. And you can see this here we have CHF 148 million more net working capital than we had the prior year. It is consisting of CHF 92 million more inventories and CHF 56 million more accounts receivable over payables. What we also saw when we investigated a bit more in the net working capital issue last year, that we have some areas of improvement potential, where we will go this year more in the supply chain management to further improve the performance of Sulzer talking about this topic. However, all in all, and this is the most important message for all of you, we are not worried about this cash flow, about this low cash flow of CHF 58 million because we see this only as a temporary impact. We see the first tendencies already started in Q4 last year that we have a relief on the supply chain side that we are coming back this year to the normal levels of our free cash flow, which is around CHF 200 million. Then talking about our balance sheet, we have still a very solid, a very strong balance sheet despite the one-offs which we had to digest this year. We currently have a net debt-to-EBITDA ratio of 2.1 compared with 1.0 last year. We paid back on a net basis last year, bonds, Swiss bonds for CHF 155 million. So in July last year, we paid back CHF 325 million bond. And in November last year, we issued a new bond of CHF 170 million, so the net is CHF 155 million. This is also why you see here the debt decreasing by CHF 155 million. Cash we spend on the repayment of the bond on the dividends and also on the net working capital, and you saw that we invested in inventories more or less of CHF 148 million. Also last year, as always, we continue to hold back the dividend which is belonging to our anchor shareholder to Tiwel. And this amount in the meantime, is totaling to CHF 332 million. All in all, seeing the onetime impacts and seeing our business development and our very, very strong balance sheet, we see for the future, the financial and also the operational possibilities that we can really act here at all times. Then let me come to my last slide. It was already also mentioned by Suzanne, we have -- as I have shown to you in the last slide, a very strong underlying business performance, and we are very resilient in these current challenging markets. And therefore, we are the opinion because when you deduct the one-offs, and I've shown this to you on the prior slides and best example here is the core net income. When you see the core net income last year, core net income was CHF 230 million. And in the prior year, it was CHF 195 million. So our core net income last year increased by 9.2%. And this is the message the underlying business of Sulzer is very strong, and therefore, we recommend or our Board will propose to the AGM an unchanged dividend of CHF 3.50. With this, I'll hand back to Suzanne for the guidance and strategy perspective.

