Sulzer AG (SULZF) (H1 2026) Earnings Call Highlights: Margin Expansion Amidst Geopolitical ...

Negative Points

• Group order intake declined by 3.9% in H1 2026, primarily due to project delays and the impact of geopolitical tensions in the Middle East.

• Chemtech division faced significant headwinds, with order intake down 22.7% and sales down 4.9%, driven by delays in large projects for new technologies like biopolymers and carbon capture.

• Free cash flow was negatively impacted by a CHF 117 million increase in net working capital, largely due to customer project delays and lower down payments.

• The Services division experienced delays in repair business as customers extended equipment run times due to high oil and gas prices, impacting order intake growth.

• Currency headwinds had a notable impact, with a 5% negative FX effect on both sales and orders, amounting to approximately CHF 100 million in absolute terms.

Q & A Highlights

Q: You mentioned that you expect the large orders just in Q4 rather than Q3. Given the large improvement needed to meet your guidance, would a weak Q3 mean that you adjust your guidance from today's perspective? A: Suzanne Thoma (Executive Chair & CEO): No. From today's perspective, we would not adjust our guidance because of a weak order intake situation in Q3, everything else being the same, of course.

Q: Do you have indications that larger projects will return in H2? Or why are you confident in the 2026 order guidance? A: Suzanne Thoma (Executive Chair & CEO): Yes, we have indications. We are working with our customers on large projects, preparing tenders, for example. Preparing tenders is not the same as receiving an order, but we see an increasing activity. However, it is rather likely that these orders will come in Q4, given where they are now in the decision-making cycle.

Q: How confident are you that the delayed customer projects will ultimately convert into sales rather than be canceled? Do your contracts include cancellation clauses or termination fees? What protections do you have in place? A: Suzanne Thoma (Executive Chair & CEO): The protection we have in place is that we have cancellation fees in the contract. Most importantly, these large projects are always cash-positive for Sulzer, so if something stops, the money is in Sulzer. Cancellation of large projects is not excluded, but in our assessment, this would only be the case if the situation in the Middle East further escalates. In our guidance, we have not taken into account a major escalation. Thomas Zickler (CFO) added that looking back over decades, we haven't seen project cancellations on a high magnitude ever.

Q: Can you please give further granularity on energy, infrastructure, water and industrial in Flow? It looks like some strengths offsetting other weaknesses. A: Thomas Zickler (CFO): In energy and infrastructure, we have a very good base business in H1, which is compensating partly for the missing larger orders. Energy and Infrastructure grew by 9.8% in H1. The water business is around 0, with slight growth. The industry business is in the single-digit minus, majorly hit by supply chain disruptions in the Strait of Hormuz, especially on the fertilizer side.

Q: MTCS sales are down minus 18%. Is this the bottom when you refer to stabilizing? A: Suzanne Thoma (Executive Chair & CEO): With the order intake stabilizing and still backlog that is there, we would say that the core business (MTCS) should be the bottom, barring any unforeseen events. Thomas Zickler (CFO) added that MTCS had a very weak Q1, which impacted sales, but the movement is turning around with a stable order intake in H1, indicating the bottoming of the MTCS business.

Q: On Chemtech, are there any restructuring costs we should think of? And is the margin in H2 suffering because of that? A: Thomas Zickler (CFO): We will have no major impacts from restructuring in H2. We are planning restructuring costs for Chemtech in the low-single-digit area. We have already announced an impairment for our R&D center in Singapore of around CHF8 million. On the visibility we have right now, we do not see that our profitability is impacted for Chemtech in H2. We think we can even slightly grow because the cost measures taken by end of H2 are coming to a full run rate in the second half of this year.

Q: Can you say something on net working capital in H2? A: Thomas Zickler (CFO): I hope this will improve. When the larger orders come in, which are currently planned for Q4, we will also receive larger down payments for these orders. By this fact alone, our net working capital will improve, and also our free cash flow. I foresee net working capital decreasing to the year-end, but I cannot tell you the magnitude right now as it is strongly dependent on the larger orders we will get in H2.

Q: Can you please give an update on the electromechanical side of service and OEM pump service? We speak a lot about turbines but not much about the other two segments. A: Thomas Zickler (CFO): On the electromechanical part, every turbine needs a motor, and we see this business area growing strongly. We are going to most likely invest in this business and are working on having very good margins. It was a side arm of the Services strategy a few years ago, but it has become an important part of the growth story. Pump services is developing nicely, though it can be impacted if whole projects are delayed.

Q: In the Middle East, there are or were projects for several pipelines in Saudi Arabia, Oman, Iran. Can you give an update here? A: Suzanne Thoma (Executive Chair & CEO): These projects are in the planning phase, and we are participating in them. It doesn't mean we have the business, but we are very close to the customers preparing the final offer.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .