SERVICE
EXCELLENCE
THROUGH
INNOVATION
Annual Report 2016
Contents
1
Interview with Chairman
and CEO
6 Focus
31 Business Review
33
Financial Review
38
Business Review Divisions
44
Sustainable Development
51 Corporate Governance
54 Corporate Structure and Shareholders
54 Capital Structure
55
Board of Directors
64
Executive Committee
64
Shareholder Participation Rights
65
Takeover and Defense Measures
65
Auditors
68
Risk Management
70
Information Policy
71 Compensation Report
73
Letter to the Shareholders
75 Compensation Governance and Principles
78 Compensation Architecture
86
Compensation of the Board of Directors
and the Executive Committee
90
Shareholdings of the Board of Directors
and the Executive Committee
92
Auditor’s Report
93 Financial Reporting
95 Consolidated Financial Statements
165
Financial Statements of Sulzer Ltd
179
Investor Information
Our Service World
SERVICE FIELDS
Sulzer offers a variety of services for rotating
equipment and equipment used in separation
technology.
8
CUSTOMER BENEFITS
Sulzer’s one-stop services help customers save
time and money, and they increase the reliability,
performance, and efficiency of their equipment.
14
CORE COMPETENCIES
The company’s professional service team, global
footprint, and one-stop offering make Sulzer a
reliable and fast service partner.
22
Sustainable Development
INNOVATION AND TECHNOLOGY
Sulzer commits itself to developing innovative,
reliable, and resource-conserving solutions.
45
ECOLOGICAL SUSTAINABILITY
Sulzer reduces its own environmental footprint
and develops highly efficient solutions for its
customers.
46
SOCIAL SUSTAINABILITY
Sulzer drives safety excellence and fosters cultural
exchange among its employees.
48
Pull here to read
our facts and figures
OUR MISSION STATEMENT
Sulzer specializes in pumping solutions, services for rotating equipment,
and separation, mixing, and application technology. We create reliable and
sustainable solutions for the oil and gas, power, water, and general industry
markets. Combining engineering and application expertise, our innovative
products and services add value for our customers and strengthen their com-
petitive positions.
SMD Pumps
SMD pumps are designed for a wide
range of raw, clean, sea, and brackish
water applications such as water
treatment and transport as well as
desalination.
Mixing Systems
Mixing systems are used for the
packaging, metering, mixing, and
dispensing of one- or two-compo-
nent materials in healthcare and
industrial markets.
Separation Columns
Within separation columns, crude oil
and natural gas are separated into
their many components.
Facts and Figures
In 2016, Sulzer proved resilient in a challenging market environment. Currency- adjusted order
intake and sales decreased by 2%. Except for the oil and gas market, activity in all other
markets—power, water, general industry—increased. Order intake gross margin remained
stable. Operational EBITA and operational ROSA declined.
Sales by division
Sales by market segment
Sales by region
2016
2016
2016
52% Pumps Equipment
48% Oil and gas
12% Water
44% Europe, Middle East, and Africa
23% Rotating Equipment Services
16% Power
24% General industry
36% Americas
25% Chemtech
Key figures
millions of CHF
Order intake
Order intake gross margin
Order backlog
Sales
EBIT
opEBITA
opROSA
opROCEA
Net income attributable to shareholders of Sulzer Ltd
Basic earnings per share from continuing operations
Free cash flow
Net liquidity
Employees (number of full-time equivalents) as of December 31
1) Adjusted for currency effects.
20% Asia-Pacific
2016
2 797.5
34.0%
1 439.1
2 876.7
115.3
238.9
8.3%
15.7%
59.0
1.73
200.5
– 35.9
14 005
2015
2 895.8
33.8%
1 510.7
2 971.0
120.9
254.1
8.6%
17.0%
73.9
2.17
155.8
695.7
14 253
Change
in +/– %
– 3.4
– 4.7
– 3.2
– 4.6
– 6.0
– 20.2
– 20.3
28.7
– 1.7
+/– %1)
– 2.0
– 2.0
– 4.4
14 000
180
CHF
2.9 billion
Employees
Close to 14 000 employees from all over
the world work at Sulzer.
Production and service locations
Sulzer’s production and service
network spreads across the globe.
Sales in 2016
Sulzer generated sales of CHF 2.9 billion
in 2016.
Sulzer at a Glance
Sulzer specializes in pumping solutions, services for rotating equipment, and separation,
mixing, and application technology. The company holds leading positions in the oil and
gas, power, water, and general industry markets. Sulzer serves customers with over
180 production and service sites in more than 40 countries.
Pumps Equipment
Pump technology and solutions
We provide a wide range of pumping solutions,
related equipment, and services. Customers
benefit from extensive research and development.
We supply highly efficient products that help reduce
emissions and energy consumption. Our state-of-
the-art production and testing facilities around the
globe ensure customer proximity.
Our market focus is on:
— The production, transport, and processing of
crude oil and its derivates
— The supply, treatment, and transport of water
as well as wastewater collection
— Fossil-fired, nuclear, and renewable power
generation
— Specific general industries, e.g., pulp and paper,
fertilizers, and other markets
Rotating Equipment Services
Service solutions for rotating equipment
We offer service solutions for turbines, pumps,
compressors, motors, and generators. Customers
benefit from reliable and efficient repair and
maintenance services. Our technically advanced
solutions reduce maintenance time and cost. Access
to our global network from one point of contact
ensures high-quality local service.
Our market focus is on:
— Industrial gas and steam turbines
— Turbocompressors
— Generators and motors for the marine and
rail market, the power market, and many
more industries
— Pumps in the oil and gas market, the power
market, and many more industries
Chemtech
Separation and mixing technology and
associated services
We offer separation and mixing technology, process
solutions, and field services for the oil and gas,
hydrocarbon, and chemical processing industry. Our
advanced and economical solutions set standards in
the field of mass transfer and static mixing.
Our market focus is on:
— High-performing tower internals and separators
— Process engineering and skid solutions
— Service for towers and static equipment
Applicator Systems (as of January 1, 2017)
Systems for liquid applications
We offer products and services for liquid application
and mixing technology. Our customers benefit from
advanced solutions in the field of precise applications
as well as one- and two-component mixing and
dispensing systems. Our global network ensures
local knowledge and competence.
Our market focus is on:
— Mixing and dispensing systems for the adhesives
and dental markets
— Precise application systems for liquid color
cosmetics and beauty accessories
— One- and two-component application systems
for healthcare markets
“Sulzer proved resilient in a challenging
market environment”
1
Interview with Peter Löscher,
Chairman of the Board of Directors,
and Greg Poux-Guillaume, Chief
Executive Officer
headwinds. I believe in the future of Sulzer, and I am excited
to lead the team shaping it.
Sulzer’s service offering is growing. How important is the
service business for you?
Sulzer looks back on a rich history of more than 180 years.
What, in your opinion, does the Sulzer brand stand for today?
peter löscher | Sulzer has a distinguished industrial history.
Throughout its 183 years of existence, the company has
experienced significant changes. And what I find particularly
impressive: whenever Sulzer has faced a market challenge,
the company has been able to reinvent itself and emerge
from that phase stronger than before.
greg poux-guillaume | Our brand is very strong. It is a symbol
for engineering expertise, high-quality products and solutions,
and it stands for innovation. Our people are true experts in their
fields and are passionate about what they do. We set ourselves
the highest standards in terms of quality. Being a reliable, fast,
and trusted partner for our customers is our top priority.
Mr. Poux-Guillaume, you have been CEO for more than a
year. Can you draw a conclusion? What was your highlight
in 2016?
gpg | 2016 was certainly a year of transformation for us.
Sulzer is a great company with high-quality products and
services and talented people. I am very proud to be a part of
this company and of this management team. Our primary
goal is to make Sulzer a sustainable leader in its segments,
and we have made good progress towards that.
However, it has also been a tough year. The market environ-
ment remains very challenging in oil and gas, which is half of
our business. We had to take some difficult but necessary
measures to downsize and reposition the company. Looking
back at 2016, it was great for me to see that Sulzer remained
resilient in a complex market environment with a lot of
gpg | Our service share has steadily increased over the last
few years. We currently generate roughly 50% of our sales in
the aftermarket. The service and spare parts business is more
resilient in the current market environment, and it tends to
have higher margins than the new equipment business. So,
yes, service is very important to us and takes a significant
position in our strategic thoughts.
pl | The service business is becoming increasingly competi-
tive as new equipment volumes wane. Traditional manufactur-
ing companies are realizing the immense value of aftermarket
services such as maintenance and repairs or long-term
service agreements, for instance. And customers are looking
for the full package—service partners who are fast, reliable,
offer competitive prices, and have the ability to innovate.
Sulzer has all that and more.
How was Sulzer’s performance in 2016? Did you reach
your targets?
gpg | We did well in a very challenging year. Our order intake
decreased to CHF 2.8 billion—a 2% drop due to headwinds
from the oil and gas market. Still, Sulzer maintained or even
gained market share. Our sales were also down by 2% to
CHF 2.9 billion but the comprehensive Sulzer Full Potential
(SFP) measures allowed us to save another CHF 88 million.
Thus, we were able to mitigate most of the pricing and
volume erosion, which lead to an operational profitability that
is down by only 30 basis points. We delivered a strong free
cash flow above last year’s level in a market where customers
had less money and stretched out their payment terms.
Overall, we beat our guidance on all of the key performance
indicators: we fulfilled our promises. There is still a lot to do,
but we are heading in the right direction.
2
“Our aftermarket business is more resilient and tends to have higher
margins than new equipment. Sulzer has significant development
potential in the service business which is exciting.”
Greg Poux-Guillaume, CEO
pl | Despite these difficult circumstances, we were able to
generate value for our shareholders. While our core net
income per share was down, we demonstrated our strong
cash generation ability despite considerable market headwinds.
The Board of Directors is therefore pleased to propose an
ordinary dividend that is on last year’s level of CHF 3.50 per
share at the Annual General Meeting on April 6, 2017.
The oil and gas market continues to be very demanding for
all market players. How do you see the development in this
market in 2016?
gpg | Headwinds in the oil and gas market have persisted.
The pricing environment continued to deteriorate in 2016 in
this market and we do not expect this pressure to abate in
2017. Customers have cut their capital expenditures and
operating costs, leading to significant overcapacity in the
industry. This tends to make companies more aggressive in
terms of pricing as they await the rebound in the cycle.
Towards the end of the year, OPEC decided to cut its oil
output and triggered a number of non-OPEC nations to follow
this decision. This prospect strengthened the rebound of oil
prices to over USD 50, a good development for our industry.
But we remain cautious and have not changed the course of
our SFP plan. So far, oil production is still sur passing demand
and we have not seen an impact on our commercial pipeline.
The commercial rebound we are expecting is not just a
question of absolute oil prices; it also hinges on the confidence
of oil companies in a sustainable recovery of the market.
When do you expect a commercial recovery in the oil and
gas market?
pl | As a supplier to the oil and gas industry, we are close to
the end of the value chain. When international or national oil
companies start investing again, this trend usually transforms
into orders for Sulzer six to eight months later. Like many
market participants, we expect that supply and demand will
rebalance sometime in the second half of 2017. This means
that the commercial rebound for Sulzer’s products and
services is more likely to occur in 2018.
How did Sulzer perform in the other markets in 2016?
gpg | In terms of order intake in 2016, we grew in most of our
other markets, including power and water. General industry,
which encompasses everything else, was also healthy and
boosted in part by the acquisitions we closed. Sulzer’s
current struggles are oil-and-gas related and we should not
lose sight of the fact that the other half of our business is
performing well.
What is the status of the Sulzer Full Potential (SFP) program?
What did you achieve in 2016?
gpg | Our objective with the SFP program is to save
CHF 200 million on a 2018 run rate. Today, more than 90%
of those savings have been secured through actions that
we have already launched. We announced all significant
restructuring measures in 2016. We saved CHF 88 million in
2016, and we expect another CHF 40 to 60 million of savings
for 2017. So, SFP is progressing very well. We are ahead
of schedule, and we will deliver the numbers we promised
to deliver.
pl | We were an early mover in terms of taking out costs and
optimizing our factory footprint. We have one of the most
comprehensive transformation programs in the industry,
and it is generating results, making Sulzer more efficient, agile,
and competitive. As soon as volumes recover, this effect will
become visible in our bottom line.
Sulzer acquired five businesses in 2016.
gpg | Yes, we have said that we are targeting small to midsize
acquisitions at the right price, and we managed to execute on
that plan.
3
Peter Löscher, Chairman of the Board of Directors, and
Greg Poux-Guillaume, CEO, discussing the past year at Sulzer.
4
What is your merger and acquisitions strategy?
pl | We target companies that fill gaps in our product portfolio
and strengthen our presence in certain regions or segments.
We concentrate on small and midsize acquisitions that can
be integrated into our company quickly and where one plus
one equals more than two.
gpg | Sulzer has an active and ongoing M&A pipeline, but it is
all about value. I believe that our recent track record of deal
execution will demonstrate that when we can get the right
asset at the right price, we get things done. But we also
know when to walk away.
How do you see your competitive landscape evolving and
what does it mean for Sulzer?
pl | The flow control industry has all the markings of an
industry that should consolidate. Being part of that through
an industrial combination that creates significant value is
always an option. But our main focus is on our transformation
plan. The best value creation lever for our shareholders will
remain the implementation of the SFP program. We have
supportive, long-term shareholders and our focus is on what
we can control.
You said that innovation is a key component of Sulzer’s
brand. How do you make sure it remains a priority during
your transformation?
gpg | With the introduction of many new products in 2016, we
have proven that innovation is and will remain a key pillar of
our strategy and our culture. It is true that during a transfor-
mation, priorities need to be set. But we have not compro-
mised on innovation, and we are celebrating that through the
Sulzer Innovation Awards we launched recently. Once a year,
we will celebrate outstanding Sulzer innovations and their
inventors. Our company is bursting with talent and creativity;
it is an inspiration to us all.
Greg Poux-Guillaume
looks back on an exciting
yet demanding year at Sulzer.
We more than doubled the size of our applicator business,
leading us to carve it out of Chemtech and create a new
division. In April, we took over PC Cox, a leading manufacturer
of industrial dispensers. We then closed the acquisition of
Geka in August. Through this, we diversified our applicator
business into the beauty segment and gave it unrivalled
industrial scale. Since January 1, 2017, these businesses
have been part of our new Applicator Systems division, a
leader in proprietary B2B mixing and applicator solutions.
We also grew on the pumps side. In December, we signed an
agreement to acquire the pump manufacturer Ensival Moret.
With this transaction, we managed to close specific product
gaps in our pumps portfolio relating to axial flow pumps and
slurry pumps, thereby bringing additional reach to our
pumps business in the general industry segments. We also
expanded our turbo equipment service footprint by acquiring
control of Rotec’s gas turbine service business in Russia.
This acquisition makes us a leading player in a promising
energy market where localization is a must. Finally, we bought
a product range from Wärtsilä to strengthen our upstream
separation business in Chemtech.
“We always strive for something more with our products and
solutions. Being a reliable, fast, and trusted partner for our
customers is our top priority.”
Peter Löscher, Chairman of the Board of Directors
5
The year 2016 brought many changes in the top manage-
ment. Why?
Mr. Löscher, what is your vision for Sulzer?
pl | Sulzer will be an employer of choice for the best talent
and a preferred partner to our customers. We are creating an
agile organization that can adapt quickly to changing market
conditions. And we will grow profitably. I am convinced that
Sulzer’s strong brand, its passionate employees, and its
extraordinary products and solutions are the key ingredients
to overcoming these challenging times. We are well on the
way to achieving our goals, and we will continue to follow this
path with all our energy.
Peter Löscher
wants to make Sulzer an employer
of choice for the best talent.
gpg | There is certainly a market dimension to this. Four of our
top five competitors in the pumps industry announced a CEO
change in 2016. Market conditions change and companies
adapt their leadership team to reflect that—much like in
sports. In our case, we had a Division President retire and
another take an extended leave of absence for family reasons.
Our top Human Resources position had also been vacant for
six months. And we did not have a Chief Commercial and
Marketing Officer. That was a weakness in a challenging
commercial environment where Sulzer had to learn to work
better as a team. All of this came to a head at the same time
and gave us the opportunity to not only strengthen the team
but also diversify our talent pool. We believe that we now
have the stable, dynamic management team that will take
Sulzer to the next level.
pl | The Board of Directors was very pleased to welcome two
new members: Axel C. Heitmann and Mikhail Lifshitz. Both
have rich experience from their activities as board members
and leaders of international companies. They had to step
into the large shoes of Klaus Sturany, who did not stand for
reelection. And the Board is convinced that with Greg and his
team, Sulzer has the right leadership.
Looking ahead, what do you expect for 2017 in terms of
financial performance?
gpg | It will be a transition year. We will reach the end of our
cost-cutting measures in 2017—before the market rebound
we expect for 2018. So, we are expecting a challenging year
during which we will work hard to maintain volumes and to
protect our profitability while we complete our transformation.
But it is all about execution, and 2016 gives us solid reasons
to believe that Sulzer can and will execute.
6
Dashboard
Sulzer—Annual Report 2016
SERVICE
EXCELLENCE
THROUGH
INNOVATION
Service Fields
Customer Benefits
Core Competencies
Sulzer offers a variety of services for
rotating equipment and equipment
used in separation technology.
Sulzer’s one-stop services help
customers save time and money,
and they increase the reliability,
performance, and efficiency of
their equipment.
The company’s professional service
team, global footprint, and one-stop
offering make Sulzer a reliable and
fast service partner.
8
14
22
Sulzer—Annual Report 2016
Dashboard
7
GLOBAL FOOTPRINT
Sulzer is present with over 180 production and service sites
in more than 40 countries around the world. The company
generates 38% of its sales in emerging markets. Sulzer
ensures that all the locations fulfill its high quality and safety
standards. The company is constantly investing in state-of-
the-art machine tools, packaging, and test facilities.
Sulzer’s global manufacturing and service network combines
the advantages of a global company with the flexibility of a
local partner.
CLOSE TO CUSTOMERS
>180
production and service sites around the world.
EMEA
EUROPE, MIDDLE EAST, AFRICA
AROUND 7 500 EMPLOYEES
AME
AMERICAS
AROUND 3 800 EMPLOYEES
APAC
ASIA-PACIFIC
AROUND 2 700 EMPLOYEES
8
Service Fields
Sulzer—Annual Report 2016
SERVICE
FIELDS
Sulzer—Annual Report 2016
Service Fields
9
SERVICE
FIELDS
100
Sulzer operates 100 service
centers for rotating equipment
in 25 countries.
> 200
Sulzer offers services for more than
200 pump models.
Interview with
Daniel Bischofberger
Service Portfolio
Daniel Bischofberger, Division President Rotating
Equipment Services, provides insight into the world of
service and outlines current trends in the industry.
Sulzer offers services for different types of rotating
equipment and applications in separation technology.
10
13
10
Service Fields
Sulzer—Annual Report 2016
Daniel Bischofberger, the new President
of Sulzer’s Rotating Equipment Services
division, talking about customer needs
and trends in the service business.
11
“ The service business
is becoming increasingly
innovative”
Interview with Daniel Bischofberger, Division President Rotating Equipment Services
Having been in office for a few months,
Daniel Bischofberger explains what
customers expect from a service supplier,
why a global network and a professional
team are critical, and how the service
business is changing.
In today’s service industry, what are customers looking for?
daniel bischofberger | The needs of customers in our industry
do not differ much from what every one of us demands from
a service supplier. When people buy a product, they want it
to run when they need it to run, and they need the product
to work the way it is supposed to work. And the costs should
be as low as possible. Customers are looking for service
providers who possess the tools, equipment, and expertise to
make sure that their machine is running reliably and efficiently
at optimized costs.
power plant at a different site. However, the performance
of the steam turbines was not compatible with that of the
gas turbine. Hence, the steam turbines had to be rerated,
which means that the performance had to be adjusted. This
requires know-how you would normally expect from an OEM
but not from an ISP. Thanks to the competence of our team
in Houston, we completed the job to the customer’s fullest
satisfaction. This example shows that we are able to provide
services for a broad range of products, and we have the
technical expertise to do more for our customers than they
normally expect from an ISP.
“We combine the best of two worlds:
the world of the original equipment
manufacturer and the world of the
independent service provider.”
How does Sulzer differentiate itself from other competitors?
Sulzer has consolidated its service business. What does
that mean?
db | Sulzer combines the best of two worlds: The company
has the technical expertise of an original equipment manufac-
turer (OEM) and the competencies of an independent service
provider (ISP). We are flexible and fast. With our network of
roughly 100 service centers in 25 countries, we are close to
our customers. In addition, our product and service portfolio
is exceptionally broad.
Can you give an example?
db | One of our customers relocated the gas and steam
turbines of two different plants to a new combined-cycle
db | We are becoming a one-stop service supplier. We are
establishing service centers where we can repair a range of
different products under one roof. That way, operators have
one access point for the service of all their rotating equipment.
Now that the service and new equipment businesses
are in different divisions, we have to ensure that the close
collaboration and knowledge exchange remain as strong
as they were when they were both in the same division. For
example, the pumps service teams need to share their field
experience from our installed pumps base with our colleagues
in product development to further optimize our pump designs.
Service FieldsSulzer—Annual Report 2016 12
What trends do you see in the service industry?
Are there women in the service business?
db | Far too few [laughs]. Unfortunately, the industrial service
business—we are active in markets such as oil and gas,
power, or mining—attracts fewer women than other markets.
In addition, many of our employees work on the shop floor as
mechanics and on customers’ sites as field service engineers.
These kinds of jobs traditionally have a lower share of women.
Fortunately, there are many women in functions like sales, HR,
finance, or engineering at Sulzer. Despite the difficulties in
attracting more women, I truly believe in the power of diversity.
We continue to strive for a higher share of women in our
businesses, be it in white- or blue-collar functions.
Daniel
Bischofberger
Daniel Bischofberger joined Sulzer in September 2016.
Most recently, he ran the Power Products division at
ABB Switzerland. Daniel Bischofberger has extensive
experience in rotating equipment service, having
previously led the ABB/Alstom (now GE) gas turbine
service business out of Switzerland. He started his
career as a commissioning engineer for gas turbine
power plants in the US and Libya. He holds a Master’s
degree in industrial engineering from the Swiss Federal
Institute of Technology (ETH), Zurich, Switzerland,
and a Master of Business Administration (MBA) from
Insead, Fontainebleau, France. Daniel Bischofberger is
Swiss, married, and has three children.
db | New players are entering the market, which results in
growing competition but also in growing innovation. On
the customer side, we see that operators are increasingly
optimizing their maintenance and operation costs. This does
not necessarily mean “the same but cheaper.” It also includes
services enabled by digitalization, such as monitoring and
maintaining equipment proactively, prolonging maintenance
intervals, reducing revision time, and developing innovative
repair technology to extend the lifetime of products and
components. Because some customers are streamlining their
organizations, they expect their service partner to take over
activities they cannot perform in house anymore.