Okay. Yes, we are looking cautiously optimistic into the year 2023. We are forecasting a sales growth between 7% and 9%. That is, of course, also underpinned by the high order backlog of CHF 1.8 billion that we have already in our books, but we also see continued good order intake already in the months of January and February. So we forecast an increase in order intake of 3% to 6%. And we believe that we will have an operational profitability above 10%. Of course, these are figures which do not include any currency effects or they are on a comparable basis. Thank you. Well, here, again, these are the figures. You know them also from the press release. So the company is in good shape and continues to perform in times, which are not easy, but which are very well manageable. I would like to give a short look on the strategic and the operational perspective of Sulzer and then I would like to go into some examples of what we are doing, so that these abstracts works that we are using here become -- have a little bit more meaning for everybody. While we have a strategic perspective, of course, as every company does in Sulzer. And we can say that we are in markets which are attractive. They are attractive because they are relevant, and they are growing. They are also attractive because they are in transformational mode, at least partly, which always also yields new opportunities for a company like Sulzer. We have strong market positions mostly, however, in niche markets, so not in the bulk market, but in the niche markets, but there we command also higher margin. And as we have seen in the [indiscernible] 2022, it is a company that is resilient and that can also grow even if the environment is not optimal. From an operational perspective, it is very important for us that we take care of our margin that we continue to increase the margin, which also means that we cannot accept just every project, but just those projects that are profitable enough. We are strong in cash generation, definitely as a company. And we have to work strongly on quality and on-time delivery, so we can further improve both our strategic base and our operational performance. So which markets are we in? What are we really doing? As I just mentioned, Sulzer is in attractive markets and in growing markets and in relevant markets. There are relevant markets for a growing world population and for all markets, particularly those where we still have an emerging middle class. This is maybe a perspective that out of the Central of Europe, we forget sometimes, but there are still hundreds of millions of people emerging into middle class coming from poverty. And these people they need energy and infrastructure just as we all do, and that is where Sulzer is strongly present. Also, we are present in the process industry. What are examples of process industry, well the construction industry, the agricultural industry or the polymer industry, and we are present in the chemical industry, both specialty chemicals and fine chemicals. Now these are important, heavy-duty industries. And these industries are in transformation. They want to and they have to reduce their ecological footprint. They have to consume less energy. They have to consume less water, and they have to become less CO2 intensive and many other important aspects, and Sulzer is present there as a partner. I will show you a few examples just in a few minutes. Sulzer is also present, particularly in the wastewater area, both in the municipal wastewater area, but also in the industrial wastewater area, which pays into what I just have said about the process industry and the chemical industry. Sulzer is also developing technologies and introducing them in the market in areas that are still nascent or emerging, where we have great hope for the future, but which for the time being or at least at the moment are not that big. These are biopolymers, so polymers, not coming from fossil substances, but coming from plants, plant-based polymers or recycling, mostly chemical recycling in the case of Sulzer and also bio and synthetic use. So for example, fuels produced from waste. Let's have a look. Let's have a look in a few examples. I would like to start with the example of an enhanced oil recovery in Qatar. What are we doing there? We are using or we are providing with our pumps, which are highly specialized pumps producing high-pressure liquid CO2, which is used then for the recovery of oil in the oil wells, and it has different advantages. It maximizes the recovery from oil from the existing oilseeds. So this reduces the number of oil fields that you need with the same amount of energy. It -- the CO2, the liquid CO2 replaces the water, which is a big benefit because they don't have to clean it and also it stores CO2. So on many counts, this is an ecological project, although it is located in the oil and gas industry. And you see across the board in the industry such efforts to reduce the ecological footprint. We are all aware that this is not the final solution for net zero, but we will have a transaction phase, which will last decades and we can gain a lot of upside in this transition phase by reforming the traditional industries. I'll show you some other examples. For example, here, Sulzer acts as a decarbonization partner for Var Energi and other oil company who wants to reduce their CO2 footprint and also want to save money, of course. Sulzer went in there and analyzed the operation with their BLUE BOX technology, that's a data-based algorithms to understand where energy and cost is being spent and came up with a rather large energy saving potential of 5,000 megawatt hours. Now 5,000 megawatt hours, you know what is 5,000 megawatt hours that's quite a lot. That's about what 1,800 Swiss households consuming only in electricity per year. And if you want to find 5,000 megawatt hours in the electrical industry, you need to build about 1.5 wind turbines in Switzerland cost about CHF 4 million and last forever until we have built them. So these are substantial contributions to making an industry at least somewhat lighter in its ecological footprint. And Sulzer here, active as a decarbonization partner, if you want as a full service provider. Let's look at another application, sustainable fuels in Brazil, huge amount of sustainable fuel being produced by our partner in [ PASA ] in Latin America, they are the largest producer of bioethanol. And this plant here produces 2.6 million liters of ethanol per day. That is a lot. Sulzer has already supplied more than 1,000 parts. To this customer for this specific project, we were able to deliver 250 process pumps, actual flow pumps and 18 agitators. We were chosen because we have the broadest portfolio, so they can work for us with all their applications. This is a major contribution also to the use of less fuel because the bioethanol can then -- not less fuel, but less fuel derive from fossil because bioethanol then can be used as fuel and Sulzer is in the middle of it. Let's look at a different project. Again, it's about reducing the use of fossil. Here, the job of Sulzer was to purify, to separate and to purify renewable methanol. So what is renewable methanol? This is methanol that is being produced out of hydrogen and CO2 and the hydrogen was gained by electrolysis. I don't know, you say that in English, electrolysis where the energy came from a 300-megawatt solar power plant. And this purification