Based on your extensive experience, where do you see
Sulzer’s potential?
db | We have a strong regional footprint, but we can improve
in our exchange of skills and knowledge among these regions.
We have to leverage the best practices of a global company
and copy from each other with pride. We are working on a
global growth strategy for our service ranges—turbo services,
pumps services, and electromechanical services. Further, in
order to be even closer to our customers, we plan to estab-
lish more multipurpose service centers where we provide a
variety of different services under one roof. We still have some
work to do when it comes to collecting data from our installed
pumps base more systematically, reducing the leadtime of
pumps spares, and better integrating the motors and genera-
tors business. Regionally speaking, I see growth potential for
our service business in Asia.
“We are becoming a one-stop
service supplier. We are establishing
service centers where we can repair
a range of different products under
one roof.”
Which skills do you expect from a service employee?
db | Service is a people business. A professional service team
is essential for us. There are three skill sets that I—and our
customers —expect from a service employee. First: customer
focus and entrepreneurship. You have to be able to listen to
customers, to ask the right questions, and to find the right
solution with them. Second: flexibility. As a service supplier,
you need to be available around the clock, and you need to
be fast, reliable, hands-on, and pragmatic. Third: technical
competence and practical experience. Because every
product behaves differently in the field, theoretical knowledge
is required but usually not sufficient.
Service FieldsSulzer—Annual Report 2016 Sulzer—Annual Report 2016
Service Fields
13
PUMPS—OVERHUNG,
VERTICAL, AXIAL MULTISTAGE
30+ manufacturers / 200+ models
Working temperature: up to 200 °C (400 °F)
Power: up to 30 000 horsepower
Weight: 23 tons (50 000 pounds)
SERVICE
PORTFOLIO
Sulzer offers a comprehensive service portfolio for different
types of rotating equipment: pumps, turbines, compres-
sors, motors, and generators. As an independent service
provider, the company takes care of rotating equipment of
any make and model. Sulzer’s business unit Tower Field
Service provides installation, repair, welding, and turn-
around services for offshore platforms, oil refineries, and
the petrochemical industry.
COMPRESSORS—CENTRIFUGAL,
AXIAL FLOW, SCREW, GEARED,
RECIPROCATING
STEAM TURBINES, GAS TURBINES,
AND HOT GAS EXPANDERS
145+ manufacturers / 850+ models
Power: up to 30 000 horsepower
Speed: up to 15 000 revolutions per minute
Weight: up to 90 tons (200 000 pounds)
90+ manufacturers / 590+ models
Working temperature: up to 1 371 °C (2 500 °F)
Power: 1 – 250 megawatt
Weight: 90 tons (200 000 pounds)
TOWER FIELD SERVICES
MOTORS AND GENERATORS
Column diameters:
up to 12.5 meters;
Column heights:
up to 110 meters;
Servicing of up to
114 vessels on
one project;
Coordination of
up to 2 000 workers
on-site
20 manufacturers
Power: 10 – 50 megawatt
(13 400 – 67 000 horsepower)
Voltage: 6.7 to 13.8 kilovolt
Weight: 45 tons
(100 000 pounds)
14
Customer Benefits
Sulzer—Annual Report 2016
CUSTOMER
BENEFITS
Consulting
Monitoring
MAINTENANCE
AND SUPPORT
SERVICES
DIAGNOSTIC
AND CONSULTING
SERVICES
TECHNICAL
AND ECONOMIC
OPTIMIZATION
Inspection
Technical improvement
Reliability increase
Sulzer—Annual Report 2016
Customer Benefits
15
CUSTOMER
BENEFITS
On-site services
Spare parts
Workshop services
Economic optimization
One-Stop Services for
Separation Columns
Minimize Shutdown Time
Using the
Power of Data
Sulzer’s one-stop services to
upgrade and protect a separation
column of an oil refinery in Spain
helped the customer save time
and money.
Sulzer’s data management toolkit
identifies unreliable and inefficient
pumps in near real time.
Dedicated
Service Solutions for
Rotating Equipment
Sulzer provides manifold
services such as diagnostics
and consulting, technical and
economic optimization, and
maintenance and support.
16
20
21
16
Customer Benefits
Sulzer—Annual Report 2016
In oil refineries such as the Repsol
Tarragona facility, crude oil is separated
into its many components.
Customer Benefits
17
One-Stop Services
for Separation Columns
Minimize Shutdown Time
In Repsol’s Tarragona refinery in Spain,
one of the main separation columns
needed to be modernized during a
shutdown. Sulzer was able to provide
the complete solution to upgrade and
to protect the columns from corrosion.
The comprehensive service from a single
source saved the customer a significant
amount of money and time.
The massive size of oil refineries is a contrast to what
happens inside the columns: Finely built trays and other
internals separate crude oil and natural gas into heating oil,
gasoline, and other valuable substances. Oil consists of
up to 17 000 components; separating them is a complex
under taking. Distillation columns play a central part in this
process. They consist of many separation stages, where
trays and other internals are used.
Separating oil into
its many components
The oil is pumped into a furnace and then heated to 400°C.
The various components of the oil evaporate and rise in the
tower. The component parts, called fractions, are collected
and extracted at the same level as their conden sation points.
Because heavy oil consists of relatively large molecules, it
already condenses at high temperatures and can be drawn
off in the lower part of the column. Light distillates and
gases made up of much smaller molecules only condense
with decreasing temperatures. They are extracted at higher
levels of the column.
The same process is used in the petrochemical industry.
After the crude oil is separated in the refinery, the oil and gas
components are once again separated. The results are
chemicals and base materials for the plastics industry.
Keeping up with industry standards
Refineries are continuously undergoing modernization to keep
up with industry standards and to improve energy efficiency.
Being able to offer the latest technology and to perform
on-site work safely and on time is the foundation for a good
and long-lasting cooperation with customers. Tower Field
Service, a business unit within the Chemtech division,
performs turnarounds on customer sites.
Sulzer supported Repsol Tarragona in their major refinery
upgrade. The customer decided to award the service contract
to Sulzer because the company was able to provide the
complete solution—modernizing the separation column and
protecting it from corrosion. The revamp was performed
during a planned maintenance shutdown in summer 2016.
Every day counts
During the shutdown, Sulzer’s Tower Field Service team
worked inside the columns. The service representatives
dismantled the existing separation trays and packings.
Afterward, they applied an upgraded metallurgy to the shell
—a so-called weld overlay—and installed the new, Sulzer-
manufactured equipment. Weld overlay is a welding process
where one or more metals with specific characteristics are
applied to a base metal. In this way, it protects the column
against corrosion and erosion. In 2015, Sulzer acquired
InterWeld, a specialized automated weld overlay company,
and it has recently developed state-of-the-art equipment that
can operate in extreme conditions.
Sulzer—Annual Report 2016 18
Customer Benefits
Rodolfo Amezquita talking to his
team at a customer’s site.
“ Planning and executing
large projects is a fascinating job”
Rodolfo Amezquita comes from Mexico and has been
working with Sulzer for seven years. He is Sales
Manager in the Tower Field Service team within
Sulzer’s Chemtech division. In his job, he carries out
large turnaround projects for the oil and gas down-
stream and the chemical industry in Latin America.
In these service projects, he coordinates thousands
of workers on-site:
“One of our recent projects was a large turnaround of
a refinery in Latin America. We performed an extensive
refurbishment of two catalytic units and were fully
responsible for all the equipment: towers, heaters,
exchangers, fin fans, piping, and drums. We even did
some civil engineering by building a small overhead
walkway in one of the units.
The biggest challenges in this project were the lack of
local supplies and equipment as well as the coordination
of over 1 000 workers. We had to find vendors in larger
cities to meet the demands of the project. We coordi-
nated the employees by dividing the work by units and
tasks. Lead supervisors were responsible for the
day-to-day tasks and for updating their progress daily.
We were all happy in the end. We managed to success-
fully finish this project with a magnitude of more than
400 000 man-hours on time and without a safety incident.
For me, it is really a fascinating job to plan and execute
such large projects.”
Sulzer—Annual Report 2016 Customer Benefits
19
A shutdown is cost-intensive and every day counts. Because
the timeframe was tight, detailed planning and control were
required. During the shutdown, the customer asked the team
to clad additional sections, which resulted in a surface area
that the team needed to protect that was twice as large as
planned. Despite the additional scope, the team completed
the service within the time schedule.
Saving energy, cost, and time
Thanks to weld overlay technology, corrosion of columns can
be slowed down. This enhances the operational reliability of
the plant and ultimately saves costs for maintenance and new
investments. Not only is the lifetime of the columns extended,
but the processes are also more energy-efficient. Since
distillation towers consume a large portion of the energy
demand of a plant, the development of energy-saving mass
transfer technologies is essential.
Sulzer is market leader in the technology for fractionation
columns used in separating oil into various hydrocarbon
compounds. Over the last few years, Tower Field Service has
completed work on many major plant-wide turnarounds
around the world. In the past year, it performed over four
million man-hours, with projects ranging from 30 000 to over
500 000 man-hours.
Design of column internals is essential
Minimizing shutdown time and costs is not only about the
speed of the service team; the effort already begins during
the product design phase. The design of column internals
can influence how quickly the service team is able to isolate,
open, inspect, modify, repair, and close columns. A refinery
turnaround has to be performed at intervals of two to five
years because the equipment wears down during operation.
This is a good opportunity to replace column and separator
internals with the newest technology.
Sulzer integrates several features into its tray designs that can
reduce column shutdown time. For example, removing and
replacing separation trays can take a long time. In fact, the
larger the tray, the longer it takes. This is not only because of
the enormous size of the trays but also because the different
tray panels need to be connected to each other. Sulzer offers
boltless panel-to-panel connections called Lip-Slot™. The
interlocking tray panels can be quickly secured to each other
with a click system instead of having to bolt the panels
together. The special design reduces the time needed to
install the equipment by up to 50%. This means that service
representatives can install two Lip-Slot trays in the time it
normally takes to install one conventional tray.
Another time-saving factor is the design of the tray manway
panels. There can be as many as 100 separation trays inside
a column. They are typically installed at a distance of 400 to
600 millimeters from each other. For inspection purposes, the
service team needs to climb all across the tower and access
each tray. To access the individual trays, they climb through a
small opening in the tray: the manway. To open a conventional
manway, service employees need to unbolt several screws.
Depending on the size of the column or the tray, it can take
up to 10 to 15 minutes to access one tray. Sulzer provides
quick-opening manways that allow access to the tray in less
than ten seconds. The manways come with handles and
special locks that allow them to be opened and closed
without losing tightness between the manway panels. The
panels can be opened or closed from either the top or the
bottom of the tray. Imagine that service employees need to
access 20 trays. With conventional manways, it would take
Sulzer—Annual Report 2016 20
Customer Benefits
Using the
Power of Data
In a pump station, everything comes down
to efficiency, performance, and reliability. For
customers throughout the industry, optimizing
their pumps is a priority. Sulzer offers a data
management toolkit that identifies unreliable and
inefficient pumps in near real time.
In today’s fast-paced environment, oil and gas, power,
and water companies are constantly pressured to
reduce costs and increase throughput. However,
many face a challenge: they do not know how energy
efficient their pumps really are. Collecting and analyzing
data is a complex and time-consuming process.
Nevertheless, unless it is done, there is no way to be
able to identify and improve energy efficiency. Besides,
the farther away a pump operates from the best
efficiency point, the higher its vibration and the more
frequent the outages are.
Sulzer has developed a data management toolkit
called Blue Box™. Blue Box helps customers optimize
their pumps’ productivity and reliability. It consists of
three modules:
1) Data acquisition: Data is collected to be able to
evaluate the actual efficiency and reliability of the
equipment.
2) Data analysis: A customized dashboard enables
customers—with the help of Sulzer experts—to
analyze the data. In this way, they can identify
unreliable and inefficient pumps.
Data can support customers in identifying
unreliable and inefficient pumps.
them about five hours. With a quick-opening system, the
same can be done within one hour. This time-saving
techno logy leads to significant cost savings in turnaround
projects.
3) Targeted actions: Based on the analysis—which
includes information about payback time—the
customers can decide if they want to modernize the
equipment through a retrofit.
Equipment in over 100 000 columns
all over the world
Sulzer offers more than 200 innovative and high-performance
products for separation and mixing technology. They
are installed in over 100 000 columns, 40 000 gas/liquid
separators, and 100 000 mixers around the world.
In addition to separation, reaction, and mixing technology,
Sulzer supplies pumps for refineries and petrochemical
plants. The company also provides comprehensive repair
and maintenance of gas and steam turbines as well as
compressors, which increases reliability and equipment
availability.
An example from a North American pipeline company
illustrates to what extent energy efficiency directly
affects costs. Data, mastered by Blue Box, revealed
that the efficiency of the pipeline pumps suddenly
dropped by 5% from one day to the next. This resulted
in an increase in energy costs of half a million US
dollars every year. Only if these efficiency gaps are
visible can customers make well-informed decisions
and initiate measures.
www.sulzer.com/bluebox
Sulzer—Annual Report 2016 Sulzer—Annual Report 2016
Customer Benefits
21
DEDICATED SERVICE SOLUTIONS
FOR ROTATING EQUIPMENT
DIAGNOSTIC AND CONSULTING SERVICES:
Taking informed decisions and maintaining control
Monitoring
• On-site monitoring
• Remote monitoring
3
Consulting
• Training programs
• Shutdown planning
100
Inspection
• Mechanical inspection
• Performance analysis
• System analysis
The three modules of Blue Box™
help customers optimize their
pumps’ productivity and reliability.
Average number of days of
customer training sessions
in 2016
Inspection helps identify
improvement potential.
TECHNICAL AND ECONOMIC OPTIMIZATION:
Getting the most of customers’ assets
Economic
optimization
• Life cycle management
• Asset management
Life cycle management
reduces operation costs or
process running costs.
Technical
improvement
• Mechanical upgrades
• Hydraulic upgrades
• Retrofits
• Relocation
• Aerodynamic rerates
• Rotordynamic analysis (RDA)
• Coating services
80
Number of major pump
retrofits performed in 2016
Reliability
increase
• Predictive maintenance
• “Bad Actors” program
• Performance-based contracts
• Long-term service agreement (LTSA)
5%
A 5% efficiency drop of pipeline
pumps can result in increased
energy costs of USD 500 000
every year.
MAINTENANCE AND SUPPORT SERVICES:
Maintaining equipment to industry best practices
On-site services
Spare parts
Workshop services
• Commissioning
• On-site repairs
• Troubleshooting
• In-situ repairs
• 24/7 support
15%
of sales in 2016 were field
services that were performed
on customers’ sites.
• OEM parts
• Inventory management
• Reverse engineering
• Coil manufacturing
• Replacement parts
• Non-OEM parts
20 000+
Number of coils Sulzer
delivered in 2016
• Refurbishment
• Repairs
• Rewind
• Balancing
• Contract maintenance
• Weld repairs
100
Service centers for
rotating equipment
22
Core Competencies
Sulzer—Annual Report 2016
CORE
COMPETENCIES
25 700 m²
The massive size of modern, industrial gas
turbine rotors means that a repair facility must
be equipped with cutting-edge machines. In
Sulzer’s Houston Service Center, all makes and
models of turbomachinery can be repaired on
a floor space of 25 700 m².
Sulzer—Annual Report 2016
Core Competencies
23
CORE
COMPETENCIES
90 t
The state-of-the-art lathe was
built to accommodate large
gas turbine rotors that weigh
up to 90 tons.
Repairing the World’s
Largest Industrial
Gas Turbines
Boosting Energy
Efficiency by up to
50% in 36 Hours
The Key
to Success
Sulzer is one of a few service
suppliers with the expertise,
precision, and equipment to repair
the world’s largest industrial gas
turbines.
With its fast-track process, Sulzer
is able to replace turbocompressors
for wastewater plants within
36 hours and to boost energy
efficiency by up to 50%.
Sulzer provides high-quality, fast,
and cost-effective service solutions.
The key to this is the company’s
professional service team, its global
footprint, and its one-stop offering.
24
26
29
24
Core Competencies
Sulzer—Annual Report 2016
When they need to be repaired, the
latest and largest turbine rotors are
placed in this new lathe. They can
weigh up to 90 tons.
Core Competencies
25
Repairing the
World’s Largest
Industrial Gas Turbines
Big Bay 3 is Sulzer’s largest facility for
rotating equipment repair. The company is
one of a handful of service suppliers with
the expertise, precision, and equipment to
repair the world’s largest industrial gas
turbines.
are compelled to develop much larger turbines designed for
uninterrupted operations.
From natural gas to energy
Gas turbines are used in power plants to convert natural gas
into mechanical energy. This energy drives a generator that
produces electrical energy. Power lines then transport the
energy to homes and businesses.
Imagine a hall the size of one and a half football fields. After
stepping through the giant gate and looking inside, you see a
massive crane that can lift compressor and turbine sections
50 meters into the air. Looking around, you see a balancing
machine, capable of balancing rotors that weigh up to 82 tons.
In comparison, a five-ton African elephant, the heaviest living
land animal in the world, is a lightweight. There is another
impressive machine that spans across more than 20 meters.
It is a state-of-the-art, versatile lathe that was built to
accommodate large gas turbine rotors with a capacity of
90 tons.
The plant where all this is set up is called Big Bay 3. Big Bay 3
is part of Sulzer’s Houston Service Center located in La Porte,
Texas, USA. At 25 700 m², it is the company’s largest facility
for rotating equipment repair. The Houston Service Center
specializes in maintenance and repairs of all makes and
models of turbomachinery.
Bigger turbines to
satisfy increasing demand
The global energy demand is increasing. This puts the power
generation industry under pressure to produce more energy
in a more efficient way. As a result, industrial gas turbines
are becoming bigger and bigger, and their technology has
significantly developed over the last 50 years. Manufacturers
In a gas turbine, air enters the compressor section that is
made up of numerous blades. As the rotor turns, the air runs
through the blades and is compressed. This compressed
air then enters the combustion section and is mixed with a
fuel such as natural gas or fuel oil. It is then ignited in the
combustion section, and travels as hot gas into the turbine
section. The hot gas moves through blades in the turbine and
causes them to spin. Because the turbine is coupled to a
generator, this rotation drives the generator. The generator
then converts the mechanical energy into electricity.
Suitable equipment
to handle large refurbishment projects
Industrial gas turbines that operate in these environments
require periodic repairs. Turbine operators need a one-stop
service facility where maintenance providers are able to deliver
a complete repair. The massive size of modern, industrial gas
turbine rotors means that a repair facility must be equipped
with cutting-edge equipment capable of lifting, balancing, and
machining a fully assembled rotor. Having the appropriate
large-scale equipment to handle these turbine rotor refurbish-
ments is critical to the processes and workflow involved in
the repair process. In the past, cranes and lathes that could
accommodate approximately 55 tons were adequate, but as
the output capacity of industrial gas turbines has increased,
so has the weight of the rotors. With Big Bay 3, Sulzer is one
Sulzer—Annual Report 2016 26
Core Competencies
Boosting Energy
Efficiency by up to
50% in 36 Hours
Many wastewater treatment plants are aging. Hence,
operators not only experience growing operating costs,
but also face the risk of equipment failure. The failure
of a single blower or compressor may jeopardize the
functioning of the entire wastewater treatment plant.
With the recently launched fast-track process, Sulzer
can ship its highly efficient HST turbocompressors to a
plant within 36 hours and help boost energy efficiency
by up to 50%.
Back in operation and
more efficient than before
Old blowers and compressors consume a large part of
the total energy of a wastewater treatment plant. One
option is to repair or replace them one for one with
the same make and model. The other, more economic
option is to replace them with the Sulzer HST turbo-
compressor. This compressor type reduces the energy
costs for aeration by up to 50% and offers a payback
as short as two years.
From Finland to Switzerland
in less than two days
ERZO, a waste disposal company in Switzerland,
required an update of the electronics of an HST turbo-
compressor that has been in operation for almost
20 years. Lately, the operator had to switch to manual
use on a regular basis to ensure sufficient air supply
for the biological process of the facility. Initially, the
operator planned to update the turbocompressor
with a new electronic system. Because of Sulzer’s
fast-track process, the customer decided to replace
the old turbocompressor. Within 36 hours, Sulzer
delivered its HST compressor from its factory in Finland
to Switzerland and installed it at the customer’s plant.
Adrian Burkart, Division Manager ARA ERZO, said,
“Thanks to the fast replacement, we were able to
ensure efficiency and environmental water protection
within 36 hours.”
www.sulzer.com/36hours
of a handful of service suppliers who has the equipment and
expertise to service such large machines.
How do you repair a gas turbine
that weighs 80 tons?
In heavy industrial machines such as gas turbines and electric
generators, vibration is a frequent problem, because it can
cause catastrophic failure and noise. By repairing and
balancing the rotor, vibration can be avoided. But how do you
repair a gas turbine rotor that can easily weigh as much as
16 elephants?
The repair process begins with the inspection of the rotor
using the balance machine. This machine can identify any
unbalance issues. After the initial balance run, the rotor is then
placed into V-blocks (runout stands) and is rotated. This
allows the service employee to inspect the rotor critically.
Based on these first inspections, engineers decide if the rotor
needs to be disassembled.
If this should be the case, it is placed in a stacking pit. For
this, a large crane is necessary. Once the rotor is disassembled,
the service team inspects the individual components of the
respective compressor or turbine parts. Each part is thoroughly
examined and inspected in detail for reuse or specialized
repairs (such as replacing blades or coating compressor
disks). The individual disks go through concentricity checks
and are balanced in a horizontal balance stand before being
reassembled. After the individual com ponents are qualified,
each section is dynamically balanced and prepared for
assembly. After reassembly, the compressor section and the
turbine section are placed in the lathe to check runouts and
correct the rotor if necessary. Each rotor section is then
rechecked for balance before it returns to the stacking pit
where the major sections are mated. The complete rotor is
then ready for final checks and dynamic balancing before
being shipped back to the customer.
Minimizing downtime and cost
For the customer, speed of repair and minimizing downtime
is crucial. With suitable shop facilities and equipment, it is
a relatively straightforward task to deal with a single rotor.
Coordinating the repairs to multiple rotors and minimizing
the time between each stage is a more complicated issue.
Today’s repair specialists use systematic planning, have
excellent project management skills, and possess a range
of versatile equipment to deliver cost-effective, timely, and
successful projects.
Over the past year, Sulzer has provided services for around
70 gas turbines in its La Porte facility. Roughly 30 service
employees ensure that these large projects are carried out in
a timely and cost-effective manner.
Sulzer—Annual Report 2016 Core Competencies
27
Sulzer’s Houston Service Center
is equipped to repair the world’s
largest industrial gas turbines.
Sulzer—Annual Report 2016 28
Core Competencies
Jennifer Gaines used to work in Big Bay 3. Today, she is a
mechanical design engineer in La Porte, TX, USA.
“ The mechanics in Big Bay 3
are true jacks-of-all-trades”
Jennifer Gaines from Houston, TX, USA, used to work
as a production engineer in Big Bay 3 (BB3). She has
spent the last couple of years dedicating her career to
the repair and maintenance of massive equipment in the
gigantic shop. Recently, she was promoted to mechani-
cal design engineer in Sulzer’s core engineering group.
As one of Sulzer’s female engineers, she looks back at
her experience in BB3 with pleasure:
“Repairing these large industrial gas turbines is hard work
and requires extreme care. You have to ensure an effi-
cient workflow to get the job done as quickly but, at the
same time, as diligently as possible. With this type of
heavy-duty equipment, every hour these machines are
not in service equates to enormous amounts of dollars
and production hours lost.”
She particularly appreciated the high level of technical ex-
perience in the BB3 team. “The mechanics and machinists
in BB3 can perform all of the requirements and are truly
jacks-of-all-trades. I thoroughly enjoyed working with the
team. I look forward to utilizing the valuable skills gained
from BB3 in my new job at Sulzer.”
Jennifer Gaines’ career with Sulzer began with a rigorous
program that encompassed hands-on training on the shop
floor. There, she worked directly with equipment and highly
experienced maintenance mechanics and machinists.
Once her training on the shop floor was complete, she
transitioned to providing cutting-edge engineering services.
As part of this, she designed specialized shop tools and
solutions to help the mechanics better dis assemble,
inspect, repair, and assemble equipment.
Sulzer—Annual Report 2016 Sulzer—Annual Report 2016
Core Competencies
29
THE KEY
TO SUCCESS
SERVICE IS A PEOPLE BUSINESS
A professional service team is essential for Sulzer. The company’s service
employees are:
Entrepreneurs and
customer focused
• They listen to customers and ask
the right questions.
• They find the right solutions together
with the customers.
• They only sell what customers need.
Technically competent
and experienced
• They know their products and
solutions.
• They know how the products and
solutions behave in the field.
Flexible
• They are available 24/7.
• They are fast.
• They are reliable, pragmatic,
and hands-on.
COST-EFFICIENCY
Customers are optimizing their maintenance and operation costs on a regular
basis. Sulzer can support them with equipment that runs reliably and efficiently.
Services such as predictive maintenance or monitoring also help avoid unforeseen
and expensive outages. It is not always necessary to replace old or worn-out
equipment. An upgrade or retrofit can give the pumps a second life. Sulzer offers
standardized retrofit solutions that can be installed within one to three months at
a competitive price.
PROXIMITY AND SPEED
Sulzer is close to its customers. Present
in more than 40 countries around the
world, the company operates one of
the largest service networks in its field.
The service teams provide rapid
turnarounds that minimize disruption
and keep customers’ projects on
schedule. At the customers’ request,
service representatives can stay on
their sites permanently. If necessary,
they are able to react immediately and
leverage Sulzer’s global network.
ONE-STOP OFFERING
Sulzer is becoming a one-stop service
supplier. Already today, the company
is able to repair a range of different
products under one roof. In the future,
Sulzer plans to establish even more of
these service centers. Customers
benefit from having one access point
for the service of all their rotating
equipment. Likewise, Sulzer can provide
complete tower field solutions—from
modernizing the separation columns to
protecting them from corrosion.
INNOVATION
The company’s global research and
development (R&D) teams turn ideas
into business opportunities. Further,
many of the company’s innovative
solutions have been developed in
cooperation with clients during
ongoing projects. The company also
fosters open innovation: Sulzer has a
strong link to universities and external
R&D institutes.
30
Dashboard
Sulzer—Annual Report 2016
NEW TREND: SERVICE BUSINESS
During the past years, more and more manufacturing com -
panies have changed their business models. They have
switched from only producing goods to offering a combination
of products and services. Companies see the opportunity to
generate additional revenues and strengthen customer loyalty.
Over the next three years, it is expected that 65% of the
global manufacturing industry will be headed in this direction.
Because the service business is becoming more and more
competitive, it is vital for an established service provider such
as Sulzer to expand its offering and presence. In 2016, the
company took further steps to achieve these goals.
Sales from services in 2016
2016
2015
2014
2013
48.2%
48.1%
45.5%
44.4%
The share of sales of aftermarket services at Sulzer
has increased steadily during the last few years.
48%
Sulzer overall
33%
Pumps
Equipment
32%
Chemtech
Overall, the company generates 48% of its sales in the service business. Split by divisions, Rotating Equipment Services
generates 100% of its sales with services. In Pumps Equipment, services make up 33% of sales. Chemtech’s sales consist
of 32% in the service business.
2016
Sulzer acquired industrial dispenser manufacturer
PC Cox, applicator producer Geka, pump manu -
facturer Ensival Moret, gas turbine maintenance
provider Rotec GT, and Wärtsilä’s vessel internal
electrostatic coalescer (VIEC) business.
The company introduced new pump types and agi-
tators for the water market and developed a mixing
tip with bendable cannula for the dental industry.
Sulzer and FMC Technologies received an order
to supply the pumping equipment for one of the
subsea pumping modules in Shell’s oil field off the
coast of Brazil.
Sohar SWRO Company LLC commissioned Sulzer
to supply pumps for the new desalination plant in
Sohar, Oman.
31
Business Review
33
Financial Review
38 Business Review Divisions
38
Pumps Equipment
40
Rotating Equipment Services
42
Chemtech
44 Sustainable Development
44
Strategy and Management
45
Innovation and Technology
46
Ecological Sustainability
48
Social Sustainability
50
Sustainability Dashboard
33
Solid Financial Performance Despite
Continuing Market Headwinds
Order intake decreased by 2.0%. A further significant decline in the oil and gas
market was partially compensated by growth in the other market segments and by
acquisitions. Sales decreased by 2.0% as a result of lower orders and the lower
order backlog at the beginning of the year. Sulzer Full Potential (SFP) program
savings of CHF 88 million helped to partially offset the impact of the severe head-
winds on profitability. Free cash flow improved markedly to CHF 201 million.
Growth in the power and water markets and the effect of acquisitions largely
offset lower order volumes in the oil and gas market
Overall order intake decreased by 2.0% from 2015 (nominal: – 3.4%). The effect of acquisitions amounted
to CHF 110.7 million. Order intake gross margin slightly increased nominally by 0.2% to 34.0%, because
the share of higher-margin aftermarket business increased and more than offset the margin erosion in the
oil and gas market.
“We delivered substantial
cost savings and signifi-
cantly improved free cash
flow in a difficult market
environment.”
Order intake of the Pumps Equipment division decreased by 5.4%. Strong growth in the power market and
slight growth in the water market were offset by the continuing decline of orders in the oil and gas market.
In the Rotating Equipment Services division, order intake decreased by 3.1%. This was mainly due to the
lower sales volume in the electromechanical business in Europe and the oil-and-gas-related downturn in
the North Sea. Order intake in the Chemtech division grew by 6.1%. Order intake of Sulzer Mixpac Systems
increased significantly as a result of healthy organic growth and additional volume from the Geka and PC
Cox acquisitions. This more than compensated a sharp decline in order intake in the Tower Field Services
business unit due to fewer large projects.
Order intake in the oil and gas market decreased significantly. The industry continued to cut cost and capital
investments as expected, while oil prices began to recover during the year. Order intake grew strongly in
the power market, driven by the Pumps Equipment division, and in the general industry market, mainly
because of the Geka and PC Cox acquisitions.
Order levels decreased in the Americas and in Europe, the Middle East, and Africa (EMEA) due to the oil
and gas market downturn and—in Europe—due to the weaker performance of the electromechanical
business. Order intake significantly increased in Asia-Pacific, mainly supported by China, which recovered
from the very low order levels last year.
Currency translation effects amounted to a negative CHF 40.9 million affected by a weaker British pound,
South African rand, Chinese yuan, Mexican peso, US dollar, and euro.
Thomas Dittrich,
Chief Financial Officer
Orders
millions of CHF
Order intake
Order intake gross margin
Order backlog as of December 31
–
Abbreviations
Free cash flow
2016
2 797.5
34.0%
1 439.1
2015
2 895.8
33.8%
1 510.7
CHF 200.5m
(2015: CHF 155.8m)
Operating income
Return on sales (EBIT/sales)
EBIT:
ROS:
opEBITA: Operating income before restructuring, amortization, impairments, and non-operational items
opROSA: Return on sales before restructuring, amortization, impairments, and non-operational items (opEBITA/sales)
opROCEA: Return on capital employed (opEBITA/average capital employed)
EBITDA: Operating income before depreciation and amortization
If not otherwise indicated, changes
compared with the previous year are
based on currency-adjusted figures.
Business Review—Financial ReviewSulzer—Annual Report 2016
34
As of December 31, 2016, the order backlog amounted to CHF 1 439.1 million (December 31, 2015:
CHF 1 510.7 million).
Sales slightly lower
Sales amounted to CHF 2 876.7 million—a decline of 2.0% (nominal: –3.2%). Negative currency translation
effects totaled CHF 34.5 million and the effect of acquisitions amounted to CHF 90.6 million.
In 2016, strong growth in the power market and the effect from acquisitions were offset primarily by the
significant sales decline in the oil and gas market. Sales in the water market were also below the prior-year
level, mainly due to a low starting backlog and timing of projects.
Sales increased in EMEA, while the Americas and Asia-Pacific regions were down from the previous year.
Consequently, the share of sales in emerging markets slid from 40% in 2015 down to 38% in 2016.
Gross margin positively affected by cost savings
Gross margin remained stable at 30.6%. The positive effect of the factory footprint optimization and a larger
share of higher-margin aftermarket business offset the price erosion effect in the oil and gas market. Total
gross profit decreased to CHF 879.4 million (2015: CHF 910.1 million) as a result of lower sales volumes.
Operational EBITA impacted by lower sales volumes
Operational EBITA (opEBITA) amounted to CHF 238.9 million compared with CHF 254.1 million in 2015, a
decrease of 4.4% (nominal: – 6.0%). Savings from the Sulzer Full Potential (SFP) program helped partially
offset the lower sales volume and acquisition-related cost increases.
Operating expenses excluding amortization, impairment on property, plant, and equipment, restructuring
expenses, and other non-operational items were down by 5.7%, ahead of the 2.0% sales decline. Savings
measures in selling as well as administrative expenses were partly offset by acquisition-related cost increases.
Research and development expenses slightly decreased.
Operational ROSA (opROSA) decreased to 8.3% compared with 8.6% in 2015.
Operational key performance ratios
opROSA
opROCEA
2016
8.3%
15.7%
2015
8.6%
17.0%
opROSA
8.3%
(2015: 8.6%)
The divisions achieved the following profitability figures (opROSA):
— Pumps Equipment: 5.7% (2015: 7.3%). The lower profitability was due to headwinds in the oil and gas
market that resulted in lower sales volumes and pricing pressure.
— Rotating Equipment Services: 9.9% (2015: 10.2%). This drop was mainly due to a lower sales volume
that could only be partially offset by lower operating expenses.
— Chemtech: 11.4% (2015: 10.1%). This increase resulted mainly from a larger share of the high-margin
Sulzer Mixpac Systems business.
– See abbreviations on page 33.
Business Review—Financial ReviewSulzer—Annual Report 2016 35
r
e
n
n
e
r
t
l
e
t
i
p
a
K
Bridge from EBIT to operational EBITA
millions of CHF
EBIT
Amortization
Impairment on tangible and intangible assets
Restructuring expenses
Adjustments for other non-operational items1)
opEBITA
opROSA
2016
115.3
47.3
18.4
57.0
0.9
238.9
8.3%
2015
120.9
42.3
13.0
41.2
36.7
254.1
8.6%
1) Other non-operational items include significant acquisition-related expenses, gains, and losses from sale of businesses
or real estate (including release of provisions), and certain non-operational items that are non-recurring or do not
regularly occur in similar magnitude.
Restructuring expenses and SFP program costs impacted operating income
As part of the SFP program, Sulzer has continued to implement planned actions to adapt its global manu-
facturing capacities and streamline its organizational setup. The measures resulted in higher restructuring
expenses than in 2015. The costs were mainly associated with measures taken in Germany, Switzerland,
Brazil, USA, Singapore, the United Kingdom, Sweden, and China. Overall, the number of full-time equiva-
lents (FTE) came down from 14 253 at the end of 2015 to 14 005 at the end of 2016. This is mainly due to a
reduction of roughly 1 350 FTE from SFP measures, partly offset by approximately 1 100 FTE from acquisitions.
Other non-operational items amounted to CHF – 0.9 million in 2016. SFP-related expenses (CHF – 26.9 million),
acquisition-related expenses, and other items were offset by the favorable effect resulting from a lower con-
version rate of the Swiss pension plans (CHF 35.4 million).
Consequently, EBIT amounted to CHF 115.3 million compared with CHF 120.9 million in 2015. Return on
sales (ROS) was 4.0% compared with 4.1% in 2015.
Financial income: lower interest expenses
Total financial expenses amounted to CHF 19.3 million compared with CHF 24.7 million in 2015. Interest
expenses were reduced by CHF 10.5 million, partly offset by lower interest income and higher other finan-
cial expenses. Lower interest expenses in 2016 resulted from the bond refinancing at favorable conditions
at around mid-year (coupon expenses of CHF 7.4 million compared with CHF 12.0 million in 2015).
Furthermore, there were no significant extraordinary expenses in 2016; this stands in contrast to the
CHF 5.2 million in 2015 that were related to the settlement of a dispute with the purchaser of the group’s
locomotive business.
– See abbreviations on page 33.
Business Review—Financial ReviewSulzer—Annual Report 2016 36
Oil and gas market downturn impacted results from joint ventures
In 2016, Sulzer incurred a loss of CHF 0.8 million from joint ventures compared with a profit of CHF 3.7 million
in the prior year. This relates to a joint venture in China for the service of gas turbines and a joint venture in
the Middle East for the service of rotating equipment for its oil and gas and power customers.
Slightly lower adjusted effective tax rate
Income tax expenses increased to CHF 35.1 million (2015: CHF 24.9 million) on a broadly stable pre-tax
income. This increase was due to restructuring expenses in 2016 without corresponding tax effect. The
effective tax rate for 2016 amounted to 36.9% compared with 24.9% in 2015. Adjusted for the restructur-
ing expense tax effect, the effective income tax rate for 2016 would have amounted to 24.3%.
Core net income
In 2016, net income amounted to CHF 60.1 million compared with CHF 75.0 million in the previous year.
Core net income excluding the tax-adjusted effects of non-operational items totaled CHF 153.8 million
compared with CHF 175.0 million in 2015. Basic earnings per share decreased from CHF 2.17 in 2015 to
CHF 1.73 in 2016.
Improved balance sheet efficiency
Total assets as of December 31, 2016, amounted to CHF 3 735.9 million, which is a decrease of CHF 518.9 mil-
lion from 2015.
Non-current assets increased nominally by CHF 235.9 million due to higher goodwill (CHF 100.3 million),
other intangibles (CHF 88.9 million), and higher property, plant, and equipment (CHF 19.6 million). Goodwill,
other intangible assets, and property, plant, and equipment increased by CHF 233.7 million on a currency-
adjusted basis, mainly due to acquisitions.
Current assets decreased nominally by CHF 754.8 million, mainly due to the dividend payments to Sulzer
shareholders of CHF 617.5 million in April 2016 as well as lower marketable securities and working capital.
Total liabilities nominally increased by CHF 124.3 million to CHF 2 144.9 million as of December 31, 2016.
An increase of trade accounts payable (CHF 55.5 million), defined benefit obligations (CHF 44.8 million),
provisions (CHF 39.1 million), and tax liabilities (CHF 30.2 million) was partly offset by lower borrowings
(CHF 56.2 million).
Equity nominally decreased by CHF 643.2 million to CHF 1 591.0 million, mainly due to the above- mentioned
dividend payments to Sulzer shareholders.
Net debt to EBITDA increased from – 2.78 in 2015 to 0.14, mainly due to the special dividend payment and
acquisitions.
– See abbreviations on page 33.
Business Review—Financial ReviewSulzer—Annual Report 2016 37
Strong free cash flow
Free cash flow amounted to CHF 200.5 million compared with CHF 155.8 million reported in the prior year.
This was driven by dynamic net working capital management, lower tax payments, and the fact that a
substantial portion of restructuring expenses recorded in 2016 will only be paid in 2017.
Cash flow from investing activities totaled CHF –168.8 million compared with CHF – 242.0 million in the
prior year. Cash-out for acquisitions amounted to CHF – 313.4 million compared with CHF – 70.1 million in
2015. In 2016, marketable securities of CHF 208.4 million were sold to fund the dividends paid in April
2016, while in 2015 marketable securities were purchased (CHF –104.6 million). Capital expenditures
amounted to CHF 74.9 million, broadly unchanged compared with CHF 73.7 million in 2015.
Cash flow from financing activities totaled CHF – 680.6 million. It included the dividend payments
of CHF 617.5 million (including the special dividend of CHF 498.1 million) compared with dividend
payments of CHF 119.2 million in 2015. Repayments of borrowings reduced cash by CHF 59.4 million
(2015: CHF 9.9 million). Exchange gains on cash amounted to CHF 6.7 million compared with a loss of
CHF 34.0 million in 2015.
Outlook 2017
Sulzer expects that the oil and gas market, which accounted for approximately half of its revenue before
recent acquisitions, will remain challenging in 2017 and that pricing pressure will persist throughout the
year. Early signs of an impending recovery of oil CAPEX should only translate into a commercial rebound
for Sulzer in 2018. Sulzer’s other businesses are expected to grow slightly in 2017, leading to an organic
order level for the company broadly stable versus 2016, supplemented by additional volume from newly
acquired businesses.
Sulzer expects its SFP program to deliver incremental cost savings in 2017 in the range of CHF 40 to 60 million.
The company confirms its overall target of CHF 200 million from 2018 onwards.
For the full year 2017, including acquisitions signed in 2016 and adjusted for currency effects, order intake
is expected to grow by 5 to 8% and sales to grow by 3 to 5%. Sulzer expects opEBITA margin at around
8.5% (opEBITA in percent of sales).
– See abbreviations on page 33.
Business Review—Financial ReviewSulzer—Annual Report 2016 38
Business Review—Pumps Equipment
Decrease in Order Intake—
Complementary Pumps Added
Pumps Equipment reported a decrease in order intake and sales in 2016. Operational
EBITA and operational ROSA declined from the previous year. The oil and gas market
continued to impact the division’s results. Sulzer announced the acquisition of the
pump manufacturer Ensival Moret.
Forging ahead through acquisition and significant orders
In 2016, Sulzer’s largest division Pumps Equipment extended its product offering. The company announced
the acquisition of the pump manufacturer Ensival Moret. With this transaction, Sulzer closes specific
product gaps in its pumps portfolio. For example, it adds axial flow and slurry pumps that are used in
general industry markets such as fertilizers, sugar, mining, and chemicals. Ensival Moret generates roughly
CHF 120 million of sales and employs more than 700 people.
Pumps Equipment won significant orders in the reporting year. It will supply pumps for a new desalination
plant in Sohar, Oman. The facility has a capacity of 250 000 m3 a day and is expected to go into operation
in 2018. Sulzer’s energy-efficient pumps help cope with the growing water demand in the North Batinah
region. Further, Sulzer will deliver process pumps to Metsä Group’s next-generation bio product mill in
Äänekoski, Finland. The company will also supply a pump package to Fibria Celulose SA, a Brazilian forestry
company and the world’s leading eucalyptus pulp producer.
Decrease in order intake
Order intake decreased in 2016. The main reason was the significantly lower order intake in the oil and gas
market (– 20%). Despite the recovery of oil prices during the year, the industry continued to cut cost and
hold investments back. Order intake in the power market increased significantly, driven by orders from the
Middle East and Asia. Demand in the water and the general industry markets grew compared with the
previous year. Order intake gross margin decreased, impacted by pricing pressure in the oil and gas market.
Regionally, Pumps Equipment reported lower order intake in Europe and strong growth in the Middle East.
Order intake dropped significantly in the Americas. Demand in the Asia-Pacific region was strong and clearly
above last year’s level.
“We are very excited to
welcome Ensival Moret
to the Sulzer family.
Together we can grow
stronger in our general
industry business by
serving our customers’
process needs.”
César Montenegro,
Division President Pumps Equipment
– See abbreviations on page 33.
Sulzer—Annual Report 2016 Business Review—Pumps Equipment
39
Decrease in sales and operational EBITA
In 2016, Pumps Equipment reported lower sales. The sales volume in the oil and gas market dropped
significantly as a consequence of the lower order intake of the previous year. The power market grew sig-
nificantly in terms of sales, in line with the increase in order intake in 2015. Sales in the water market were
below the previous year’s level, driven by a low first quarter. In general industry, the division reported a stable
sales volume.
Operational EBITA and operational ROSA decreased significantly, which was due to the lower sales volume
and pricing pressure.
Continued decrease of accident frequency and severity
Pumps Equipment was able to further improve safety at its sites. In 2016, the frequency of accidents (accident
frequency rate; AFR) further decreased to 1.3 cases per million working hours (2015: 1.6). Accord ing to
benchmarks, the division is within the top tier of its industry when it comes to safety. With 33.8 lost days
per million working hours, the severity of accidents (accident severity rate; ASR) also continued to improve
year on year (2015: 39.3). The safety culture improvements can be traced back to the company’s Safe
Behavior Program (read more on page 48) that continues to mature within the organization. Besides sen-
sitizing managers that it is their role to drive safety, the division focused on involving employees in safety
observations and safety walks.
Sales by market segment
2016
43% Oil and gas
18% Power
22% Water
17% General industry
Key figures Pumps Equipment
Sales by region
millions of CHF
Order intake
Order intake gross margin
Order backlog
Sales
EBIT
opEBITA
opROSA
opROCEA
+/–%
– 6.6
– 11.8
– 7.2
– 88.7
– 26.9
Change
in +/–%1)
– 5.4
– 6.2
– 23.8
2016
2015
1 401.7
1 500.8
33.8%
34.2%
880.3
998.0
1 503.5
1 621.0
7.1
86.3
5.7%
62.8
118.1
7.3%
11.3%
15.8%
2016
49% Europe, Middle East, and Africa
30% Americas
21% Asia-Pacific
Employees (number of full-time equivalents) as of December 31
6 261
6 996
– 10.5
1) Adjusted for currency effects.
– See abbreviations on page 33.
If not otherwise indicated, changes
compared with the previous year are
based on currency-adjusted figures.
Sulzer—Annual Report 2016 40
Business Review—Rotating Equipment Services
Order Intake Declined—Strengthening
Service Business in Russia
Order intake and sales decreased compared with 2015. Operational EBITA and
operational ROSA declined slightly. Sulzer signed an agreement to acquire control
of Rotec’s gas turbine service business in Russia and further extended its one-stop
service offering.
Becoming a one-stop service supplier
In 2016, Sulzer signed an agreement to acquire control of Rotec’s gas turbine service business in Russia.
Rotec GT, which has around 50 employees, is headquartered in Moscow and has a refurbishment center
for gas turbine components in Ekaterinburg, Russia. The business will be combined with Sulzer Russia’s
turbo service activities. Through this transaction, Sulzer becomes a leading independent gas turbine service
provider for Russia and the CIS countries with revenues of about CHF 40 million.