and separation is an absolutely important step. It may be a small step in the total chain that you need from CO2 to methanol. But if you don't get that right, you have nothing. And that is a typical positioning of the Sulzer technologies, where we really make a difference. This renewable methanol is being used, for example, by Merck, is a large logistics company to fuel 1 of their ships. Installation will produce 32,000 tons of methanol per year. So quite a lot. Let's look at something other, another pain point that we definitely have globally, and that is plastic recycling or plastic waste, recycling is not the pain point. The waste is the pain point, Sulzer is contributing to solutions for plastic recycling. Plastic recycling where what you recycle is back to virgin materials. So material with the original properties that you can use everywhere. In mechanical recycling, while this is also something good and should be done. However, the material is reprocessed so often that it degrades in quality. Here you go back to the original. And this is plastic waste as is written here, that is then reconverted into high grade feedstock for the chemical industry in this particular case. We're speaking of a plastic to chemical facility. It's really still more of a pilot plant with a large pilot plant with 24,000 tons production per year, our customer Indaver plant, 30 full-scale plants across Europe that will then recycle 1 million tons per year. That is a lot. And it is the beginning of a very interesting journey to reduce the plastic pollution that we all face. Another example, quite different and still fascinating. And this is PLA polylactic acid, the bioplastic originate from plants. Our customers' NatureWorks, which is a joint venture of a Thai company called PTT and Cargill from the United States. They are a leader in PLA production. And again, Sulzer does not present in the entire value chain, but Sulzer is present in 2 fundamental steps. One is the purification of what we call lactide. That's one of the steps pretty close to the final product and is present in the polymerization through the end product and the polarization step is crucial for the quality of the product because if you do it right, you can really stir what type of quality of PLA you will have, and you can balance, for example, durability and degradability of PLA. We are very proud of that project. And this is a project that -- and generally, this technology is already quite sizable also in our current business. Something completely different. How do you produce a net zero waste treatment installation? Well, our customer Fabriek West has tried it together with Sulzer and was able to increase or to modify the treatment of the flood in such a way that the biogas production was increased by 20% to 30%. And this is then captured as process energy. As a result, our customers is energy-neutral and produces 1.3 million cubic meter of biogas per year. Is that a lot? I think it is a lot. It is 8,000 megawatt hours approximately. These are all very approximate figures, which, if you remember, previous slide would then amount to about the energy of CHF 3,000 standard households, quite a lot and a major contribution to a sustainable future. Here, we are in a heavy-duty process industry, pulp and paper industry use a lot of energy. It's a new large bioproduct mill in Finland, milling the wood as a wood spreads part of wood to produce afterwards paper, but also to produce sanitary tissues to produce all sorts of products derived from wood products. This is a product where we -- a project that we are very proud that we can be a part of it because the customers clearly said we only want the best available technology in the whole value chain. And Sulzer is very present there with its pump business, 400 process pumps, medium consistency, pump. These are pumps that are able to pump this mixture of fluid and wood, so to speak, and also mixture. Production is a lot 1.5 million tonnes of pulp. And on top of doing all of that, this plant is generating 2 terawatt hours of energy, 2 terawatt hours of energy, about 3% of Switzerland's use of electricity is about 60% of what's used to produce. So this is a substantial amount of energy. This plant is now 250% energy self-sufficient and provides its -- they have an electricity plant that is attached to the plant, and they are now providing electricity for the villages nearby. So you see it's really a little walk through a choice of projects, very different projects. I find them very interesting. And you see there are the new things recycling plus polylactic acid, new things licensing. And then there are huge savings that we can do with the established process. Industries, the chemical industry of the oil and gas industry to ease the phase of the transition to net zero. Why is Sulzer well positioned there? Well, we are clearly a Tier 1 engineering brand. You don't get for buying Sulzer. Not everything is perfect about Sulzer, but you don't get fired for buying fuel because Sulzer has really globally, not only in Switzerland, globally, a great brand name. We are normally in mission-critical applications or in mission-critical parts of the entire value chain, which may -- not always, but very often means that it depends that what we do really function. It also means that treatment cannot be replaced that easy. This is all easily. That is also the case because of our clearly strong engineering capabilities. The global reach for the size of our company, we are really very global represented around the world, and we have the corresponding footprint. And I'm also very proud to say that we seem not to be the worst employer having been recognized as a top employer in our 5 key countries. Well, ladies and gentlemen, I come to the end of my presentation. What are the takeaways from a strategic and operational point of view at this point in time. We are strong in established markets. The established markets are important. They will continue to grow. But in parallel, they are undergoing a fundamental transformation. Our contribution is clearly to increase the energy efficiency, the resource efficiency, sustainability and also less water consumption as an example. There are new markets that emerge for Sulzer, they are emerging. They are not yet that big. The are, for example, bio-based polymers, recycling waste to fuel, waste to chemical, carbon capture and also the use of carbon for application where one can also use water. We are a strong technological company and we are more and more becoming a company that also focuses on the customer when we speak about technological leadership. Technological leadership, not for taken itself, but to really create customer value. Our operational and commercial excellence, we will have to lay the future the foundation for future growth. We have room for improvement there, but we are very well on our way. And of course, if you want to build value of a company, you better make sure you use your capital wisely. We have a solid balance sheet. We are in a solid financial situation, but we want to make best use of our capital to increase the value of the company. And so I come to the end, yes, we have a solid balance sheet. We do have strong cash generation, quite amazing how strong this company is in cash generation. And this lies the foundation for financial, for operational and also for strategic flexibility. Thank you very much.