Three years ago, Rotating Equipment Services (RES) integrated the pump service center network that was
previously managed within the Pumps Equipment (PE) division. In 2016, the company prepared for the
transfer of the spare parts business from the PE to the RES division. The integration will be carried out in
2017. Customers benefit from a single access point for services and parts. Likewise, the division continued
to establish service centers where a range of different products can be repaired under one roof (read more
in the interview with new Division President Daniel Bischofberger on page 10). These are further milestones
on the company’s journey to becoming a one-stop service supplier.
Decrease in order intake
Compared with the previous year, order intake decreased in 2016. It was impacted by a decline in the
general industry market. One of the reasons was weak electromechanical business in the UK, which
suffered from the continuous change of the industrial landscape. Activity in the oil and gas and the power
markets remained stable. Order intake gross margin decreased only slightly compared with 2015, because
significant pricing pressure was largely offset by business mix effects.
Regionally, activity in the Asia-Pacific region decreased significantly. Europe, the Middle East, and Africa
(EMEA) and the Americas decreased slightly compared with the previous year.
“Through Rotec GT, we are
taking our service business
in Russia to the next level.
We are well on our way
to becoming a one-stop
service supplier with an
extensive network across
the globe.”
Daniel Bischofberger,
Division President Rotating
Equipment Services
– See abbreviations on page 33.
Sulzer—Annual Report 2016 Business Review—Rotating Equipment Services
41
Sales and operational EBITA decreased
The division reported slightly lower sales in 2016. Sales in EMEA remained stable and increased slightly in
North America. The sales volume in Central and Latin America declined, impacted by low oil prices. Sales
in the Asia-Pacific region were down from the higher level in 2015, which had resulted from large gas
turbine orders that year.
Operational EBITA decreased compared with 2015. This results from the lower sales volume that could only
be partially offset by lower operating expenditures. Operational ROSA also declined slightly.
Significantly lower number of accidents
In 2016, the frequency of accidents (accident frequency rate; AFR) decreased to 1.9 cases per million work-
ing hours (2015: 2.5). With 44.9 lost days per million working hours, the division was able to decrease the
accident severity rate (ASR; 2015: 60.5). This is a result of the company’s Safe Behavior Program (SBP).
An assessment of the program’s implementation was conducted in 2016. The company continued to focus
on reporting and analyzing minor and near accidents, which contributed to the strong performance. To further
align the safety processes and programs throughout the regions, the division held regional QESH councils
(quality, environment, safety, and health) with a focus on safe behavior at the workplace. Please read more
about the company’s safety and health efforts on page 48.
Sales by market segment
2016
49% Oil and gas
28% Power
2% Water
21% General industry
Key figures Rotating Equipment Services
Sales by region
millions of CHF
Order intake
Order intake gross margin
Order backlog
Sales
EBIT
opEBITA
opROSA
opROCEA
Employees (number of full-time equivalents) as of December 31
1) Adjusted for currency effects.
Change
in +/–%1)
– 3.1
– 1.9
– 7.2
2016
661.1
2015
698.2
30.3%
30.5%
195.8
666.8
57.3
66.2
9.9%
16.5%
3 436
205.0
693.2
51.4
70.8
10.2%
16.8%
3 538
+/–%
– 5.3
– 4.5
– 3.8
11.5
– 6.5
– 2.9
2016
34% Europe, Middle East, and Africa
55% Americas
11% Asia-Pacific
– See abbreviations on page 33.
If not otherwise indicated, changes
compared with the previous year are
based on currency-adjusted figures.
Sulzer—Annual Report 2016 42
Business Review—Chemtech
Increase in Order Intake Through
Acquisitions
Order intake and sales increased in 2016. The acquisitions more than offset the
organic decline. The division reported a higher operational EBITA and operational
ROSA. Through three important acquisitions, Chemtech expanded its product port-
folio and diversified into new segments.
“In 2016, Chemtech raised
its profitability thanks to
three acquisitions and
operational improvements.
At the same time, we sig-
nificantly expanded and
diversified our product
portfolio.”
Growing and diversifying product portfolio
In 2016, Sulzer took important steps to grow and further diversify its product portfolio. In August, Sulzer
acquired Geka, headquartered in Bechhofen, Germany. Geka produces applicator devices for the cosmetics
industry with an emerging business in healthcare. Through this acquisition, Sulzer almost doubled the sales
of its most profitable business unit Sulzer Mixpac Systems (SMS), and the company entered into the beauty
segment. Further, Sulzer took over PC Cox Group Ltd, a leading manufacturer of industrial dispensers
headquartered in Newbury, UK. The combination of SMS, Geka, and PC Cox is being reported as the new
division Applicator Systems as of January 1, 2017.
Torsten Wintergerste,
Division President Chemtech
In December 2016, Sulzer signed a binding agreement to acquire a unique oil separation technology from
Wärtsilä—the vessel internal electrostatic coalescer business. This business, based in Asker, Norway,
strengthens Chemtech’s upstream separation business. Further, the division successfully started up a new
fatty acid plant for a customer in Malaysia. Sulzer’s latest developments in the field of distillation, fraction-
ation, and hydrogenation enable the highly efficient separation of various fatty acid fractions. With the
support of this technology, producers can quickly adapt their production outputs to the current volatile
market demand.
Increase in order intake
Chemtech reported growing order intake in 2016. The additional orders from the acquisitions more than
offset the organic decrease in order intake in the Tower Field Services (TFS) business unit. The TFS business
had fewer large projects compared with the previous year. The overall business suffered from lacking oil
and gas upstream projects globally. Order intake in the general industry market increased because of the
strong performance of Sulzer Mixpac Systems and the acquisitions. Order intake gross margin increased.
Regionally, the division reported growing order intake in Europe, the Middle East, and Africa as well as in
the Asia-Pacific region. Demand in the Americas was down compared with the previous year.
– See abbreviations on page 33.
Sulzer—Annual Report 2016 Business Review—Chemtech
43
Higher sales and operational EBITA
In 2016, sales increased compared with the previous year, due to the PC Cox and Geka acquisitions. The
other Chemtech businesses—Separation Technology and Tower Field Services—reported lower sales
because of the challenging oil and gas market that particularly affected the downstream business in the
Americas.
The acquisitions and operational improvements led to a significantly higher operational EBITA and opera-
tional ROSA compared with the previous year.
Fall-back in safety performance
In 2016, the accident frequency rate (AFR) at Chemtech increased to 2.8 cases per million working hours
(2015: 1.9). In parallel, the accident severity rate (ASR) increased to 88.5 lost days per million working hours
(2015: 52.5). As such, Chemtech could not sustain the strong safety performance of the previous years
2014 and 2015. Unfortunately, Chemtech had to report a fatality in the TFS business unit. The company is
implementing corrective and preventive actions based on this tragic incident. Please read more about the
company’s safety and health efforts on page 48.
Sales by market segment
2016
59% Oil and gas
41% General industry
Key figures Chemtech
millions of CHF
Order intake
Order intake gross margin
Order backlog
Sales
EBIT
opEBITA
opROSA
opROCEA
Employees (number of full-time equivalents) as of December 31
1) Adjusted for currency effects.
Change
in +/–%1)
6.1
8.0
23.0
2016
744.5
2015
708.9
37.3%
35.6%
362.9
718.1
37.2
82.1
11.4%
18.5%
4 135
307.7
669.6
33.5
67.4
10.1%
16.6%
3 539
+/–%
5.0
17.9
7.2
11.0
21.8
16.8
Sales by region
2016
44% Europe, Middle East, and Africa
31% Americas
25% Asia-Pacific
– See abbreviations on page 33.
If not otherwise indicated, changes
compared with the previous year are
based on currency-adjusted figures.
Sulzer—Annual Report 2016 44
Business Review—Strategy and Management
Committed to Sustainable
Business Practices
Sulzer builds its activities on its vision, values, and strategic priorities. Through a
centralized reporting system and local initiatives, Sulzer monitors and drives its
sustainability efforts globally and locally.
r
F
a i
a n d t r a nsparent reporting
r
S T R A T E G IC PRIORITIES
Continuous o
V A LUES
utstanding s er vi c
s t o m e r partnership
C u
s
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ti
m
p
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a
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n
i
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m
n
a
e
t
r
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p
VISION
Our customers recognize us
for our lead ing technologies
and services as well as for
delivering innovative and
sustainable solutions.
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Complying with inter n a t i o n a l
l a w s
The Sulzer vision constitutes the core of the company’s global activities. Sulzer’s values act as an inner
compass and guide all activities. Based on them, Sulzer’s four strategic priorities define the overall direction
of the company.
Sulzer has a transparent reporting system in place to benchmark its extrafinancial performance from year
to year. The company collects its group-wide financial and extrafinancial data on a centralized reporting
platform. The group function ESH (environment, safety, and health) is in charge of data management. It
defines standards and initiatives that are implemented locally. Two of the most important activities are
Sulzer’s Safe Behavior Program (SBP, read more on page 48) and Sulzer LEAN, a waste reduction initiative.
Sulzer complies with international and national laws and standards. The company participates in the OECD
Guidelines for Multinational Enterprises, the United Nations’ Universal Declaration of Human Rights and
its protocols, the UN Global Compact, and the ILO’s Declaration on Fundamental Principles and Rights
at Work.
Sulzer—Annual Report 2016
Business Review—Innovation and Technology
45
Global Research and Development
Network Reduces Time to Market
Sulzer commits itself to designing, developing, and manufacturing innovative, reliable,
and resource-conserving solutions. The company’s global research and development
network supports manifold innovation projects and helps reduce time to market.
Because markets are changing fast, it is critical for companies to shorten their innovation cycles and reduce
time to market. Hence, technology experts around the world support Sulzer in the development of products
and services. In 2016, Sulzer invested CHF 71.4 million, or 2.5% relative to sales, in research and develop-
ment (R&D) (2015: CHF 73.4 million, 2.5% of sales).
Sharing and exchanging knowledge across borders
As a global company, Sulzer has built an extensive and international research and development network.
Its R&D competence centers around the world support core technology and engineering projects in reducing
time to market. For example, the Technical Resource Center in Navi Mumbai, India, was inaugurated ten
years ago. Around 100 employees—from mechanical engineers to IT specialists—provide R&D services to
all major Sulzer sites.
“In a competitive environ-
ment with difficult market
conditions, it is a decisive
advantage to have a
global R&D network. It
helps us reduce time to
market and develop
solutions close to our
customers.”
Ralf Gerdes,
Head Global Technology
Collaboration is pivotal for every player in the industry. Sulzer has maintained relationships with academic
institutions such as the ETH (Swiss Federal Institute of Technology) and Texas A&M for a long time. The
company also collaborates with customers and suppliers during various stages of its product development.
Driving innovation in wastewater treatment
Wastewater has changed dramatically in recent years. It contains less water and more solids and fibrous
materials. This change places tough new demands on collection networks. In 2016, Sulzer introduced the
highly efficient recirculation pump for wastewater treatment, launched new lifting station types for the au-
tomatic pumping of wastewater and sewage, and presented standardized agitators for the wastewater
industry. The future-proof solutions not only respond to the changing conditions but also reduce customers’
operating costs and environmental footprint.
Number of patents
31
(2015: 30)
Introducing new products and solutions across markets
To complement its strong presence in the desalination and wastewater markets, Sulzer introduced an ex-
tended product portfolio that also covers clean water applications. The design and innovative construction
of the clean water equipment lead to energy savings and improve customers’ processes. In the pulp and
paper industry, Sulzer supplied the largest medium-consistency pump that has ever been manufactured. In
the oil and gas market, the company helped to lower the cost of a floating production, storage, and offload-
ing (FPSO) ship offshore Angola through an innovative oil-cleaning process.
Near real-time monitoring to make informed decisions
The Internet of Things has a considerable impact on innovation and technology. Remote-control programs
help operators monitor and maintain their plants in near real time. Sulzer provides web-based control and
monitoring solutions specifically designed for the water market. With a software called AquaWeb, operators
are able to examine the status of their pumping stations in near real time. The data helps identify unreliable
and inefficient pumps, which cause costs. Based on these findings, customers can make informed decisions
and modernize their equipment—for example with Sulzer’s retrofit solutions. The software also contains an
alarm function: as soon as performance deteriorates, automated alarms warn the operator. Before sending
an engineer on-site, the program allows the operator to reset motor protection devices remotely. This helps
customers improve the efficiency, performance, and reliability of their equipment.
R&D investments
CHF 71m
(2.5% of sales)
(2015: CHF 73m/2.5% of sales)
Sulzer—Annual Report 2016 46
Business Review—Ecological Sustainability
“We enable our sites to
take individual measures
to reduce the environ-
mental footprint.”
Rajiv Damani,
Head of Group Environment,
Safety, and Health
Energy consumption
GJ in 1 000
GJ/1 000 whr
1 200
1 000
800
600
400
200
0
40
35
30
25
20
15
10
5
0
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Total energy consumption in GJ
GJ/1 000 working hours (whr)
Reducing Environmental Footprint
of Products and Organization
Sulzer’s commitment to environmental sustainability is twofold: The company re-
duces its own environmental footprint and develops innovative and highly efficient
solutions for its customers. They help save energy and reduce operating costs.
Sulzer’s products and solutions are important elements of customers’ operations. The greater part of life
cycle energy consumption and emissions originates at customers’ sites. Products that help reduce energy
consumption and emissions are thus important to supporting customers in maintaining their business sus-
tainably. Sulzer has substantial expertise in providing energy-efficient solutions and the company offers
service and training for safe and efficient operation of the equipment.
Designing energy-efficient products
Product designers take the entire life cycle into account. Pumps typically use a lot of energy. This is why
Sulzer’s design teams pay particular attention to the energy efficiency during product development. The
company puts a strong focus on highest efficiency levels that reduce energy consumption. Optimized prod-
ucts use as little material as possible without compromising quality. In addition to designing efficient products,
Sulzer offers revamps, retrofits, and upgrades to increase the efficiency and extend the lifetime of already
installed pumps.
Delivering a product to the customer’s site is not the end of the job. Unintended or incorrect use can lead
to environmental damage. Sulzer consults its customers on the safe and efficient installation, operation,
maintenance, and disposal of their equipment. Although the company does not operate its own take-back
programs, it supports its customers with optimized ecological and economic solutions for proper dismantling
and disposal.
Maintaining or improving environmental performance
The environmental footprint of Sulzer’s operations mainly stems from energy consumption, greenhouse gas
emissions, and hazardous as well as non-hazardous waste. Sulzer makes the most effort in areas where it
has the scale and resources to make an impact. Because of the diversity of Sulzer’s businesses, the busi-
ness units evaluate their environmental footprint and set their own agendas for reducing their impact.
Although having a car fleet policy makes sense in the service business, it is less suitable for manufacturing
plants that do not have many cars. Overall, the company’s minimum target is to maintain but ideally to
improve performance measured against working hours.
In 2016, Sulzer continued to focus on sharing expertise across the company. A newly formed environment
committee fosters the exchange of best practices. Furthermore, Sulzer is in the pilot phase of an environ-
mental awareness training for its locations.
Reporting transparently and systematically
Sulzer collects extrafinancial data systematically at the site level. The company uses the number of total
working hours as a reference. Overall, 78% of total working hours report on environmental data. This is
slightly less than in 2015, because several smaller service centers were excluded from the data collection
process. The coverage of HR and occupational health and safety data is 100% (of total working hours). The
organization collects extrafinancial data according to two different reporting cycles: The reporting period for
environmental data is October 1, 2015, to September 30, 2016. The reporting cycle for HR data and the
health and safety performance is January 1, 2016, to December 31, 2016. Regular internal audits make
sure that the reporting of the figures is accurate.
Fluctuations in energy, greenhouse gas emissions, waste, and water data
The year 2016 was characterized by the company’s ongoing transformation. To adapt to the market environ-
ment, Sulzer has reduced capacities. This results in larger fluctuations in energy consumption, greenhouse
gas emissions, waste, and water consumption at individual sites.
Sulzer—Annual Report 2016 Business Review—Ecological Sustainability
47
On the whole, both energy consumption and waste were reduced by 13% and almost 8% respectively, largely
due to reduced utilization rates. The rate of energy consumption per 1 000 working hours remained stable.
Waste production per 1 000 working hours increased slightly because the company cleared out obsolete
inventory and stock.
In contrast, the total consumption of water increased significantly by 22%. This increase was almost entirely
due to two factors: First, the successfully growing Sulzer Mixpac Systems business was able to increase
production significantly in 2016. It invested heavily in new and more efficient plants and equipment, which
also consume considerably higher amounts of water for cooling parts and molds. Second, one of the larger
manufacturing plants implemented changes to its cooling systems and used ground water instead of an
aging refrigerant system. If these two factors are excluded, water consumption was reduced throughout
the company. Again, this is largely due to reduced utilization and adjustments in capacities.
Hazardous waste
Tons
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
t/1 000 whr
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
— Energy consumption per working hours (whr)
GJ per 1 000 whr
2016
2015
Change
in +/– %
GJ
845 056
970 832
– 13.0
Total hazardous waste in t (metric)
t/1 000 working hours (whr)
Key figures
Energy
— Share of electricity
— Share of gases
— Share of fuels
— Share of fuel oils
— Share of district heating
— Share of other sources
Greenhouse gas emissions
— GHG emissions per working hours
— GHG scope 11)
— GHG scope 2 2)
— GHG scope 3 3)
Waste
37.3
56.8
23.0
11.7
1.5
6.1
< 1
37.2
54.9
23.7
12.4
1.6
6.7
< 1
0.1
3.4
– 3.1
– 6.1
– 5.9
– 8.5
–
91 440
105 960
– 13.7
%
%
%
%
%
%
tons CO2 eq.
tons CO2 eq.
per 1 000 whr
tons CO2 eq.
tons CO2 eq.
tons CO2 eq.
4.03
4.06
17 690
20 560
56 970
66 290
16 780
19 110
tons
26 811
29 071
— Waste per working hours
tons per 1 000 whr
1.2
1.1
By treatment
— Recycling
— Waste to landfill/incineration/other treatment
By hazardousness
— Non-hazardous waste
— Hazardous waste
Water
%
%
%
%
77.4
22.6
76.7
23.3
66.5
33.5
83.8
16.2
m3
1 600 383
1 311 922
— Water consumption per working hours
m3 per 1 000 whr
70.6
50.3
1) Direct emissions from Sulzer stemming from primary energy sources such as natural gas and fuels used on-site.
2) Indirect emissions from secondary (converted) energy sources such as electricity and district heating.
3) Indirect emissions from the production and transport of fuels and gases not included in scopes 1 or 2.
– 0.7
– 14.0
– 14.1
– 12.2
– 7.8
6.1
16.4
– 32.6
– 8.5
43.9
22.0
40.3
Find further sustainability data at
www.sulzer.com/sustainability
Sulzer—Annual Report 2016
48
Business Review—Social Sustainability
Driving Safety Excellence and
Fostering Cultural Exchange
Sulzer wants its employees to be safe and healthy, and the company continues to
carry out its Safe Behavior Program. To develop people skills, Sulzer offers effective
and pragmatic training opportunities. The company strives for a performance-
rewarding culture that encourages its employees to speak up and exchange ideas
globally.
Improving safety is increasingly difficult with conventional safety control measures. An organization needs
to enable its employees to recognize hazards and anticipate risks while empowering them to act in the in-
terests of each other’s safety. To achieve a mature safety culture, Sulzer has had its Safe Behavior Program
(SBP) in place for four years. Since then, the company has achieved a 38% drop in its accident rate. Raising
awareness for safe behavior and developing skills is key for Sulzer.
Maintaining low accident frequency rate
In 2016, Sulzer was able to sustain the previous year’s performance and reached an accident frequency
rate of below two cases per million working hours. Nevertheless, the health and safety organization faced
severe challenges last year. In total, Sulzer suffered 51 cases of major accidents, which resulted in 1 414
lost working days. Tragically, one employee died while working at a customer’s site early in the year. Thus,
Sulzer is critically examining the entire system of operational health and safety management in its service
activities.
Sulzer continues to implement the SBP as its main vehicle for driving improvement in the safety culture. In
2016, the company paid particular attention to developing and raising the safety program competence of
both novice health and safety experts and critical management teams. In total, Sulzer held three environ-
ment, safety, and health (ESH) training sessions and an additional five management workshops in Asia,
Europe, and the Americas. In total, over 150 ESH professionals and middle- to senior-level managers
received training.
Accidents
Number of cases
AFR
140
120
100
80
60
40
20
0
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Number of cases that last > 1 lost day
due to occupational accidents
Accident frequency rate (AFR) in cases
per million working hours
Effective, applicable, and pragmatic people development
Sulzer recognizes that people development is not only critical to ensuring employees have the necessary
knowledge and skills to do their jobs; it also drives employee satisfaction and company commitment.
Hence, Sulzer provides effective, applicable, and pragmatic development opportunities.
The company takes a diverse and varied approach to training topics. The Sulzer Management Training (SMT)
program, developed in 2014, enables junior managers to master the basics of management topics. It facilitates
the transition from individual contributor to manager. SMT includes web-based, classroom, and peer group
activities. In 2016, Sulzer carried out the SMT program in all three regions. More than 60 participants earned
their completion certificates.
The Learning Management System (LMS), a cloud-based platform, makes development activities available
on a global scale. The learning history ensures that the development of competencies remains transparent
and is available in the long run. LMS accommodates over 7 000 users, 2 500 active training offerings, and
is available in six languages.
Sulzer—Annual Report 2016 Business Review—Social Sustainability
49
Rewarding contributions and results
In 2016, Sulzer further refined its talent management and employee review processes. Running from the
very top of the organization through to local management, the processes enable improved succession
planning. To share talent information better across the globe, the succession planning online tool was
further developed. Sulzer’s goal is to build an even stronger high-performance culture where contributions
and results are valued and rewarded. Thus, the company is streamlining and harmonizing its performance
evaluation processes.
Assuming ethical responsibility
Sulzer values and fosters performance. The company also remains deeply committed to personal respon-
sibility, integrity, and ethical behavior. Every employee signs Sulzer’s Code of Business Conduct. The com-
pany’s compliance training sessions and Code of Business Conduct refresher courses ensure that Sulzer
employees are fully aware of their individual ethical responsibilities and that they act accordingly. Read more
on Corporate Governance on pages 51– 70.
“In our offices, manufactur-
ing plants, and service
centers, you meet
open-minded people from
all over the world who
are excited to share ideas
and solve problems.
This international spirit is
reflected in everything
we do.”
Armand Sohet,
Chief Human Resources Officer
Appreciating cultural diversity and exchange
Sulzer welcomes a diverse workforce. People of different cultural backgrounds, nationalities, genders, and
ages collaborate and share ideas across the company. Through job rotation programs, internships, and
temporary relocations, Sulzer fosters cultural exchange. The company also believes in a speak-up culture
and encourages its employees to communicate openly. With tools such as an “ask your CEO” e-mail
address, CEO Skype meetings that everyone can participate in, and the intranet, the company provides
easy access to the top management.
Geographical spread
of employees
2016
Key figures
Accident frequency rate (AFR)
Accident severity rate (ASR)
Health and safety training
Voluntary attrition rate
Share of women (of total workforce)
Leaders from internal talent pipeline
Number of employees
2016
2015
Change
in +/– %
53% Europe, Middle East, and Africa
1.8
1.9
– 5.3
27% Americas
20% Asia-Pacific
Cases per million
working hours
Lost days per million
working hours
51.2
48.1
hours
119 153
106 610
%
%
%
8.0
17.1
56.0
7.5
14.5
60.0
FTE
14 005
14 253
6.4
11.7
0.5
2.5
– 6.7
– 1.7
Find further sustainability data at
www.sulzer.com/sustainability
Sulzer—Annual Report 2016 50
Business Review—Sustainability Dashboard
Chemtech
Innovation Award
Employees are one of the most valuable
sources of innovation ideas. For this
reason, Sulzer’s Chemtech division
introduced a new ideation platform in
2015. This platform allows all employees
to post their ideas for innovations in
Sulzer’s technologies, products,
and applications. After they pass the
initial evaluation, the ideas enter the
company’s product innovation process.
By the end of 2016, employees from
different locations and business units
had submitted 72 ideas. Three of them
were realized and launched.
Sulzer
Academy
for Pumps
and Systems
Sulzer provides training workshops for
interested engineers, operators, and main-
tenance personnel. The Sulzer Academy for
Pumps and Systems offers comprehensive
courses to help participants better under-
stand the centrifugal pumps and associated
auxiliary equipment that is used in their
facilities. The goal is to further develop the
competencies of the attendees so they can
react in time to changing demands and
situations within their plants. With more
effective and timely decisions, participants
are well prepared to ensure the reliability
of the operation of the systems and cope
with the unexpected.
Donation
72
ideas
For 20 years, Sulzer’s Houston Service Center in Texas,
USA, has been collecting money for the Boys and Girls
Harbor charity. Boys and Girls Harbor is a local non-profit
organization that provides a safe, caring home for children
that have been abused, abandoned, or neglected. In total,
the employees have collected and donated USD 1 million
to the charity in the past 20 years.
3
products
launched
1 million
US dollars donated
in the past 20 years
Two Novel Skill Development
Initiatives in India
India is in transition from an agriculture-based economy to a knowledge-based
economy. In the future, the abilities of its people to create, share, and use
knowledge more effectively will decide its competitive edge. To reduce the global
skill shortages, Sulzer’s site in India has established training courses to support
the success of young people: the Earn and Learn program and the GET program.
Earn and Learn program
The unique Earn and Learn program is open
for young people both with and without a
college degree. It provides employment to rural
or semiurban youth who have completed at
least 12 years of formal schooling. In this way,
the company helps underprivileged students to
complete their bachelor’s degree while working
and introduces them to attractive opportunities
in the growing market.
GET program
The Graduate Engineer Trainee program (GET
program) is designed for new engineering
graduates who have demonstrated impressive
academic ability but who have little or no job
experience. With its training and development
opportunities, the program eases candidates
into the working world. It has been running
consistently for five years. The placement rate
is 100%, which means that every single graduate
has found a job after Sulzer’s training.
180
participants
trained in 2016
100%
placement
rate
Sulzer—Annual Report 2016 51
Corporate Governance
54
Corporate Structure and Shareholders
54
Capital Structure
55
Board of Directors
64
Executive Committee
64
Shareholder Participation Rights
65
Takeover and Defense Measures
65
Auditors
68
Risk Management
70
Information Policy
Corporate Governance
53
Committed to the Principles
of Good Corporate Governance
Sulzer is committed to the principles of good corporate governance. They ensure a
sound balance of power and support the company in creating sustainable value for
its various stakeholders.
In brief
Core principles
The rigorous application of sound corporate governance helps to consolidate and strengthen trust in the
company. Sulzer is subject to Swiss corporate and stock exchange laws and applies the Swiss Code of
Best Practice for Corporate Governance.
See page 54
Board composition
The Board of Directors comprises eight members. Each member is elected individually. The term for mem-
bers of the Board of Directors is one year. Except for the elections reserved to the Shareholders’ Meeting,
the Board of Directors constitutes itself. It appoints from among its members the Vice Chairman of the
Board of Directors and the members of the Board committees (except for the members of the Nomination
and Remuneration Committee who are elected by the Shareholders’ Meeting).
See pages 55 – 57
Committees of the Board
There are three standing committees within the Board of Directors:
— The Audit Committee assesses the midyear and annual accounts and the activities of the internal and
external auditors, the Internal Control System (ICS), and risk management.
— The Nomination and Remuneration Committee assesses the criteria for the election and reelection of
Board members and nominations for the top two management levels. It also deals with succession plan-
ning, compensation systems, and compensation for the members of the Board of Directors and the
Executive Committee.
— The Strategy Committee advises the Board of Directors on strategic matters (such as material acquisi-
tions, divestitures, alliances, and joint ventures) as well as strategic planning and definition of develop-
ment priorities.
See pages 57 – 60
Changes
The following changes occurred in the Board of Directors and the Executive Committee:
— Klaus Sturany, member of the Board of Directors since August 2009, did not stand for reelection
at the Annual General Meeting of April 7, 2016.
— Axel C. Heitmann and Mikhail Lifshitz were newly elected as members of the Board of Directors
at the Annual General Meeting of April 7, 2016.
— All other Board members were reelected for terms of one year.
— Armand Sohet was appointed Chief Human Resources Officer and member of the Executive
Committee as of March 1, 2016.
— Frédéric Lalanne was appointed Chief Commercial and Marketing Officer and member of the
Executive Committee as of June 15, 2016.
— Fabrice Billard resigned as Chief Strategy Officer and member of the Executive Committee as of
July 31, 2016.
— Peter Alexander retired from his position as Division President Rotating Equipment Services and
member of the Executive Committee as of August 31, 2016.
Sulzer—Annual Report 2016 54
Corporate Governance—Corporate Structure and Shareholders
Changes
— Daniel Bischofberger was appointed Division President Rotating Equipment Services and member
of the Executive Committee as of September 1, 2016.
— Torsten Wintergerste, Division President Chemtech and member of the Executive Committee
ad interim since June 14, 2016, was confirmed in this role as of September 26, 2016, replacing
Oliver Bailer.
See pages 55, 64
Sulzer Ltd is subject to the laws of Switzerland, in particular Swiss corporation and stock exchange law. The
company also applies the Swiss Code of Best Practice for Corporate Governance. The rigorous application
of sound corporate governance helps to consolidate and strengthen trust in the company. Sulzer has had a
single share class and has separated the functions of Chairman of the Board of Directors and CEO for many
years. Since the Annual General Meeting of April 8, 2009, only individuals who have never held executive
positions at Sulzer have been members of the Board of Directors. Unless otherwise indicated, the following
information refers to the situation on December 31, 2016. Further information on corporate governance is
published at www.sulzer.com/corpgov. The information in the following section is set out in the order defined
by the SIX Swiss Exchange guidelines on corporate governance information (RLCG), with subsections sum-
marized as far as possible. Sulzer’s consolidated financial statements comply with International Financial
Reporting Standards (IFRS), and in certain sections, readers are referred to the Financial Reporting section
in the Sulzer Annual Report 2016. The Compensation Report can be found on pages 71 to 92.
1
Corporate Structure and Shareholders
Corporate structure
The operational corporate structure is shown in the graphic on page 60 and in the segment reports in the
Financial Reporting section on pages 101 to 104 (note 3). Sulzer Ltd is the only Sulzer company listed on
a stock exchange. It is based in Winterthur, Switzerland. Its shares are listed and traded on the SIX Swiss
Exchange in Zurich (Securities No. 3838891/ISIN CH0038388911). On December 31, 2016, the market
capitalization of all registered shares was CHF 3 597 548 800. Information on the major subsidiaries included
in the consolidation can be found under note 37 on pages 149 to 152 of the Financial Reporting section.
Significant shareholders
According to notifications of Sulzer shareholders, one shareholder held more than 3% of Sulzer Ltd’s share
capital on December 31, 2016. On December 8, 2015 (published on the SIX disclosure platform on De-
cember 16, 2015), Viktor Vekselberg held 63.42% of Sulzer shares. The shares are directly held by Liwet
Holding AG and Tiwel Holding AG. Both are part of the Renova Group. For detailed information, see the
respective disclosure notifications on www.six-exchange-regulation.com/en/home/publications/significant-
share holders.html. For the positions held by Sulzer and information on shareholders, see note 24 in the
Financial Reporting section (pages 129 to 130). There are no cross-shareholdings where the capital or voting
stakes on either side exceed the threshold of 3%.
2
Capital Structure
Share capital
The fully paid-up share capital of Sulzer Ltd amounts to CHF 342 623.70 and is divided into 34 262 370
registered shares with a par value of CHF 0.01 per share. Each registered share entitles the holder to one
vote at the Shareholders’ Meeting. There is neither any authorized nor conditional capital, nor are there any
participation or dividend certificates. The latest version of the Articles of Association can be viewed at
www.sulzer.com/regulations. Information on capital changes can be found in the Financial Statements of
Sulzer Ltd (page 165).
Sulzer—Annual Report 2016 Corporate Governance—Capital Structure
55
Restrictions on transferability and nominee registrations
Sulzer shares are freely transferable provided that, when requested by the company to do so, buyers de-
clare that they have purchased and will hold the shares in their own name and for their own account. Nomi-
nees shall only be entered in the share register with the right to vote if they meet the following conditions: the
nominee is subject to the supervision of a recognized banking and financial market regulator; the nominee
has entered into a written agreement with the Board of Directors concerning its status; the share capital
held by the nominee does not exceed 3% of the registered share capital entered in the commercial regis-
ter; and the names, addresses, and number of shares of those individuals for whose accounts the nominee
holds at least 0.5% of the share capital have been disclosed. The Board of Directors is also entitled, beyond
these limits, to enter shares of nominees with voting rights in the share register if the abovementioned
conditions are met (see also paragraph 6a of the Articles of Association at www.sulzer.com/regulations). On
December 31, 2016, nine nominees holding a total of 1 790 740 shares (5.23% of total shares) had entered
into agreements concerning their status. No exceptions have been granted. All of those shares have been
entered in the share register with voting rights. There are no transfer restrictions and no privileges under the
Articles of Association. A removal or amendment of the transfer restriction requires a shareholders’ resolution
with a majority of at least two-thirds of the votes represented.
Convertible bonds and options
No convertible bonds or warrants are currently outstanding. Details of the restricted stock units issued to the
members of the Board of Directors (from 2009) as well as performance share units issued to the members
of the Executive Committee (in 2010 and yearly as from 2013) are set out in the Financial Reporting section
under note 33 (page 137) and in the Financial Statements of Sulzer Ltd under note 10 (pages 172 to 173).
Board of Directors
3
None of the members of the Board of Directors has ever belonged to the management of a Sulzer company
or to the Executive Committee, nor do any significant business relationships exist between members of the
Board of Directors and Sulzer Ltd or a subsidiary of Sulzer Ltd. Exceptions are Marco Musetti and Mikhail
Lifshitz who have a business relationship with Sulzer’s largest shareholder; Marco Musetti is an employee
of Renova Management AG. Mikhail Lifshitz is High-tech Asset Business Development Director of Renova
Group, Russia, and Chairman of the Board of JSC Rotec, Russia, a company belonging to the Renova
Group. Business relationships in the low-single-digit-million range exist with companies that are directly or
indirectly controlled by the Renova Group. For further information, see Financial Reporting section, note 33
on page 137. There are no interlocking directorships.
On November 30, 2016, Sulzer signed an agreement to acquire control of Rotec’s gas turbine maintenance
business (Rotec GT). Rotec GT will be combined with Sulzer Russia’s rotating equipment service activities.
Renova, the current majority owner of Rotec, will remain an investor with a 49% stake in the combined entity
(see media release of December 1, 2016, on www.sulzer.com/news).
Elections and terms of office
The Articles of Association stipulate that the Board of Directors of Sulzer Ltd shall comprise five to nine
members. Each member is elected individually. The term for members of the Board of Directors is one year.
Klaus Sturany, member of the Board of Directors since August 2009, did not stand for reelection at the An-
nual General Meeting of April 7, 2016. Mikhail Lifshitz and Axel C. Heitmann were newly elected as mem-
bers of the Board of Directors at the Annual General Meeting of April 7, 2016. All other Board members
were reelected for terms of one year. Accordingly, as of April 7, 2016, the Board of Directors comprises
eight members: two from Austria, one from Italy, one from Singapore, one from Russia, one from Germany,
and two from Switzerland. Professional expertise and international experience played a key role in the
selection of the members. The members of the Board of Directors are presented on pages 58 to 59 and
their CVs can be viewed at www.sulzer.com/board.
Sulzer—Annual Report 2016 56
According to the Board of Directors and Organization Regulations, the term of office of a Board member
ends no later than on the date of the Annual General Meeting in the year when the member reaches the
age of 70. The Board of Directors can make exceptions up to but not exceeding the year in which the mem-
ber reaches the age of 73.
Internal organization
The Board of Directors constitutes itself, except for the Chairman of the Board of Directors who is elected
by the Shareholders’ Meeting. The Board of Directors appoints from among its members the Vice Chairman
of the Board of Directors and the members of the Board committees, except for the members of the
Nomination and Remuneration Committee, who are elected by the Shareholders’ Meeting. There are currently
three standing Board committees: the Audit Committee (AC), the Nomination and Remuneration Committee
(NRC), and the Strategy Committee (SC); for their constitutions, see page 57. The Board of Directors and
Organization Regulations and the relevant Committee Regulations, which are published at www.sulzer.
com/regulations, define the division of responsibilities between the Board of Directors and the CEO. They
also define the authorities and responsibilities of the Chairman of the Board of Directors and of the three
standing Board committees.
Operating principles of the Board of Directors and its committees
All decisions are made by the full Board of Directors. For each application, written documentation is distributed
to the members of the Board of Directors prior to the meeting. The Board of Directors and the committees
meet as often as required by circumstances. The Board of Directors meets at least six times per year, the
Audit Committee and the Nomination and Remuneration Committee meet at least three times per year, and
the Strategy Committee meets at least twice per year. In 2016, the Board held three full-day meetings, two
half-day meetings, and four shorter Board meetings. The latter lasted up to one hour on average. For further
details, see the table below. The CEO, the CFO, and the Group General Counsel (who is the Secretary of
the Board of Directors) also generally attend the Board meetings in an advisory role. Other members of the
Executive Committee are invited to attend Board meetings as required to discuss the midterm planning, the
strategy, and the budget, as well as division-specific items (such as large investments and acquisitions).
The committees do not make any decisions, but rather review and discuss the matters assigned to them
and submit the required proposals to the full Board of Directors for a decision. At the next full Board meet-
ing following the committee meeting, the chairpersons of the committees report to the full Board of Direc-
tors on all matters discussed, including key findings, opinions, and recommendations.
Board of Directors
Name
Nationality
Position
Peter Löscher
Austria
Chairman, Chairman SC
Matthias Bichsel
Switzerland
Vice Chairman of the Board, Member SC
Jill Lee
Singapore
Chairwoman AC 1), Member NRC
Marco Musetti
Italy
Member AC 2), NRC
Thomas Glanzmann
Switzerland
Chairman NRC, Member AC 1), SC 2)
Gerhard Roiss
Austria
Member SC
Axel C. Heitmann 1)
Germany
Member AC
Mikhail Lifshitz 1)
Klaus Sturany 2)
Russia
Austria
Member SC
Chairman AC, Member SC
August 2009
AC = Audit Committee, NRC = Nomination and Remuneration Committee, SC = Strategy Committee
1) As of April 7, 2016.
2) Until April 7, 2016.
Entry
March 2014
March 2014
April 2011
April 2011
April 2012
April 2015
April 2016
April 2016
Elected
until
Board
Attending meetings of the
SC
NRC
AC
2017
2017
2017
2017
2017
2017
2017
2017
2016
9
7
9
9
9
8
7
6
1
9
9
9
4
1
3
3
1
3
3
1
3
2
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 57
The Board of Directors and its committees
Board of Directors
Peter Löscher (Chairman)
Matthias Bichsel (Vice Chairman)
Jill Lee
Marco Musetti
Thomas Glanzmann
Gerhard Roiss
Axel C. Heitmann
Mikhail Lifshitz
Audit Committee
Jill Lee (Chairwoman)
Thomas Glanzmann
Axel C. Heitmann
Nomination and Remuneration
Committee
Thomas Glanzmann (Chairman)
Jill Lee
Marco Musetti
Strategy Committee
Peter Löscher (Chairman)
Matthias Bichsel
Gerhard Roiss
Mikhail Lifshitz
Additional mandates of members of the Board of Directors outside the Sulzer group
According to Sulzer’s Articles of Association, the maximum number of additional mandates held by mem-
bers of the Board of Directors outside the Sulzer group is ten (of which, a maximum of four mandates may
be with listed companies). Exceptions (e.g., for mandates held at the request of Sulzer or mandates in
charity organizations) are defined in the Articles of Association.
Audit Committee
The Audit Committee (members listed above) assesses the midyear and annual consolidated financial
statements and, in particular, the activities—including effectiveness and independence—of the internal and
external auditors, as well as the cooperation between the two bodies. It also assesses the Internal Control
System (ICS), risk management, and compliance; at least one meeting per year is dedicated to risk man-
agement and compliance. The regulations of the Audit Committee can be viewed at www.sulzer.com/
regulations. The CEO, the CFO, the Group General Counsel (at least partially), the Head of Group Internal
Audit (who is also the Secretary of this committee), and the external auditor-in-charge, attend the meetings
of the Audit Committee. In 2016, the Audit Committee held four meetings. The external auditor-in-charge
attended all of these meetings. Internal experts, such as the Group General Counsel and the Heads of
Group Internal Audit, Group Accounting, Group IT, Group Compliance and Risk Management, and Group
Taxes gave presentations to the Audit Committee in 2016. In February, the Audit Committee is informed of
compliance exposures as a result of periodic risk assessments, and it receives an overview of compliance
cases from the prior year. In September, the Audit Committee is briefed on the present state of risk
management within the company and on the results of the risk management process—a process to sys-
temat ically identify and evaluate significant risks and introduce countermeasures. In the same meeting, an
update on Sulzer’s compliance approach, including the respective ongoing and planned activities, is pro-
vided. During each meeting, the major current compliance cases (if any) are reported to and discussed by
the Audit Committee.
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 58
Board of Directors
8
1
6
Members of the
Board of Directors
Elected individually
for one-year terms
Nationalities are represented
on the Board of Directors
The Sulzer Board of Directors consists of
eight members who are elected individually
for one-year terms. None of them has ever
held an executive position at Sulzer. Mikhail
Lifshitz and Axel C. Heitmann were newly
elected as members of the Board of Direc-
tors in April 2016. Klaus Sturany did not
stand for reelection at the Annual General
Meeting 2016.
Peter Löscher
Born in 1957, Austria
Joined the Board of Directors in 2014
Chairman of the Board of Directors /
Chairman of the Strategy Committee
Matthias Bichsel
Born in 1954, Switzerland
Joined the Board of Directors in 2014
Vice Chairman of the Board of Directors /
Member of the Strategy Committee
Jill Lee
Born in 1963, Singapore
Joined the Board of Directors in 2011
Chairwoman of the Audit Committee /
Member of the Nomination and
Remuneration Committee
Marco Musetti
Born in 1969, Italy
Joined the Board of Directors in 2011
Member of the Nomination and
Remuneration Committee
Thomas Glanzmann
Born in 1958, Switzerland
Joined the Board of Directors in 2012
Chairman of the Nomination and
Remuneration Committee /
Member of the Audit Committee
Gerhard Roiss
Born in 1952, Austria
Joined the Board of Directors in 2015
Member of the Strategy Committee
Axel C. Heitmann
Born in 1959, Germany
Joined the Board of Directors in 2016
Member of the Audit Committee
Mikhail Lifshitz
Born in 1963, Russia
Joined the Board of Directors in 2016
Member of the Strategy Committee
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 59
From left to right: Axel C. Heitmann, Marco Musetti, Mikhail Lifshitz,
Peter Löscher, Gerhard Roiss, Jill Lee, Matthias Bichsel, Thomas Glanzmann.
For full CVs, visit www.sulzer.com/board
60
Nomination and Remuneration Committee
The Nomination and Remuneration Committee (members listed on page 57) assesses the criteria for the
election and reelection of Board members and the nomination of candidates for the top two management
levels. It deals with succession planning. It also regularly assesses the compensation systems and recom-
mends compensation for the members of the Board of Directors and the Executive Committee (including
bonus targets for the latter) on behalf of the Board of Directors and in accordance with its specifications. It
carries out broadly based compensation benchmarks with an international comparison group, supported
by studies of consulting firms such as Mercer and Willis Towers Watson, and it scrutinizes the work of in-
ternal and external consultants. The members of the Nomination and Remuneration Committee are elected
by the Shareholders’ Meeting. The regulations of the Nomination and Remuneration Committee can be
viewed at www.sulzer.com/regulations. The CEO and the Chief Human Resources Officer (who is also the
Secretary of this committee) attend the meetings of the Nomination and Remuneration Committee. In 2016,
nine meetings were held. External experts from Willis Towers Watson provided benchmarking services (see
Compensation Report, pages 71 to 92) and supported the Nomination and Remuneration Committee in re-
viewing the compensation packages of the members of the Board of Directors and the Executive Committee.
Strategy Committee
The Strategy Committee (members listed on page 57) advises the Board of Directors on strategic matters
(such as material acquisitions, divestitures, alliances, and joint ventures) as well as strategic planning and
definition of development priorities. The regulations of the Strategy Committee can be viewed at www.sulzer.
com/regulations. In 2016, three meetings took place. The CEO and the CFO attended all three meetings.
Organizational structure
Board of Directors
Chief Executive Officer
Greg Poux-Guillaume
Chief Financial Officer
Thomas Dittrich
Division President Pumps Equipment
César Montenegro
Chief Commercial and Marketing Officer
Frédéric Lalanne
Division President Rotating Equipment Services
Daniel Bischofberger
Chief Human Resources Officer
Armand Sohet
Division President Chemtech
Torsten Wintergerste
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 61
Division of powers between the Board of Directors and the CEO
The Board of Directors has largely delegated executive management powers to the CEO. However, it is still
responsible for matters that cannot be delegated in accordance with Art. 716a of the Swiss Code of Obli-
gations. These matters include corporate strategy, the approval of midterm planning, and the annual
budget, as well as key personnel decisions and the creation of the Compensation Report. The same applies
to acquisition and divestiture decisions involving an enterprise value exceeding CHF 15 million or CHF 20 mil-
lion respectively, investments in fixed assets exceeding CHF 15 million, major corporate restructurings,
approval of dispute settlements with an impact on operating income of more than CHF 20 million, approval
of research and development projects exceeding CHF 10 million, as well as other matters relevant to the
company, and decisions that must be made by law by the Board of Directors (including those defined in the
Swiss Mergers Act). The competency regulations and the nature of the collaboration between the Board of
Directors and the Executive Committee can be viewed in the organizational regulations at www.sulzer.com/
regulations.