Thank you, Suzanne. Thank you, Thomas. Now we come to the Q&A session. Now I just give the operator a quick second to do her speech so that people in the call know exactly what they have to do. So please operator, go ahead, and then we take the first question from the room.

[Operator Instructions]

Thank you, operator. So the first question from the room, please state your name and company, please, for the guys on the call.

Michael Roost from Baader-Helvea. So my first question is a little bit on the search for a new CEO. How is that progressing? And in conjunction with that, regarding the new governance steps which have been implemented, what is temporary, what is permanent? And then finally, on the working capital side, you mentioned some internal inefficiencies. Can you just quantify a little bit what's internal, what's external, which...

The search for a new CEO has not begun. It will probably not begin for quite some time. We are focusing now on the development of a new strategy. We do that very thoroughly. And because it is substantial for the future of Sulzer, what we decide there. And then we will also have this governance model now for at least the first phase of the strategy implementation. Because this situation is -- will last for a certain time. We have now introduced new governance measures like the lead independent director, which is important. We have also introduced the governance committee. I am stepping down from the remuneration committee. So we have checks and balances in the system, particularly when it comes to governance questions. That was your second question. The third question, well, you have noticed that the CFO did not give any figures, what is internal and what is external when we come to these developments. And this is also because we can't really quantify it, but we can look at what is happening. We have experience in running companies. And so we know that part is really due to the very difficult situation that we have with supply chain issues and part we could have done better, where exactly the line is, I don't know. I just know we can be much better.

In conclusion, does that mean that the sort of temporary do mandate roll is now becoming semi-permanent?

It depends on the results. We are now semi-permanent, yes, probably semi-permanent, whatever that exactly means. We are not looking for a CEO at this point in time.

Come over here.

Arben Hasanaj from Vontobel. My first question would be around your guidance, especially on orders. Can you maybe drill down a bit what you see in the segments also at the start of this year? So can we expect the same pattern like last year or -- do you see any changes between the segments? And the second question would be around the Russia exit. I think now you've sold the business. So is this completed? Or do you see any more one-offs? Can you comment on that?

So when we come to Flow Equipment, we see already an order intake picking up in January. So the first couple of weeks of this year really look promising into 2023. When we come to the different BUs, we have in energy, we are profiting from the transition in the energy market, topic is biofuels. Topic is also infrastructure investments which are now coming. You know that this is a late cycle. So we see here not a push, but at least an increase of our order intake in this segment. We also see it on the water side. In industry, we have, as I said, biofuels and also in the mining sector, we see a pickup. So for flow, I'm really looking very positive in this year 2023. When we come to services, services, they have also received the first bigger orders when I talk about services and bigger orders. I'm talking about sizes of CHF 2 million, roundabout and a bit more. So this is also looking very good. We have, in Chemtech seen, and I don't want to announce here anything in Chemtech seen especially in the PLA sector. Some bigger orders, which arrived our books. We will announce this by end of Q1. So Chemtech, you will see again, and this is in all the areas of Chemtech that you will be surprised by end of Q1.

Question on Russia. If it's sold and...

So Russia, we have announced mid last year that we want to exit the Russian market. It took us really a long time, and it was a very complicated process talking about due diligence, finding the right buyers to make a long story short after more than half a year in December, we almost concluded. And then in January, we signed a contract with a buyer in Russia, a local Russian buyer. However, we now have to wait until the Russian authorities will approve this deal and this can take 1 month, 2 months, 3 months, nobody knows exactly how long this will take until we get the approval from the FAS. But as soon as then we get the approval, we can close the deal and then the 4 legal Russian entities are sold to this Russian local investor.

Alessandro Foletti, Octavian. I have many, but I ask 3, if I may, and then I go back in the queue. One by one, maybe it's easier. First question, just an understanding on the rotating equipment, you mentioned organic growth of sales of 0.7 and organic growth of orders 1.6. I believe this is -- you didn't exclude the exit from Russia from there, right? So that includes -- and that my calculation about CHF 40 million, CHF 50 million. So if I exclude that, probably you would be at 5%, 6% growth.