Information and control instruments
Each member of the Board of Directors receives a copy of the monthly financial statements (January to May
and July to November), plus the midyear and annual financial statements. These include information about
the balance sheet, the income and cash flow statements, and key figures for the company and its divisions.
They incorporate comments on the respective business results and a six-month rolling forecast of the key
figures. The CEO and CFO report at every Board meeting on business developments and all matters
relevant to the company; once each year, the Board receives the forecasted annual results. During these
meetings, the chairmen of the committees also report on all matters discussed by their committees and on
the key findings and assessments, and they submit proposals accordingly. Each year, the Board of Directors
discusses and approves the budget for the following year, and every three years it establishes a midterm
plan, which is also subject to periodic review. The Chairman of the Board of Directors regularly consults with
the CEO and other representatives of the Executive Committee. In addition, the Board of Directors receives
a status update on investor relations on a regular basis.
Group Internal Audit
Group Internal Audit reports functionally directly to the Chairman of the Audit Committee, but administra-
tively to the CFO. Meetings between internal audit and external auditors take place regularly. They are used
to prepare for the meetings of the Audit Committee, to review the interim and final reports of the external
auditors, to plan and coordinate internal and external audits, and to prepare audit instructions for the atten-
tion of external auditors of the individual companies. Group companies are audited by Group Internal Audit
based on an audit plan that is approved by the Audit Committee. Depending on the risk category, such
audits are carried out on a rotational basis either annually or every second, third, or fourth year. Group
Internal Audit carried out 34 audits in the year under review. One of the focal points is the Internal Control
System (ICS). The results of each audit are discussed in detail with the companies and (where necessary)
the divisions concerned, and key measures are agreed upon. The Chairman of the Board of Directors, the
members of the Audit Committee, the CEO, the CFO, the Group General Counsel, as well as the respective
Division President and other line managers of the audited entity receive a copy of the audit report. Signifi-
cant findings and recommendations are also presented to and discussed with the Executive Committee
and the Group General Counsel during the monthly Executive Committee meetings. Twice a year, the divi-
sions present the status of key measures agreed on. A follow-up process is in place for all Group internal
audits, which allows efficient and effective monitoring of how the improvement measures are being imple-
mented. Each year, the Head of Group Internal Audit compiles a report summarizing activities and results.
This report is distributed to members of the Board of Directors and the members of the Executive Com-
mittee, and it is presented to the Executive Committee and the Audit Committee. It is discussed in both
committees and, thereafter, reported to the Board of Directors.
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 62
Risk management and compliance
Sulzer has established and implemented a comprehensive, value- and risk-based compliance program that
focuses on prevention. It consists of the following main elements:
Strong values and setting an ethical organizational tone
Sulzer puts a high priority on carrying out its business with integrity, in compliance with all applicable laws
and internal rules (“a clean deal or no deal”), and on accepting only reasonable contractual risks. The Board
of Directors and the Executive Committee are convinced that compliant and ethical behavior in all aspects
and on all levels is a precondition for successful and sustainable business. The ethical tone is set at the top,
carried through to the middle, and is transmitted to the entire organization. Sulzer also fosters a speak-up
culture and encourages employees to address potentially non-compliant behaviors.
Risk assessment
As part of Sulzer’s integrated risk management process, compliance risks are assessed regularly, and
the results are discussed both with the management and with the Audit Committee. The Audit Committee
dedicates at least one full meeting per year to risk management and compliance. An overview of the main
risks and corresponding mitigation measures is provided on pages 68 to 69.
Internal rules and tools
Sulzer has a Code of Business Conduct, which can be viewed in 19 languages at www.sulzer.com/regula-
tions. Every employee of the company (including employees of newly acquired businesses) has to confirm
in writing that he or she has read and understood this code, and will comply with it. Every member of the
Sulzer Management Group (approximately 100 managers), the heads of the operating companies, and the
headquarters, regional, and local compliance officers must reconfirm this compliance commitment in
writing annually. Furthermore, Sulzer joined the UN Global Compact initiative in 2010. The latest Commu-
nication on Progress Report was published on July 29, 2016, and can be downloaded from www.sulzer.
com/sustainability.
Rules
Although Sulzer follows a behavior- and principle-based approach, compliance directives and processes
have been implemented as elements of the governance framework. Sulzer focuses on the major compli-
ance risks, e.g.:
— Bribery and corruption risks: Sulzer has had a group-wide antibribery and anticorruption program in
place since 2010. This program includes a web-based process that addresses the due diligence of in-
termediaries, a corporate-wide directive for offering and receiving gifts and hospitalities, and an e-train-
ing (in 13 languages) to familiarize Sulzer employees with the requirements of the directive.
— Antitrust and anticompetition risks: Sulzer has an antitrust guideline and a directive addressing behav-
iors in trade associations in place. Employees representing Sulzer in trade association meetings have to
sign a compliance declaration.
— Export control risks: Employees involved in export activities have to comply with all applicable export
and re-export laws and regulations. In 2015, Sulzer rolled out and implemented its global Trade Control
Directive in all legal entities concerned. In 2016, a new export compliance initiative was launched to
maintain and further improve export compliance oversight for countries with specific US export and/or
re-export requirements.
— Further risks (e.g., stock exchange laws and regulations; human-resource-related issues; intellectual
property and know-how; privacy and data protection laws; product liability; environment, quality, safety,
and health, etc.): Focused rules and processes address these and many other potential risks. Sulzer has
processes that ensure compliance with insider laws as well as stock exchange reporting and notification
duties. Local compliance officers performed 56 face-to-face training sessions in 2016.
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 63
Tools
Sulzer has a compliance hotline and an incident reporting system that provides employees with one of many
options for reporting (potential) violations of laws or internal rules. Reports can be made anonymously or
openly via a free hotline or a dedicated website. The company has a directive that sets clear rules for internal
investigations. Further tools are available to all employees on Sulzer’s intranet (e.g., presentations address-
ing the major exposures; draft agreements; sales and procurement handbooks with compliance-specific
explanations and standard clauses). Sulzer has a compliance risk assessment process in place to identify
and assess potential compliance risks on a local entity level and to define appropriate measures.
Organization
Since 2013, a “Legal, Compliance, and Risk Management” group function exists within Sulzer (headed
by the Group General Counsel). Within this organization, a line reporting structure is in place for the three
regions: Americas (AME); Europe, Middle East, and Africa (EMEA); and Asia-Pacific (APAC). The local
Compliance Officers ultimately report—via Regional Compliance Officers—to the Group General Counsel
(who is also the Chief Compliance Officer). In addition, the headquartered Compliance and Risk Manage-
ment team steers and runs the group-wide compliance program. The Head of Risk Management and
Compliance also reports to the Group General Counsel. To ensure the consistent rollout of Group Com-
pliance initiatives, a dotted reporting line exists between the Regional Compliance Officers and the Head
of Compliance and Risk Management. The Group General Counsel informs the Board of Directors and
the Executive Committee regularly about legal matters and key changes in legislation that may affect
Sulzer, as well as on important litigation. Twice a year, the Audit Committee receives a report about any
pending or threatened litigation with worst-case exposure exceeding CHF 0.5 million. Further information
on reports to the Audit Committee is provided in the Audit Committee section on page 57.
Awareness building and trainings
Sulzer puts substantial effort into training its employees. Training is carried out through e-learning programs
(two to three new programs are rolled out every year), in person, or through web conferences. In 2016,
Sulzer employees completed over 16 600 e-learning courses, and the company conducted web confer-
ences on specific compliance matters.
Controls and sanctions
Group Function Legal carried out seven audits of the contract review process in 2016. These audits were
conducted within the framework of the audits done by Group Internal Audit and followed the same audit
process. Group Function Environment, Safety, and Health (ESH) carried out 12 audits and organized 17 ex-
ternal health and safety compliance audits. The focal points were primarily environmental protection and
workplace safety. The results of each of these audits were discussed directly with the responsible man-
agers, and an agreement was reached on any improvements required. The latest status of the company’s
risks relating to environment, safety, and health is reported to the Audit Committee once a year. Apart from
these formal audits, internal investigations (triggered by reports from the compliance hotlines, e-mails,
telephone calls, or other avenues of communication) were carried out during 2016 and at least five em-
ployees had to leave Sulzer because of non-compliant behavior with Sulzer’s Code of Business Conduct.
Others received warnings or were transferred internally. However, most of the reports received concerned
non-material issues.
Continuous improvement
It is Sulzer’s goal to constantly improve its compliance and risk management approach. Findings of audits
and internal investigations are assessed, internal processes and rules are adjusted, and training modules
are improved. Sulzer always reviews compliance violations to determine whether they are rooted in a pro-
cess weakness. If that is found to be the case, the process will be improved and risk-mitigating measures
will be set up.
Corporate Governance—Board of DirectorsSulzer—Annual Report 2016 64
Corporate Governance—Executive Committee
Executive Committee
4
The Executive Committee consists of the Chief Executive Officer (CEO), the Chief Financial Officer (CFO),
the Chief Human Resources Officer (CHRO, since March 2016), the Chief Commercial and Marketing
Officer (CCMO, since June 2016), and three Division Presidents. The Board of Directors delegates executive
management powers to the CEO. The CEO delegates the appropriate powers to the members of the
Executive Committee. The Division Presidents define and attain business targets for their respective divisions
in accordance with group-wide goals. The Board of Directors and Organization Regulations govern, among
other things, the transfer of responsibilities from the Board of Directors to the CEO. These regulations can
be viewed at www.sulzer.com/regulations. There are no management contracts with third parties. None
of the Executive Committee members has a contract with a notice period exceeding 12 months. The
members of the Executive Committee are presented on pages 66 to 67 and their CVs can be viewed at
www.sulzer.com/management.
Additional mandates of members of the Executive Committee outside the Sulzer group
No member of the Executive Committee may hold more than five mandates, of which no more than one
may be in listed companies. Exceptions (e.g., for mandates held at the request of Sulzer or mandates in
charity organizations) are defined in the Articles of Association.
Compensation Report
5
Information on the compensation of the Board of Directors and the Executive Committee can be found in
the Compensation Report (pages 71 to 92).
6
Shareholder Participation Rights
Restrictions and representation of voting rights
Only nominees are subject to restrictions (see Capital Structure, page 54). No exceptions were granted
during the reporting year, and no measures to remove these restrictions are planned. According to the
Articles of Association, a shareholder may be represented at a Shareholders’ Meeting by its legal represen-
tative, another shareholder with the right to vote, or the independent proxy. Shares held by a shareholder
may be represented by only one person.
Statutory quorum
Changes to the Articles of Association may only be approved by a majority of at least two-thirds of the vot-
ing rights represented at the Shareholders’ Meeting; share capital increases are carried out, however, upon
an absolute majority of the votes represented. The dissolution or a merger of the company can only be
decided upon if at least half the shares issued are represented at the Shareholders’ Meeting and two-thirds
thereof vote in favor of the corresponding proposal (see also paragraph 16 of the Articles of Association).
Convocation of the Shareholders’ Meeting and submission of agenda items
The applicable regulations are in line with the applicable law regarding the convocation of a Shareholders’
Meeting. Shareholders representing at least 2% of the share capital may submit items for inclusion on the
agenda of a Shareholders’ Meeting. Such submissions must be requested in writing at least two months
prior to the meeting and must specify the agenda items and proposals of the shareholder concerned.
Sulzer—Annual Report 2016 Corporate Governance—Shareholder Participation Rights
65
Entry in the share register
Voting rights may be exercised by shareholders who are already registered in the share register on the record
date stated in the invitation to the respective Shareholders’ Meeting.
Independent proxy
At the Annual General Meeting of April 7, 2016, Proxy Voting Services GmbH was elected as the indepen-
dent proxy for a term of office extending until completion of the next Annual General Meeting.
Takeover and Defense Measures
7
The Articles of Association contain no opting-out or opting-up clauses. None of the contracts with mem-
bers of the Board of Directors contains a change of control clause. The contracts of the members of the
Executive Committee who joined the Executive Committee before April 2009 contain a remuneration clause
provided the contract is terminated or the member’s function is changed considerably within 18 months
after a change of control (see Compensation Report, pages 71 to 92). If there is a change of control (which,
for members of the Executive Committee, also includes a replacement of the majority of the members of
the Board of Directors) or a public takeover bid that is not supported by the Board of Directors, all allocat-
ed restricted stock units (RSU) are automatically vested and the performance share units (PSU) are auto-
matically converted into shares on a pro rata basis without being subject to blocking restrictions.
Auditors
8
The statutory auditor is elected at the Annual General Meeting for a one-year term of office. KPMG AG has
been acting as the statutory auditor since 2013. The acting external auditor-in-charge is François Rouiller
(since March 27, 2013). The external auditor-in-charge is replaced every seven years. The Audit Committee
is in charge of supervising and monitoring the statutory auditor, and it reports to the Board of Directors (see
Board of Directors, page 55). The members of the Audit Committee receive summaries of audit findings and
improvement proposals at least once a year. The external auditor-in-charge is invited to attend meetings of
the Audit Committee. In 2016, he attended all four Audit Committee meetings. The Audit Committee or its
Chairwoman meets separately with the Head of Group Internal Audit and the external auditor-in-charge at
least once a year to assess (among other things) the independence of the internal and external auditors.
The Audit Committee evaluates the work done by the auditors based on the documents, reports, and pre-
sentations provided by the auditors, as well as on the materiality and objectivity of their statements. To do
so, the committee gathers the opinions of the CFO and the Head of Group Internal Audit. The Audit Com-
mittee reviews the fee paid to the auditor regularly and compares it with the auditing fees paid by other
internationally active Swiss industrial companies. Said fee is negotiated by the CFO and approved by the
Board of Directors. Further information on the auditor, in particular the auditor’s fees and any additional fees
received by the auditor for advisory services outside its statutory audit mandate, is listed in the Financial
Reporting section under note 34 (page 137). All advisory services provided outside the statutory audit
mandate (essentially, consulting services related to audit and accounting as well as legal and tax advisory
services) are compliant with the applicable independence rules.
Sulzer—Annual Report 2016 66
Corporate Governance—Executive Committee
Executive Committee
7
5
Members of the
Executive Committee
Nationalities are represented
on the Executive Committee
The Sulzer Executive Committee consists
of the CEO, the CFO, the Chief Human
Resources Officer (CHRO), the Chief Com-
mercial and Marketing Officer (CCMO), and
three Division Presidents. Armand Sohet
joined the Executive Committee as CHRO
on March 1, 2016. Frédéric Lalanne joined
as CCMO on June 15, 2016. Fabrice Billard
resigned as Chief Strategy Officer as of
July 31, 2016. Peter Alexander retired from
his position as Division President Rotating
Equipment Services as of August 31, 2016.
Daniel Bischofberger was appointed Division
President Rotating Equipment Services as
of September 1, 2016. Torsten Wintergerste,
Division President Chemtech ad interim
since June 14, 2016, was confirmed in this
role as of September 26, 2016, replacing
Oliver Bailer.
Greg Poux-Guillaume
Born in 1970, France
Joined the Executive Committee in 2015
Chief Executive Officer
César Montenegro
Born in 1953, Venezuela / USA
Joined the Executive Committee in 2008
Division President Pumps Equipment
Thomas Dittrich
Born in 1964, Switzerland / Germany
Joined the Executive Committee in 2014
Chief Financial Officer
Armand Sohet
Born in 1965, France
Joined the Executive Committee in 2016
Chief Human Resources Officer
Frédéric Lalanne
Born in 1963, France
Joined the Executive Committee in 2016
Chief Commercial and Marketing Officer
Daniel Bischofberger
Born in 1966, Switzerland
Joined the Executive Committee in 2016
Division President Rotating Equipment
Services
Torsten Wintergerste
Born in 1965, Switzerland
Joined the Executive Committee in 2016
Division President Chemtech
Sulzer—Annual Report 2016 67
From left to right and from front to back: Greg Poux-Guillaume, Frédéric Lalanne,
Thomas Dittrich, Daniel Bischofberger, César Montenegro, Armand Sohet, Torsten Wintergerste.
For full CVs, visit www.sulzer.com/management
68
Corporate Governance—Risk Management
Assessing and Managing Risks
At Sulzer, compliance risks are assessed regularly as part of the company’s integrated
risk management process. The results are discussed with the management and the
Audit Committee.
Risk
Risk exposure
Main loss controls
Market developments that are assessed
inappropriately could lead to missed business
opportunities or losses.
— Continuous monitoring and assessment
of market developments
— Systematic midrange planning based on market
External and markets
Market assessment
Geopolitical shocks
Strategic
Innovation
— More information
on page 45
A geopolitical shock event could have an impact
on operations and travel. Also, it could imply
currency risks and default risks of countries
and banks.
Failure in R&D and innovation activities could
negatively impact the ability to operate and
to grow the business.
Insufficient investments in innovation to maintain
technology leadership and develop innovative
products.
Operational
Attraction and retention
— More information
on page 48
Failure to attract and retain people could lead to
a lack of expertise and negatively impact the ability
to operate.
developments and expectations
— Monitoring of exposure in critical countries
— Monitoring of debt situation of countries
and banks
— Continuous monitoring of raw material prices
and inflation indicators
— Sulzer’s global presence mitigates the effect
of geopolitical shocks
— Stage-Gate® process and key performance
indicators
— Product Development Council with strong focus
on midrange planning process and value
engineering
— Core Technology Council for development
of basic technology
— Focus on innovation with strategic customers
— Innovation projects planned for 2017
— Implementation of an expert development
program for key critical resources in 2017
— Active fostering of corporate values and high
ethical standards
— Strong Sulzer employer brand strategy
— Regular talent review workshops
— Development plans and education of employees
— Salary benchmarks and reviews
— Close monitoring of voluntary attrition rate
Health and safety
— More information
on page 48
An unsafe working environment could lead to
harm to people, reputational damage, fines, as
well as liability claims and could have a serious
economic impact.
— Health and safety directives, guidelines, programs
(e.g., Safe Behavior Program), and training
— OHSAS 18001 certifications
— Monthly health and safety controlling and
regular audits
— Global network of health and safety officers
Sulzer—Annual Report 2016 Corporate Governance—Risk Management
69
Risk exposure
Main loss controls
Risk
Operational
Compliance
— More information
on page 62
Non-compliant or unethical behavior could lead to
reputational damage, fines, and liability claims.
— Active fostering of high ethical standards by tone
from the top and middle management
— Continuous monitoring and assessment of
potential exposures
— Sulzer Code of Business Conduct and a number
of supporting regulations (e.g., anticorruption,
antitrust, trade control)
— Global network of compliance and trade
compliance officers
— Compliance training (incl. e-learning) and audits
— Speak-up culture, compliance hotline, and
sanctions
— Quality management and assurance systems
tailored to specific businesses
— Third-party accreditation
— Competence development programs and
training of employees
— Test centers
Quality of products
and services
Failure of high-quality products and services could
lead to repeated work, reputational damage, or
liability claims.
Business interruptions
Business interruption, such as a fire, could cause
damage to people, property, and equipment.
It could have a negative effect on the ability to
operate at the affected site.
— Crisis and emergency management systems
(at global and local level)
— Risk management policy and guidelines
— Global manufacturing footprint and global
procurement
— Disaster recovery plans in IT
Financial
Financial markets
— More information
on page 107
Credit
— More information
on page 109
The unpredictability of financial markets may have
a negative effect on Sulzer’s financial performance
and its ability to raise or access capital.
— Group financial policy
— Foreign exchange risk policy
— Trading loss limits for financial instruments
Credit risks arising from financial institutions and
from customers could have a negative effect
on Sulzer’s financial performance and ability to
operate.
— For financial institutions, only parties with a strong
credit quality are accepted (third-party rated)
— Individual risk assessment of customers with
large order volumes
— Continuous monitoring of country risks
Liquidity
— More information
on page 109
Failure in liquidity risk management may have a
negative effect on Sulzer’s financial performance
and its ability to operate.
— Continuous liquidity monitoring
— Management of liquidity reserves at group level
— Cash flow program to optimize liquidity and cash
flow management
— Efficient use of available cash through cash pooling
Sulzer—Annual Report 2016
70
Corporate Governance—Information Policy
Information Policy
9
Sulzer Ltd reports on its order intake every quarter (media releases) and on its financial results every half year.
In each case, it also comments on business performance and outlook. In addition, the company reports on
important events on an ongoing basis (ad hoc publications). The reporting referred to in section 5 of this
Corporate Governance Report (including the respective references to the Financial Reporting section)
complies with the recommendations on the content of the Compensation Report as laid out in section 38
of annex 1 to the Swiss Code of Best Practice for Corporate Governance.
Key dates in 2017
March 1
April 6
April 27
July 27
October 26
Annual results 2016
Annual General Meeting 2017
Order intake Q1 2017
Midyear results 2017
Order intake Q1 – Q3 2017
These dates and any changes can be viewed at www.sulzer.com/events. Media releases (sent via e-mail)
can be subscribed to at www.sulzer.com/newsletter. Other information is available on the Sulzer website
www.sulzer.com.
Material changes
The text makes reference to any material changes occurring between the balance sheet date (Decem-
ber 31, 2016) and the copy deadline for the Annual Report (February 22, 2017).
Sulzer—Annual Report 2016
71
Compensation Report
73
Letter to the Shareholders
75
Compensation Governance and Principles
78
Compensation Architecture
86
90
Compensation of the Board of Directors
and the Executive Committee
Shareholdings of the Board of Directors
and the Executive Committee
92
Auditor’s Report
Incentives for Sustainable
Performance
Compensation policies and plans at Sulzer reward performance, sustainable growth,
and long-term shareholder value creation.
Winterthur, February 22, 2017
On behalf of the Board of Directors and the Nomination and Remuneration Committee of Sulzer, please find enclosed our 2016 Compensation
Report.
The purpose of the Sulzer compensation policy is to enable the company to attract, retain, and motivate the talents that are key to the company’s
performance and long-term success. With that in mind, our compensation programs have been designed to reward performance that delivers
sustainable growth, and long-term shareholder value creation.
During the reporting year, the Board of Directors and the Nomination and Remuneration Committee continued to review Sulzer’s compensation
policy and programs in order to ensure that they are aligned with the company’s strategy and shareholders’ interests while being compliant with
the regulatory requirements. As a consequence, we implemented the following changes:
— Refinement of performance metrics of the short-term and long-term incentive plans applicable to the members of the Executive Committee;
— Introduction of malus and clawback provisions on share-based awards granted under the long-term incentive plan.
In 2016, the Nomination and Remuneration Committee also focused on strengthening the Executive Committee. Aligning with the company’s
strategic transformation, the Executive Committee was expanded to include the positions of Chief Human Resources Officer and the Chief
Commercial and Marketing Officer. The company was able to successfully hire the Division President Rotating Equipment Services, the Division
President Chemtech, the Chief Human Resources Officer, and the Chief Commercial and Marketing Officer. These new members bring extensive
international experience and expertise to the Executive Committee and significantly strengthen the management team for the realization of our
ambitious goals and strategies.
You will find further information on our activities and on the Sulzer compensation system and governance on the following pages. This Compen-
sation Report will be submitted for a non-binding, consultative shareholders’ vote at the Annual General Meeting (AGM) in April 2017. Shareholders
will also vote on the maximum aggregate compensation amount to the Board for the term from the 2017 AGM to the 2018 AGM and on the
maximum aggregate Executive Committee compensation for 2018.
Looking ahead, we are committed to regularly assess and review our compensation programs to ensure that they are effective. We will also
continue the open dialogue with you, our shareholders, and your representatives.
We would like to thank you for taking the time to share your views with us and trust that you will find this report informative.
Sincerely,
Thomas Glanzmann
Chairman of the Nomination and Remuneration Committee
74
Compensation Report
In brief
Core principles and compensation governance
Compensation policies and plans at Sulzer reward performance, sustainable growth, and long-term share-
holder value creation. Compensation programs are competitive, internally equitable, straightforward, and
transparent.
The Nomination and Remuneration Committee reviews the compensation policy, programs, and amounts
on an annual basis. If necessary, it proposes changes that are subject to the approval of the full Board of
Directors.
See page 75
Shareholders’ engagement
The shareholders are asked to approve the aggregate maximum amounts of compensation that may be
awarded to the Board of Directors and to the Executive Committee in a binding prospective vote. Further,
shareholders have the opportunity to express their opinions on the compensation framework and on the
compensation actually awarded for the reporting year in a consultative vote on the Compensation Report.
See page 76
Compensation of the Board of Directors
To reinforce the independence of the Board of Directors in fulfilling its supervisory duties, the compensation
of the Board of Directors consists of a fixed remuneration only, delivered as follows:
— Fixed cash component
— Restricted stock unit (RSU) component
The fixed amount of compensation for the Chairman and the other members of the Board of Directors
depends on the amount of responsibility and complexity of the respective function, the professional and
personal requirements placed on them, and the expected time requirement to fulfill their duties.
See pages 78, 86
Compensation of the Executive Committee
In line with the pay-for-performance key principle, a significant portion of the compensation of the CEO and
the other members of the Executive Committee consists of variable incentives based on performance. The
compensation includes the following components:
— Fixed compensation:
— Base salary (cash)
— Retirement and fringe benefits
— Variable compensation:
— Short-term annual bonus (cash)
— Long-term incentives (performance share units)
To ensure that the remuneration is competitive, Sulzer regularly participates in relevant benchmarking surveys.
See pages 79, 87
The Compensation Report is prepared in accordance with the Ordinance against Excessive Compensation
in Listed Stock Corporations (Compensation Ordinance), the SIX Swiss Exchange Guidelines on Corporate
Governance Information (RLCG), and the principles of the Swiss Code of Best Practice for Corporate
Governance of economiesuisse.
Sulzer—Annual Report 2016 75
The Compensation Report provides information on Sulzer’s principles of compensation, its compensation
policy and programs, how compensation is determined, as well as the compensation awarded in the
reporting year to the members of the Board of Directors and members of the Executive Committee.
1
Compensation Governance and Principles
Nomination and Remuneration Committee
The Articles of Association, the Board of Directors and Organization Regulations, and the Nomination and
Remuneration Committee Regulations (www.sulzer.com/regulations) define the functions of the Nomination
and Remuneration Committee (NRC). The NRC supports the Board of Directors in nominating and assess-
ing candidates for positions to the Board of Directors and Executive Committee positions, in establishing
and reviewing the compensation strategy and principles, and in preparing the respective proposals to the
Shareholders’ Meeting regarding the compensation of the members of the Board of Directors and of the
Executive Committee.
The NRC is responsible for the following activities and submits all proposals concerning these activities to
the Board of Directors, which has the final decision authority:
— Periodic assessment of the membership structure of the Board of Directors, determination of selection
principles, and identification of potential candidates to the Board of Directors
— Succession planning for the CEO and Executive Committee positions (two upper management levels)
— Periodic assessment of the compensation policy and programs
— Determination of performance targets for the CEO and the Executive Committee positions for the
purpose of the incentive plans
— Preparation of the respective motions to the Shareholders’ Meeting on the maximum aggregate
amounts of compensation for the Board of Directors and for the Executive Committee
— Determination of the target compensation for the CEO and for the Executive Committee positions
— Preparation of the Compensation Report
The table below describes the levels of authority:
Decision authority
CEO
NRC
Board
Shareholders’ Meeting
Selection criteria and succession planning for Board of Directors
proposes
approves
Selection criteria and succession planning for Executive Committee
proposes
reviews
approves
Compensation policy and programs
proposes
approves
Total maximum compensation amounts to be submitted to vote
at the Annual General Meeting
Individual compensation of the members of the Board of Directors
Compensation of the CEO
proposes
reviews
approves (binding vote)
proposes
approves
proposes
approves
Individual compensation of the Executive Committee
proposes
reviews
approves
Performance objectives and assessment of the CEO
proposes
approves
Performance objectives and assessment of the Executive Committee
proposes
reviews
approves
Compensation Report
proposes
approves
consultative vote
The NRC consists of a maximum of three members who are non-executive and independent and who are
elected individually and annually by the Shareholders’ Meeting for the period of office until the following
ordinary Annual General Meeting. At the 2016 Annual General Meeting, Thomas Glanzmann (Chairman),
Jill Lee, and Marco Musetti were reelected as members of the NRC.
Compensation Report—Compensation Governance and PrinciplesSulzer—Annual Report 2016
76
The NRC meets as often as the business requires, but at least twice a year. In 2016, the NRC held six
regular meetings and three conference calls that were attended by all members. Besides the standard
agenda items, the NRC concentrated its efforts on the selection and nomination of new EC members for
the positions of Division President Rotating Equipment Services, Division President Chemtech, Chief
Human Resources Officer, and Chief Commercial and Marketing Officer. Further, the NRC redesigned the
long-term incentive plan and slightly refined performance criteria of the short-term incentive plan in order
to strengthen further the pay-for-performance alignment. The section Compensation of the Executive Com-
mittee (page 79) describes the changes in detail.
The CEO and the Chief Human Resources Officer, who serves as the Secretary of the NRC, generally attend
the meetings. The Chairman of the Committee may invite other executives to join the meeting in an advisory
capacity, when appropriate. However, the CEO and any other executives do not participate in the meetings,
or parts of it, when their own remuneration and/or performance is discussed.
The Chairman of the NRC reports to the next meeting of the full Board of Directors on the activities of the
NRC and the matters debated. The Chairman, as far as necessary, submits the respective proposals for
approval by the Board of Directors. The minutes of the NRC meetings are available to all members of the
Board of Directors.
The NRC may appoint third-party companies to provide independent advice or perform services as it deems
necessary for the fulfillment of its duties. In the reporting year, the committee appointed Willis Towers
Watson to provide consulting and benchmarking services on compensation matters. Willis Towers Watson
has no other mandate with Sulzer.
Shareholders’ role and engagement
The company is keen to receive shareholders’ feedback on the compensation policy and programs, and it
began the practice of holding a consultative vote on the Compensation Report in 2011. Further, the company
regularly meets with shareholders and shareholder representatives to understand their perspectives. With
the implementation of the Compensation Ordinance, the shareholders’ role and their say in compensation
matters have become more prevalent. At the Annual General Meeting, shareholders approve the maximum
aggregate compensation amounts for the Board of Directors and for the Executive Committee in an annual
binding vote.
Further, the Articles of Association regulate the principles of compensation. They include the following
provisions related to compensation (the full version of the Articles of Association can be found under
www.sulzer.com/regulations):
— Principles of compensation: non-executive members of the Board of Directors receive a fixed compen-
sation only. Members of the Executive Committee receive fixed and variable compensation elements.
The variable compensation may include short-term and long-term variable compensation components.
These are governed by performance metrics that take into account the performance of the company,
the group or parts of it, targets in relation to the market, other companies or comparable benchmarks
and/or individual targets, as well as strategic and/or financial objectives. Compensation may be paid in
the form of cash, shares, options, financial instruments or similar units, in kind, in services, or in other
types of benefits;
— Shareholders’ binding vote on remuneration: the Shareholders’ Meeting shall approve the maximum
aggregate amount of compensation for the Board of Directors for the next term of office and the maxi-
mum aggregate amount of compensation for the Executive Committee for the following financial year.
The Board of Directors shall submit the annual Compensation Report to an advisory vote at the Annual
General Meeting;
— Additional amount for members of the Executive Committee hired after the vote on remuneration by
the Shareholders’ Meeting: to the extent that the maximum aggregate amount of compensation as
approved by the Shareholders’ Meeting does not suffice, up to 40% of the maximum aggregate amount
Compensation Report—Compensation Governance and PrinciplesSulzer—Annual Report 2016 77
of compensation approved for the Executive Committee is available, without further approval, for the
compensation of the members of the Executive Committee who were appointed after the Annual
General Meeting;
— Loans, credit facilities, and postemployment benefits for members of the Board of Directors and of the
Executive Committee: the company may not grant loans or credits to members of the Board of Directors
and of the Executive Committee.
Compensation principles
The compensation of the Board of Directors is fixed and does not contain any performance-based variable
component. This ensures that the Board of Directors is truly independent in fulfilling its supervisory duties
towards the Executive Committee.
The compensation of the Executive Committee is driven by the main principle of pay for performance. The
compensation policy and programs are designed to reward performance, sustainable growth, and long-
term shareholder value creation, while offering competitive remuneration to be able to attract and retain
highly qualified employees. The compensation principles are:
Pay for performance
A substantial portion of the compensation is delivered in the form of variable
incentives based on company and individual performance.
Ownership
Part of the compensation is delivered in the form of company equity to foster
ownership and to align the interests of executives with those of shareholders.
Market competitiveness
Compensation levels are competitive and in line with market practice to attract
and retain highly qualified employees.
Internal equity
The internal compensation structure is based on a job-grading methodology
applied globally.
Transparency
Compensation programs are straightforward and transparent.
Method of determination of compensation: benchmarking and annual target-setting process
To ensure compensation levels that are competitive and in line with market practice, the compensation of
the Board of Directors and of the Executive Committee is regularly benchmarked against that of similar
roles in comparable companies. For this purpose, the Nomination and Remuneration Committee selected
a peer group of international industrial companies headquartered in Switzerland based on their revenue and
number of employees (see box Compensation benchmark on this page). Sulzer is positioned between the
first quartile and median of the peer group.
The intention is to pay target compensation around the median of the relevant market. For the Executive
Committee, sustainable superior performance is rewarded through actual compensation significantly above
the market median.
The compensation effectively paid out depends on the performance of the company and/or the divisions
and on the achievement of individual performance objectives. Performance objectives are defined at the
beginning of the year during annual target setting. Achievement is assessed against each of those objec-
tives after year-end and directly influences the variable incentive payouts.
Compensation benchmark
The comparison group reflects
Sulzer’s ambitious business strategy:
— ABB
— Actelion
— Clariant
— Georg Fischer
— Lonza
— OC Oerlikon
— Rieter
— Schindler
— Sika
— Sonova
— Syngenta
— Tetra Laval Group
Compensation Report—Compensation Governance and PrinciplesSulzer—Annual Report 2016 78
Compensation Report—Compensation Architecture
Performance appraisal
Target setting
Definition of two to four individual
performance objectives at the
beginning of the year
Performance assessment
Performance assessment
at year-end
Compensation determination
Determination of incentive
payouts on the basis of the
company’s/division’s perfor mance
and achievement of individual
objectives
2
Compensation Architecture
Compensation of the Board of Directors
The compensation policy applicable to the Board of Directors is governed by a compensation regulation, is
reviewed by the NRC annually, and, if necessary, is adjusted by a decision of the full Board of Directors
based on a proposal by the NRC.
The compensation of the Board of Directors consists of a fixed cash component and a restricted stock unit
(RSU) component with a fixed grant value. Further, Board members are entitled to a lump sum to cover
business expenses. The RSU replaced the option plan in 2009 and strengthens the long-term alignment of
the interests of the Board members with those of the shareholders. To reinforce the focus of the Board of
Directors on the long-term strategy and to strengthen its independence from the Executive Committee, the
compensation of the Board of Directors contains no performance-related elements and Board members
are not entitled to pension benefits.
The amount of compensation for the Chairman and for the other members of the Board of Directors is
determined based on the relevant compensation benchmarks (see box Compensation benchmark on
page 77). The compensation reflects the responsibility and complexity of their respective function, the
professional and personal requirements placed on them, and the expected time required to fulfill their
duties. The compensation structure and amounts were reviewed in 2016 and remained unchanged. They
are described in the table below.
Annual compensation of the Board of Directors 1)
in CHF
Base fee for Board Chairmanship 2)
Base fee for Board Vice Chairmanship
Base fee for Board membership
Additional committee fees:
Committee Chairmanship
Committee membership
Cash component
(net of social security
contributions)
420 000
100 000
70 000
40 000
25 000
Grant value of
restricted
stock units (net of
social security
contributions)
250 000
155 000
125 000
Lump-sum
expenses
10 000
5 000
5 000
1) Compensation for the period of service (from AGM to AGM).
2) The Chairman of the Board of Directors does not receive additional remuneration for committee activities.
Sulzer—Annual Report 2016 Compensation Report—Compensation Architecture
79
The members of the Board of Directors are remunerated for their service during their term of office. The
cash remuneration is paid in quarterly installments for Board members and monthly installments for the
Chairman; the expense lump sum is paid out in December and the RSU are granted once a year. The grant
value of the RSU is fixed at CHF 250 000 for the Chairman of the Board of Directors, CHF 155 000 for
the Vice Chairman, and CHF 125 000 for a Board member. The number of RSU is determined by dividing
the fixed grant value by the volume-weighted average share price of the last ten trading days before the
grant date, which lies between the date of the publication of the year-end results and the Annual General
Meeting. In 2016, this weighted average share price has been adjusted for the special dividend payment
proposed. One-third of the RSU each vest after the first, second, and third anniversaries of the grant date
respectively. Upon vesting, one vested RSU is converted into one share of the company. The vesting period
for RSU granted to the members of the Board of Directors ends no later than on the date on which the
member steps down from the Board. Although the value of the RSU grant is fixed (at grant), it then fluctuates
with the share price during the vesting period, which means that the value at vesting will differ from the value
at grant.
Compensation of the Executive Committee
The compensation of the Executive Committee is governed by internal regulations such as the total reward
policy, the bonus plan, the performance share plan, and benefits plans. The compensation of the Executive
Committee is reviewed by the NRC annually and, if necessary, adjusted and approved by decision of the
Board of Directors based on a proposal by the NRC.
In line with the pay-for-performance principle, a significant portion of the compensation of the CEO and the
other members of the Executive Committee consists of variable incentives based on performance. The
compensation is structured as follows:
— Fixed compensation:
— Base salary (cash)
— Retirement and fringe benefits
— Variable compensation:
— Short-term annual bonus (cash)
— Long-term incentives (performance share plan)
The elements of the compensation of the members of the Executive Committee are summarized in the
table below.
Overview of compensation elements
Fixed compensation
Variable compensation
Base salary
Base salary
Benefits
Pension and social
security contributions,
fringe benefits
Short-term
incentive plan
Bonus plan
Long-term
incentive plan
Performance share
plan (PSP)
Sulzer—Annual Report 2016 80
Compensation Report—Compensation Architecture
Compensation elements for the members of the Executive Committee
Base salary
Benefits
Short-term incentive plan
(bonus plan)
Long-term incentive plan
(PSP 2016)
Main parameters
Function, level of role,
profile of incumbent
(skill set, experience)
Pension and social
security contributions,
fringe benefits
Achievement of financial
and individual objectives
Key drivers
Labor market
Protection against
risks, labor market
• Operational EBITA
• Sales
• Operating net cash
flow (ONCF)
Achievement of long-
term, company-wide
objectives
• Operational EBITA
growth
• Average return on
capital employed
adjusted (ROCEA)
• Relative total share-
holder return (TSR)
Link to compensation
principles
Competitive
compensation
Competitive
compensation
Pay for performance
Sustainable growth and
value creation
Vehicle
Amount
Cash
Fixed
Pension and insurance
plans, perquisites
Cash
Fixed
Variable, capped at
200% of target bonus.
Target bonus amounts
to 90% of annual base
salary for the CEO and
60% of annual base
salary for the other
members of the
Executive Committee.
Performance share units
(PSU) settled in shares
Variable. Grant value
is defined based on
the Global Grade and
corresponds to
CHF 1 400 000 for the
CEO and between
CHF 330 000 and
CHF 400 000 for the
other members of the
Executive Committee.
Vesting payout percent-
age is capped at 250%
and vesting value is
capped to CHF 3 600 000
for the CEO and to
CHF 825 000 to
CHF 1 000 000 for the
other members of the
Executive Committee.
Grant date
Monthly
Monthly and /or
annually
March of the
following year
August 1, 2016
Performance period
Vesting date
–
–
–
–
1 year
(January 1, 2016 –
December 31, 2016)
3 years
(January 1, 2016 –
December 31, 2018)
–
December 31, 2018
Sulzer—Annual Report 2016 Compensation Report—Compensation Architecture
81
Base salary (fixed, in cash)
The base salary is determined at the discretion of the Board of Directors based on the market value of the
respective position and the incumbent’s qualifications, skills set, and experience. Positions are evaluated
according to the Willis Towers Watson Global Grading System (GGS). The GGS is a job-leveling tool to
determine internal job levels. It takes into consideration company criteria such as size, complexity, and geo-
graphic scope. Furthermore, it assesses each role against standard factors based on its content and how
it contributes to the organization overall. The GGS serves as a basis to build the internal salary structure.
For further details, please refer to www.towerswatson.com/en/Services/Tools/job-leveling-global-grading-
and-career-map.
Bonus (variable, performance-based, cash remuneration)
The bonus rewards the financial performance of the company and/or its businesses, as well as the achieve-
ment of individual performance objectives over one calendar year. The target bonus is expressed as a per-
centage of annual base salary according to the level of the role in the GGS framework. It amounts to 90%
for the CEO and to 60% for the other members of the Executive Committee.
For the CEO and the other members of the Executive Committee, 70% of the bonus is based on the
achievement of financial objectives at company and/or division level, and 30% is based on the achievement
of individual objectives as described below:
Category
Weight
Objectives
Rationale
Operational EBITA
in % of sales
Measure of profitability (bottom line)
Financial
performance
70%
Sales
Measure of growth (top line)
Operating net cash flow
(ONCF)
Measure of cash generated by the revenues
Sulzer Full Potential initiatives
(SFP)
Individual
performance
30%
Growth initiatives
Operational excellence
Sulzer’s transformation into a truly market-oriented,
globally operating, and integrated company;
SFP initiatives are based on three pillars: strategy,
operating model, and operational excellence
Include initiatives that support the growth of Sulzer,
such as M&A projects
Initiatives that support the profitability of Sulzer,
such as value management, efficiency gains,
cost savings projects
The objectives are set within the annual target-setting process. For each financial objective, an expected
level of performance is determined (“target”). In addition, a threshold of performance below which the
respective payout factor is zero and a maximum level of performance above which the respective payout
factor is capped are determined for each objective as well. The payout level between the threshold, the target,
and the maximum is calculated by linear interpolation. The actual bonus payout depends on the weighted
average of the payout factors achieved for each objective and can range from 0% to 200% of the target
bonus. The bonus is paid out in cash in March of the following year.
CEO / CFO /
CHRO /
CCMO /
CSO
25%
25%
20%
Division
President
7.5%
17.5%
7.5%
17.5%
6%
14%
Sulzer
Division
Sulzer
Division
Sulzer
Division
Individual
10%
10%
Individual
10%
10%
Individual
10%
10%
Total
100%
100%
Sulzer—Annual Report 2016 82
Compensation Report—Compensation Architecture
Bonus calculation
Payout factor
(0%– 200%)
Financial performance (70%)
Annual base salary
Target bonus %
Bonus
Individual performance (30%)
Sulzer strives for transparency in relation to pay for performance. However, disclosure of financial and indi-
vidual objectives may create a competitive disadvantage to the company, because it renders sensitive
insights into Sulzer’s strategy. To ensure transparency while avoiding competitive risk, Sulzer provides a
general performance assessment at the end of the performance cycle (see Compensation of the Executive
Committee on page 87).
Performance share plan (variable, performance-based, share-based remuneration)
The performance share plan (PSP) rewards the performance of the company over three years and aligns
the interests of the participants with those of the shareholders by delivering a substantial portion of the
compensation as company equity. The PSP is a plan with annual grants and is available exclusively to the
members of the Executive Committee and of the Sulzer Management Group (defined by the job level in the
GGS framework). The grant value is determined based on the level of the executive’s role. It amounts to
CHF 1 440 000 for the CEO and to between CHF 330 000 and CHF 400 000 for the other members of the
Executive Committee. The number of performance share units (PSU) granted is calculated by dividing the
grant value by the three-month volume-weighted average share price before the grant date. In 2016, this
weighted average share price has been adjusted for the special dividend payment proposed.
Each PSU is a conditional right to a certain number of shares of the company. The PSU are subject to a
three-year performance period with three performance conditions:
— Operational EBITA growth, weighted with 25%;
— Average ROCEA, weighted with 25%;
— Relative total shareholder return (TSR) weighted with 50% and measured against two different peer groups:
75% is based on the performance against international peers measured as percentile ranking and 25%
is based on the performance against the companies of the Swiss Market Index Mid (SMIM) measured
as a delta (see box on page 83).
Sulzer—Annual Report 2016 Compensation Report—Compensation Architecture
83
Peer group for relative TSR performance of PSP 2016
International peers
• Ebara
• Flowserve
• ITT
• Kirloskar Brothers
• KSB
• Pentair
• SPX
• Weir
• Wood Group
• Xylem
Swiss industrial peers
All companies of the SMIM
The Board of Directors has the right to change the composition of the peer group in case of a merger or
acquisition or any other change leading to a delisting or a fundamental change in the scope of the business
of a peer group company. In such a situation, the Board will select a new peer company. There is a pre-
defined successor list of companies to support the Board of Directors in the selection process.
For each performance condition of the PSP, an achievement factor is calculated based on the following
formula:
Level of performance
• Below threshold
• Threshold
• Target
• Cap
• Points in between
Achievement factor
0%
50%
100%
250%
Linear interpolation
On the vesting date, the number of vested shares is calculated by multiplying the initial number of PSU
granted by the weighted average of the achievement factor of each performance condition as follows:
Number of PSU granted x [(achievement factor opEBITA growth x 25%) + (achievement factor ROCEA x 25%)
+ (achievement factor relative TSR x 50%)] = number of performance shares vested. The number of vested
shares is subject to an absolute cap based on the level of the executive’s role in the GGS framework. The
absolute vesting cap amounts to CHF 3 600 000 for the CEO and between CHF 825 000 and CHF 1 000 000
for other Executive Committee members. The fair value of the PSU at grant date has been calculated using
the Monte Carlo simulation.