And the impact of Russia is exactly CHF 47 million.

Great. That was the first one. And second 1 on the guidance for the margin, 2023, 10%, you say, above 10%, but above 10% can be 10.1% or 100%. Can you specify a little bit more what you're saying?

It depends also very much -- not very much but on the efforts that we do in the area of operational excellence. That's on purpose, it's not quite clear, but what we can say is that we're not going to become worse from what we have achieved now quite a level. And if everything goes according to plan, we will certainly not go lower than that.

But if I may add into this on 7% is your lower range for the growth rate I would expect, you said 7% to 9% growth?

Yes.

Right. So let's take 7%. That should bring a good operational leverage that alone?

Yes. This is why we said 10% is the floor. So the operating leverage, the operational measures.

Yes, it's exactly what I said. It will be above 10% but it's premature to say whether it's 10.5% or whatever it will be, that's not going to be below 10% unless something happens that we cannot foresee now.

My last question. I see that Mr. Kottmann is entering the Board, it is a chemist like you, who used to run Clariant. I hope this is just accidental that there is no sort of ideas...

That's really -- number one, I'm a chemical engineer and not a chemic. So that's a huge difference. And of course, I knew Mr. Kottmann from far because I always -- I think he ran Clariant very well. And so we're very proud that he's going to join our Board, but it is nothing pointing in the direction these 2 companies wouldn't fit anyway.

Christian Arnold, Stifel. Looking at your operating margin performance in the 3 different divisions, you are now very close to your midterm targets in all divisions actually, almost reached it. And I mean, I'm aware that today, it's probably not the right time to announce new midterm targets as you are in the middle of the strategy process. Nevertheless, going through these 3 divisions, I mean, the services that's kind of stable, the 15% target probably will remain in the Flow Equipment business, here, you have end markets, which are transformation, as you pointed out, is this transformation, do you expect that you can actually increase your margins further above this midterm targets? Or would that be more of a burden that you have, let's say, more standard pumps for example.

So maybe let me start, Suzanne. I think, yes, we can further increase our margins by further working on our operational excellence and also on our cost base. Talking about the midterm guidance, what we said when we are further advanced with the strategy discussions with the Board that then by end of this year or latest beginning next year, we will then come back to you and then also revise our midterm guidance.

There's somebody back here.

And maybe just a follow-up on Chemtech then. I mean here, you're building up your renewables business. Does this have -- yes, above our average margins in the division?

It has awarded within the division. The business is particularly the very new things is still rather small, but it does have an increasing push on the margins, definitely.

Okay. And in connection to that, I mean, you have built up this business now tremendously very fast, I think, from CHF 50 million to CHF 90 million to CHF 130 million in this year. And you have many, many different end markets, many, many different applications, so to say? And can you follow all these ideas you have, and you have to focus somewhere? I mean it looks like at the moment, you are just trying out everything, but I think there will be a certain time where you have to focus. And any comment on that?

Yes, gladly. It's yes and no. The no part of having to focus is that the interesting thing about Sulzer technology, it's like a base technology like this mass transfer components that we have, the purification technology that we have. And you can take this technology, adapt it somewhat and bring it into new markets. That is a very -- it's like really something to build on. At the same time, indeed, Sulzer have so many opportunities we will have to focus on what we are doing and then do it well and do it seriously. And that is also part of the strategy process. If we would just follow all the ideas and reason I don't know, but interesting ideas that we have in our organization, we would really be everywhere or nowhere at the same time at that, we have to avoid quite well noticed.

[indiscernible] You mentioned the growth of almost 40% in the field of renewables. And you just announced the collaboration or with Phoenix equity in the Netherlands. Can you maybe tell us how much of share of sales or orders you do with this business with this renewable business? I think it's probably these 2 sectors, biofuels and recycling take together.

Yes, the recycling is still very low. This is really a nascent market and that investment that we did in Phoenix is investment in a later stage start-up. So what we are doing there is combining the technology of Phoenix with our capability and our technology and then pilot it, put it into a pilot plan, develop it and then bring it into the market.

And this is my second question. You've shared a with a discount because of the U.S. sanctions against Mr. [indiscernible] do you see any other possible solution for this issue? Is there any development?

No, there are no developments to speak of at this point in time. You know that Sulzer's role in this is to support if there are developments that are in the interest of Sulzer at the end of the day, what happens is that -- what can -- depends on the decisions of the anchor shareholder and partly also on the decision of the authorities. So there we follow the development and we support. However, let me also remind you that the anchor shareholder has no economic benefit at this point in time. So we are not paying any dividends to him. At the same time, he is our anchor shareholders in 16 years, very much interested in the long-term development of the company, obviously not on short-term profit and somewhere in this one off failed in this pension field, I don't know if the word exists in English. We are navigating, the company is running well. Also with this anchor shareholder, you see it in the results.

[indiscernible] in last January -- in January...

Can you speak up a little bit, please?

I would like to see if you could provide us with more details on the disposal of the Russian business because a lot of companies in the EU, in the G7 have tried to pull out in Russia, but the process proved trickier than planned. So could you give us some more details of what happened in Russia?

No, it's relatively simple. As our CFO has pointed out, it was a long and complicated negotiation or process took more than 6 months, but we did bring it to a close in January. We have signed the contracts, not only us, but also our buyer have signed the contract, and now it simply has to be approved like all of these transactions by the Russian authority that can take longer or shorter. But for us, it's a done.

But if I may ask in more details why was it difficult? Was it finding the right price? Finding the right buyer and are you happy with the price you got out of...

You have to find the right buyer. You have to do a very extensive due diligence which did take quite some time. And then, of course, you negotiate in circumstances, which do not give you that much negotiating power, and there are obviously also a rather huge cultural differences and you can't fly there to negotiate and to bring from what to come to a conclusion, you do everything from far away. So that's all things that lend themselves to misunderstandings.

Benjamin Triebe from NZZ. 2 questions. The first 1 is a really quick one. I noticed that your headcount, the number of employees has been reduced by 1,000 and I assume that's the impact of leaving Russia and leaving Poland. If you could elaborate a bit on that. And the second one, as you said, you have really robust results. You said Sulzer is strong, it's healthy. You're active, you showed us the examples in many new fields. So if this is already here, why is there a need for a strategic overall for a fundamental change?

Maybe I take the first one. So the reduction of our employees has nothing to do with Russia because Russia is still when you look in our books, it's still consolidated. It is more the impact of our sale of Tower Field Services for Chemtech in Brazil. And here for Tower Field Services, we had around about 1,000 employees, and they were sold last year, and these were mainly temporary ones, but they counted to our headcount, and this is the difference of 1,000 employees.

Thank you. The need for a strategic overhaul comes from the development in the markets. Markets are really evolving fast, and there are also rather fluctuating market conditions. Sulzer has to decide where it wants to play and where it will consciously not play so that we can maximize at the end of the day, maximize the value of the company to the shareholder, of course, but not only also to our customers and to our employees. So it's really kind of a nice situation to have, but nevertheless, we do need to become very, very clear on our strategy. We have to be very clear on our commercial strategy, and we have to become very clear on our operational excellence.

Rolf Hennes from AMG. Maybe a question to Mr. Zickler. If I recall right, you mentioned regular free cash flow of CHF 200 million and that is before dividends. So that's operational after CapEx?

Yes, the free cash flow last year was CHF 211 million. And this is basically the level we want to come back after this one-off impact from the supply chain, which we have had in 2022. And this is after CapEx in all the others. It's free cash flow.

Yes. So -- but would you not expect a much bigger benefit from working capital normalization?

Yes. But I'm the CFO. I'm trying to manage the expectations. But tentatively, I'm on your side -- so I'm challenging my organization here much more on the free cash flow. But for the guidance, around CHF 200 million is the target for this year.

Okay. It's always good to have easy targets, right?

They'll have to do it.

Okay. But if you have CHF 150 million working capital in 1 year, you would expect some kind of normalization unless things stay so dense. If it's only half, it would be like CHF 75 million. So that's a big number on your CHF 200 million. And the other question, I suppose it will go a bit better than you now conservatively thing. You go to a net of -- you almost have no debt anymore, except the payments to your shareholder, right? That's just a conclusion because that's...

No. We have a net debt of around about CHF 250 million currently when you look at our balance sheet. And in the net debt there is this TI payable excluded because the TI payable is a normal payable because we have no maturity on this, and it's not counted as a financial debt. But the financial debt round about CHF 250 million.

So it could be that your net debt free at the end of this year. That was what I wanted to say. Then the question would be, what kind of leverage do you think is desired? Or do you feel comfortable with?

Was the improvement this year on net working capital and a higher free cash flow than in the end, I think we can come back to where we left in 2021 with round about 1.0.

Okay. And that means that around CHF 500 million you want to spend on external companies to buy. That's...

No, no, no. That's not behind that. We are -- we do not have, at this point in time, a forced acquisition strategy. It is not excluded, but we are -- and we are looking on acquisitions, but we are running and managing the company from -- on the basis of operational improvement and operational and organic growth. So that is -- but it's always nice to be able to act if something came along that would fit in strategy and that we will integrate in that and where we would indeed also create value. Right now, our focus is on organic growth and on operational improvement and on defining a strategy that really leads us into the future.

Yes. And also to add on your question with the net debt to EBITDA, yes, for sure, it's better that we come to 0 then in the end, this is clear. But I think as a next step, it's the 1 and then below 1.

You can maybe afterwards, see if your numbers add up.

So no questions. There are no questions in the call, as I can see. So if they are -- thank you for being back in the pipeline. I have a couple more maybe on the free cash flow since we were talking about that. You mentioned this one-off, but this is -- you're talking about working capital that is been one-off high. But you also had one-off on the P&L. These are cost. I wonder if this had an effect on FCF this year...

In the cash flow calculation...

I mean the cost for exit in Russia, the cost for exit in Poland.

We had also costs on this for Poland because Poland was deconsolidated already when we had the news in Poland. But when you look at our higher net working capital and you see it in our financials in the annual report that we have round about CHF 60 million, CHF 70 million of our net working capital on write-offs because this is gone. And we invested for this net working capital in Russia, but we don't get the money back because we cannot sell these. We cannot make products for '23.

Well, I want both. I was wondering there was an impact already this year and not if there is an impact coming in '23 from this?

No. In Russia, we have written off everything. So it's all reflected in the numbers 2022. So Russia, nothing more will come. There is a small FX impact, but this is a positive one. Currently, it's around about CHF 11 million plus depending on the exchange rates will go. So there's no additional impact from Russia expected and Poland is already.

Great. That was the first one. On the debt level, I understand what we have discussed so far, but I remember 2 years ago, with the medmix spin-off, basically, you posed down CHF 400 million debt. So I would have expected a bit of an even better balance sheet right now. Can you sort of explain me why we are not higher? Or was it that it was that bad...

You mean when we talk about net debt, why it went up. So net debt went up. First thing is we paid the dividend, but we have only a net income of CHF 28 million. So here, you see the impact. Then under IFRS, we have the lease liabilities, which we have to pay around about CHF 30 million. We had an FX impact around about CHF 20 million. So we also have the investment, I say, investment in net working capital, which is reducing our free cash flow. So we had a lot of, say, smaller issues and items which, in the end, led to round about the CHF 170 million net debt.

Okay. Sorry for this. You could have taken separately, you're right. Can I ask a last 1 for Ms. Thoma, since we have the opportunity to have you here. Going back to the M&A strategy. I understand you don't have it right now. I wonder if it's because you first have sort of a profitability target in mind for the group or maybe a sales level in mind that you should reach organically first before going faster on M&A? Is this the reason? Or is it really because you sort of prefer to look at what you have right now, learn about the business and then you decide it?

No, it's all of it. I mean, number one, M&A has to be value accretive. Otherwise, you shouldn't do it. And there are 2 elements of it. One is what do you pay? And the other thing is, do you have synergies that is the company also in a situation, in a position where it is strong on integration and then maximizing the value. And I believe that for the moment, we have enough to do internal and enough potential internal to deliver nicely for our shareholders and for all our other stakeholders, if there comes something across where everything is perfect, which it's very rarely the case, then I don't exclude an acquisition, but we do not want to be driven. The strategy is not driven by looking for acquisition targets because you don't want to have that. Unless you speak a very small acquisitions, then that is a difference. But the transformative acquisition or even a major acquisition, something I believe 1 should not face strategy on that.

We have no questions in the room. As there are no questions on the call. If there are no more questions, we are at the end. Thank you, Suzanne. Thank you, Thomas. Thank you, all of you, for joining this conference. And I hope, obviously, to see you soon again. And now we will have something to drink and to eat in the back of the room. Thank you very much.

Thank you that the Executive Committee of Sulzer is present Thomas this year, but also my colleagues here in the front row. So if you'd like to ask some questions to them or just have a chat, please feel free to do so. 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.