Sulzer—Annual Report 2016 84
Compensation Report—Compensation Architecture
Number of PSU vested
Number of PSU
granted
Achievement
opEBITA growth
(0 – 250%) x 25%
Achievement
average ROCEA
(0 – 250%) x 25%
Achievement
relative TSR
(0 – 250%) x 50%
Number of PSU
granted
Grant values are
defined based on
the level of the role in
the GGS framework:
• CEO: CHF 1 440 000
• EC: CHF 330 000 to
CHF 400 000
Factor based on
operational EBITA growth
Operational EBITA growth
is the percentage change
between opEBITA in the last
fiscal year before the start of
the performance period and
opEBITA in the last fiscal year
of the performance period.
Factor based on
average ROCEA
Average ROCEA is the sum
of adjusted ROCE based on
audited figures in each fiscal
year of the performance
period, divided by the number
of such years.
Factor based on
relative TSR
Relative TSR is defined as
share price growth plus
dividends during the vesting
period divided by the ending
share price, measured
against peers.
Number of PSU
vested
Number of PSU
vested
The maximum vesting
value is capped at
a multiple of the value
at grant:
• CEO: CHF 3 600 000
• EC: CHF 825 000 to
CHF 1 000 000
• Threshold: not disclosed
• Target: any performance
• Threshold: not disclosed
• Target: any performance
between target entry point
and target end point
(not disclosed)
between target entry point
and target end point
(not disclosed)
• Cap: not disclosed
• Cap: not disclosed
Industrial peers (75%)
• Threshold: 25th per centile
• Target: median
• Cap: 75th percentile
SMIM (25%)
• Threshold: SMIM
– 10 percentage points
• Target: SMIM
• Cap: SMIM
+ 10 percentage points
Sulzer strives for transparency in relation to pay for performance. The target achievement level of relative
performance objectives are not considered confidential and are thus disclosed (see above). However,
disclosure of internal financial and individual objectives may create a competitive disadvantage to the com-
pany because it renders sensitive insights into Sulzer’s strategy. To ensure transparency while avoiding
competitive risk, Sulzer provides a general performance assessment at the end of the performance cycle.
In case of termination of employment, the following provisions apply:
— Resignation of the participant: unvested PSU forfeit.
— Termination by the employer for cause: unvested PSU forfeit.
— Termination of employment because of retirement: for Executive Committee members, unvested PSU
vest on a pro rata basis (number of months between grant date and termination date) according to the
achievement factor at the end of the vesting period. There is no early allocation of the shares.
— Termination following change of control: unvested PSU immediately vest based on a performance
assessment by the Board of Directors on the date of change of control.
Sulzer—Annual Report 2016 Compensation Report—Compensation Architecture
85
Clawback and malus provisions: the Board of Directors may determine that an award is forfeited in full or
in part (malus) or that a vested award will be recovered in full or in part (clawback) in situations of material
misstatement of the financial results, an error in assessing a performance condition, or in the information
or assumptions on which the award was granted or vested, serious reputational damage to the company,
gross negligence, or willful misconduct on the part of the participant.
Further information on share-based compensation can be found in the Financial Statements of Sulzer Ltd
under note 10 (pages 172 to 173).
Discontinued restricted stock unit plan (variable, fixed grant value, share-based remuneration)
The RSU plan that was in place as a long-term incentive for members of the Executive Committee since
2009 was discontinued in 2013 when the PSP 2013 was introduced. The RSU plan was discontinued
in 2016 for all other participants who are not members of the Executive Committee. As of 2016, those
participants also receive awards under the PSP as described above.
However, RSU may still be granted to newly hired Executive Committee members to compensate for
deferred awards forfeited at their previous employer because of joining Sulzer.
Benefits
Members of the Executive Committee participate in the regular employee pension fund applicable to all
employees in Switzerland. The retirement plan consists of a basic plan that covers annual earnings up to
CHF 146 628 per year and a supplementary plan in which income over this limit, up to the ceiling set by law,
is insured (including variable cash remuneration). The contributions are age-related and are shared between
the employer and the employee.
Furthermore, each member of the Executive Committee is entitled to a representation allowance in line with
the expense regulations for all members of management in Switzerland and approved by the tax authorities.
Contracts of employment
The employment contracts of the Executive Committee are of undetermined duration and have a notice
period of maximum 12 months. Members of the Executive Committee are not entitled to any impermissible
severance or change of control payments. The employment contracts of the Executive Committee may
include non-competition agreements with a time limit of one year and with a maximum total compensation
of one annual target compensation.
Sulzer—Annual Report 2016 86
Compensation Report—Compensation of the Board of Directors
and the Executive Committee
3
Compensation of the Board of Directors and the Executive Committee
Compensation of the Board of Directors
In 2016, the Board of Directors received a total compensation of CHF 2 722 620 (previous year: CHF 2 075 000).
Of this total, CHF 1 254 035 was in form of cash fees (previous year: CHF 1 068 000); CHF 1 092 500 was in
RSU (previous year: CHF 874 000); CHF 265 417 was in the form of social security contributions (previous
year: CHF 133 000), and CHF 110 668 was in the form of other payments (previous year: CHF 0).
This is an increase of 31% from the previous year. The increase was mainly driven by the two additional
members since the 2016 AGM and by a special cash payment made as compensation for the fact that RSU
granted in the years 2014 and 2015 did not entitle Board members to the extraordinary dividend that was
distributed to shareholders in 2016. The structure and level of the Board compensation remained unchanged
compared to the previous year.
The portion of compensation delivered in RSU amounts to 52% of the cash compensation for the Chairman,
and to between 76% and 123% for the other members of the Board of Directors. The RSU are subject to
a staged three-year vesting period.
Compensation of the Board of Directors (audited)
thousands of CHF
Board of Directors
Peter Löscher, Chairman 1)
Matthias Bichsel, Vice Chairman
Thomas Glanzmann 2)
Jill Lee 3)
Marco Musetti
Gerhard Roiss
Axel C. Heitmann 4)
Mikhail Lifshitz 5)
Luciano Respini 6)
Klaus Sturany 7)
Restricted
stock unit
(RSU)
plan 8)
Social
security
contribu-
tions 9)
Other 10)
1 093
265
111
250
155
125
125
125
125
94
94
0
0
72
35
31
31
29
28
20
20
0
0
32
19
16
16
16
11
0
0
0
0
Cash
fees
1 254
452
138
149
145
114
104
76
76
0
0
2016
Total
2 723
807
347
322
317
284
268
189
189
0
0
Restricted
stock unit
(RSU)
plan
874
250
155
125
125
125
94
0
0
0
0
Cash
fees
1 068
443
125
143
121
127
76
0
0
33
0
Social
security
contribu-
tions 9)
133
45
20
19
17
18
12
0
0
2
0
Other
0
0
0
0
0
0
0
0
0
0
0
2015
Total
2 075
738
300
287
263
270
182
0
0
35
0
1) Chairman of the Board of Directors and Chairman of the Strategy Committee.
2) Chairman of the Nomination and Remuneration Committee.
3) Chairwoman of the Audit Committee.
4) Member of the Board of Directors since April 7, 2016.
5) Member of the Board of Directors since April 7, 2016.
6) Vice Chairman until April 1, 2015.
7) Member of the Board of Directors until April 7, 2016. Klaus Sturany waived his compensation for personal reasons.
In return, Sulzer made donations to two non-profit organizations in the amount of the cash fees.
8) RSU awards granted in 2016 had a fair value of CHF 79.32 at grant date which takes into consideration a discount for
dividend payments in the amount of CHF 14.60 (including the extraordinary dividend distributed to shareholders in 2016).
9) The amount includes mandatory social security contributions on the cash fees and estimated contributions on
the RSU (based on their fair value at grant) and includes both the employer and employee contributions paid by
the company on behalf of the Board members. As of 2016, RSU are provided net of social security as well.
10) Special cash payment of CHF 14.60 per RSU in order to compensate for the fact that RSU granted in 2014 and 2015
did not entitle Board members to the extraordinary dividend payment distributed to shareholders in 2016.
Sulzer—Annual Report 2016 Compensation Report—Compensation of the Board of Directors
and the Executive Committee
87
At the 2015 AGM, shareholders approved a maximum aggregate compensation amount of CHF 2 802 000
for the Board of Directors for the period of office from the 2016 AGM until the 2017 AGM and of
CHF 2 400 000 for the period of office from the 2015 AGM until the 2016 AGM. The table below shows
the reconciliation between the compensation that is/will be paid out for the two periods of office and the
maximum aggregate compensation amounts approved by the shareholders.
Reconciliation between the reported Board compensation and the amount approved by
the shareholders at the Annual General Meeting
Compensation
earned during
financial year
as reported
(A)
Minus
compensation
earned from
Jan to AGM of
financial year
(B)
Plus
compensation
accrued from
Jan to AGM of
year following
financial year
(C)
Total
compensation
earned for the
period from
AGM to AGM
(A – B+C)
Amount
approved by
shareholders
at respective
AGM
Ratio between
compensation
earned for the
period from
AGM to AGM
versus amount
approved by
shareholders
Jan 1, 2016
to
2016 AGM
Jan 1, 2017
to
2017 AGM
2016 AGM
to
2017 AGM
2016
2016 AGM
2016 AGM
2 722 620
320 292
362 854
2 765 182
2 802 000
98.7%
Jan 1, 2015
to
2015 AGM
Jan 1, 2016
to
2016 AGM
2015 AGM
to
2016 AGM
2015
2015 AGM
2015 AGM
2 075 000
271 561
320 292
2 123 732
2 400 000
88.5%
AGM16 – AGM17
Board (total)
AGM15 – AGM16
Board (total)
As of December 31, 2015, and 2016, there were no outstanding loans or credits granted to the members
of the Board of Directors or former members of the Board of Directors (audited).
In 2015 and 2016, no compensation was granted to former members of the Board of Directors or related
parties (audited).
Compensation of the Executive Committee
Performance in 2016
In 2016, Sulzer made substantial progress towards its transformation goals. Financial targets were exceeded
despite an unsupportive energy market environment. All divisions signed acquisitions and the Sulzer Full
Potential savings came in above target and ahead of schedule. This led to a financial component of the
bonus ranging from 102% to 117% of targeted payout and strong performance versus individual objectives,
translating into an overall bonus payout factor ranging between 100% and 130% (on average 111%) for
the members of the Executive Committee.
Threshold
Target
Cap
Assessment relative to plan
Objectives
Sales
Operational EBITA
ROCEA
Operating net cash flow (ONCF)
Individual objectives
Sulzer—Annual Report 2016 88
Compensation Report—Compensation of the Board of Directors
and the Executive Committee
In 2016, the first performance-based grant vested (awarded under the PSP 2013). The PSP 2013 was
based on the relative TSR performance and on cumulative EBIT, both calculated over the performance
period from January 1, 2013, until December 31, 2015. The threshold of the cumulative EBIT objective was
not reached. The achieved relative TSR performance was between the predefined threshold and target
(median performance in the peer group). Therefore, the overall vesting amounted to 25%.
In 2015, the acquisition of a further 29.5% of Sulzer’s share capital by Renova triggered a change of control
under the PSP plan rules. The provisions of the PSP allow for a pro rata accelerated vesting based on the
performance achieved between the grant date and the date of change of control. All members of the
Executive Committee had agreed to waive their rights to the accelerated pro rata vesting. Therefore, the PSU
granted under the PSP 2013, 2014, and 2015 continue to vest according to the original vesting schedule.
However, for the two Executive Committee members who are taxable residents in the US, the accelerated
pro rata vesting had to be implemented to ensure compliance with US tax legislation. Consequently, a por-
tion of the PSP 2013, 2014, and 2015 awards have automatically forfeited due to the pro rata vesting rule.
In order to compensate for the forfeiture, additional PSU were granted in 2016. Those additional grants are
subject to the same performance conditions as the original grants and are disclosed at their fair value in the
compensation table on page 89.
Compensation awarded to the Executive Committee in 2016
In 2016, the Executive Committee received a total compensation of CHF 19 476 608 (previous year:
CHF 14 283 000). Of this total, 8 306 400 was in cash (previous year: CHF 5 190 000); CHF 6 529 346 was
in PSU (previous year: CHF 4 204 000); CHF 2 517 275 was in pension and social security contributions
(previous year: CHF 1 781 000); CHF 1 523 497 was in other payments (previous year: CHF 185 000); and
CHF 600 000 was in form of RSU (previous year: CHF 2 923 000).
This is an overall increase of 36% from the previous year. The main reasons for this increase are as follows:
— Four new members joined the EC in 2016: two positions (CHRO and CCMO) were promoted to the EC
and two EC members were replaced. In addition, EC members who left Sulzer during the course of 2016
still received compensation during their contractual notice period and are therefore included in the com-
pensation table. This results in overlaps in compensation for several EC functions;
— The base salaries of the EC members employed in both years (2015 – 2016) have increased by 0.4% in
total, as only one EC member received a salary increase in 2016. However, the sum of base salaries
rose in aggregate by 41%, due to the higher number of EC members and the compensation overlaps in
2016 as mentioned above;
— Other payments have substantially increased compared to the previous year. This is due to 1) replace-
ment payments paid to new EC members as replacement for forfeited compensation at their previous
employer as a result of joining Sulzer, and 2) a special cash payment made as compensation for the fact
that RSU granted in the years 2014 and 2015 did not entitle Executive Committee members to the
extraordinary dividend that was distributed to shareholders in 2016;
— Increase of cash bonus payments by 94% due to: 1) the higher number of EC members and the com-
pensation overlaps in 2016 mentioned above and 2) a higher performance achievement under the
bonus plan where financial targets were exceeded with strong growth of all divisions and substantial
cost savings under the Sulzer Full Potential program;
— Higher grant value of long-term incentive (LTI) awards because of one replacement award in the form of
RSU made to a new EC member, and because of two additional PSU grants made to EC members to com-
pensate the pro rata forfeiture of their previous grant following the change of control, as explained above.
Sulzer—Annual Report 2016 Compensation Report—Compensation of the Board of Directors
and the Executive Committee
89
Compensation of the Executive Committee (audited)
2016
Re-
stricted
stock
unit
(RSU )
plan 4)
Pension
and
social
security
contri-
butions 6)
Perfor-
mance
share
plan
(PSP)5)
Base
salary Bonus 2) Other 3)
Base
salary Bonus 2)
Total
Other
Re-
stricted
stock
unit
(RSU )
plan
Perfor-
mance
share
plan
(PSP)
2014
Pension
and
social
security
contri-
butions
2015
Total
950
1 005
747
0
2 201
510
5 413
79
71
0
2 923
122
230
3 425
thousands of CHF
Highest single compensation,
Greg Poux-Guillaume, CEO
Total Executive Committee 1)
4 727
3 579
1 523
600
6 529
2 517 19 477
3 349
1 841
185
2 923
4 204
1 781
14 283
1) Members of the Executive Committee:
— Greg Poux-Guillaume, CEO since December 1, 2015
— Klaus Stahlmann, CEO until August 10, 2015. The total Executive Committee compensation includes the compensation
of Klaus Stahlmann during the 12-month notice period that ended in August 2016.
— Thomas Dittrich, CFO
— Fabrice Billard, Chief Strategy Officer until July 2016
— César Montenegro, Division President Pumps Equipment
— Peter Alexander, Division President Rotating Equipment Services until August 2016
— Daniel Bischofberger, Division President Rotating Equipment Services since September 2016
— Oliver Bailer, Division President Chemtech until June 2016
— Torsten Wintergerste, Division President Chemtech since June 2016
— Armand Sohet, Chief Human Resources Officer since March 2016
— Frédéric Lalanne, Chief Commercial and Marketing Officer since June 2016.
2) Expected bonus for the performance years 2016 and 2015, respectively. Includes pro rata short-term incentive (STI)
payments for EC members whose employment contracts started or were terminated during the year.
3) Other consists of housing allowances, schooling allowances, private use of company car, tax services, holiday
compensation, and child allowances. Also includes a special cash payment of CHF 98 730 for a new EC member as
compensation for forfeited incentives at the previous employer as a result of joining Sulzer and a special cash payment
of CHF 14.60 per RSU in order to compensate for the fact that RSU granted in 2014 and 2015 did not entitle Executive
Committee members to the extraordinary dividend payment distributed to shareholders in 2016.
4) Replacement awards to compensate for forfeited remuneration at the previous employer as a result of joining Sulzer.
The amount represents the full fair value at grant.
5) Represents the full fair value of the PSU granted under the PSP 2016 and additional CHF 617 165 for additional grants
to two EC members to replace pro rata forfeiture following the change of control in 2015.
6) Includes the employer contribution to social security (including the expected employer contributions on equity awards),
based on the fair value of all grants made in 2016 (RSU and PSP).
For the entire Executive Committee, the variable component (without replacement award) represented
122% of the fixed component (base salary, other, pension and social security contributions). The relation-
ship between the fixed and the variable components of compensation reflects Sulzer’s high performance
orientation. Further, it represents the company’s strong emphasis on aligning the interests of the Executive
Committee and the shareholders to create long-term shareholder value and profitable growth.
The total compensation of CHF 19 476 608 awarded to the members of the Executive Committee for the
2016 business year is above the maximum aggregate compensation amount of CHF 18 800 000 that was
approved by the shareholders at the 2015 AGM. This is due to the hiring of four new EC members. Accord-
ing to the provisions of the Articles of Association, the Board of Directors may award up to 40% of the last
approved maximum aggregate compensation amount for newly promoted EC members. Concretely, the
additional amount corresponds to CHF 7 520 000. CHF 676 608 of this additional amount have been utilized
for replacement payments awarded to two new EC members as compensation for forfeited compensation
at the previous employer as a result of joining Sulzer: CHF 600 000 were granted to Frédéric Lalanne, Chief
Commercial and Marketing Officer, in the form of RSU and CHF 98 730 were paid to Armand Sohet, Chief
Human Resources Officer, in the form of cash (audited).
Executive Committee
2016
4 727 000 Base salary
3 579 000 Bonus
6 529 000 Grant of PSU
4 041 000 Benefits
Sulzer—Annual Report 2016 90
Compensation Report—Shareholdings of the Board of Directors
and the Executive Committee
No severance payments to members of the Executive Committee were made during the reporting year.
As of December 31, 2015 and 2016, there were no outstanding loans or credits granted to the members
of the Executive Committee or former members of the Executive Committee (audited).
In 2015 and 2016, no compensation was granted to former members of the Executive Committee or
related parties (audited).
4
Shareholdings of the Board of Directors and the Executive Committee
Shareholdings of the Board of Directors
As of the end of 2015 and 2016, the members of the Board of Directors held the following shares in the
company:
Shareholdings at December 31, 2016
Board of Directors
Peter Löscher
Matthias Bichsel
Thomas Glanzmann
Axel C. Heitmann
Jill Lee
Mikhail Lifshitz
Marco Musetti
Gerhard Roiss
Shareholdings at December 31, 2015
Board of Directors
Peter Löscher
Matthias Bichsel
Thomas Glanzmann
Jill Lee
Marco Musetti
Gerhard Roiss
Klaus Sturany
Sulzer shares
Restricted stock units
(RSU)
Total share awards
and shares
50 998
28 131
1 157
5 591
0
4 070
0
3 667
8 382
22 157
5 363
3 244
2 684
1 578
2 684
1 578
2 684
2 342
73 155
33 494
4 401
8 275
1 578
6 754
1 578
6 351
10 724
Sulzer shares
Restricted stock units
(RSU)
Total share awards
and shares
45 633
26 684
342
4 616
3 095
2 692
4 000
4 204
13 149
3 657
2 103
2 081
2 081
2 081
1 146
0
58 782
30 341
2 445
6 697
5 176
4 773
5 146
4 204
Sulzer—Annual Report 2016 Compensation Report—Shareholdings of the Board of Directors
and the Executive Committee
91
Shareholdings of the Executive Committee
As of the end of 2015 and 2016, the members of the Executive Committee held the following shares in the
company:
Shareholdings at December 31, 2016
Sulzer
shares
Restricted
stock units
(RSU)
Total share
awards
and shares
Perfor-
mance
share units
(PSU)
2014
Perfor-
mance
share units
(PSU)
2015
Perfor-
mance
share units
(PSU)
2016
Executive Committee
28 726
43 029
71 755
3 278
6 594
37 266
Greg Poux-Guillaume
Daniel Bischofberger
Thomas Dittrich
Frédéric Lalanne
César Montenegro
Armand Sohet
Torsten Wintergerste
0
0
14 000
0
13 858
0
868
Shareholdings at December 31, 2015
30 242
30 242
942
18 641
0
4 921
7 026
0
0
0
18 921
7 026
0
840
1 708
0
0
964
0
0
2 826
0
0
0
0
0
1 424
5 178
2 314
5 178
3 560
971
13 858
2 314
2 826
Executive Committee
Greg Poux-Guillaume
Peter Alexander
Oliver Bailer
Fabrice Billard
Thomas Dittrich
Sulzer
shares
Restricted
stock units
(RSU)
Total share
awards
and shares
Perfor-
mance
share units
(PSU)
2013
Perfor-
mance
share units
(PSU)
2014
Perfor-
mance
share units
(PSU)
2015
33 301
40 976
74 277
4 860
7 212
13 800
0
30 242
30 242
0
10 928
0
10 928
4 860
1 303
1 187
7 000
231
0
1 534
1 187
9 842
16 842
0
1 967
1 967
0
964
2 314
942
2 402
2 402
2 402
2 826
2 826
0
0
0
0
César Montenegro
12 883
661
13 544
Sulzer—Annual Report 2016 92
Compensation Report—Report of the Statutory Auditor
Report of the Statutory Auditor To the General Meeting of Sulzer Ltd, Winterthur We have audited the accompanying compensation report of Sulzer Ltd for the year ended December 31, 2016. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables and sections labeled “audited” on pages 86 to 90 of the compensation report. Responsibility of the Board of Directors The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages. Auditor's Responsibility Our responsibility is to express an opinion on the accompanying compensation report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the compensation report complies with Swiss law and articles 14 – 16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the compensation report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the compensation report for the year ended December 31, 2016 of Sulzer Ltd complies with Swiss law and articles 14 – 16 of the Ordinance. KPMG AG François Rouiller Nanda Buess Licensed Audit Expert Auditor in Charge Licensed Audit Expert Zurich, February 22, 2017 KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Sulzer—Annual Report 2016 93
Financial Reporting
95 Consolidated
Financial Statements
95
Consolidated Income Statement
96
Consolidated Statement of Comprehensive Income
97
Consolidated Balance Sheet
98
Consolidated Statement of Changes in Equity
99
Consolidated Statement of Cash Flows
100
Notes to the Consolidated Financial Statements
153
Auditor’s Report
161
Five-Year Summaries
165
Financial Statements
of Sulzer Ltd
167
Balance Sheet of Sulzer Ltd
168
Income Statement of Sulzer Ltd
168
Statement of Changes in Equity of Sulzer Ltd
169
Notes to the Financial Statements of Sulzer Ltd
174
Appropriation of Net Profit
175
Auditor’s Report
s
t
n
e
m
e
t
a
t
S
l
i
a
c
n
a
n
F
i
Notes to the Consolidated Financial Statements
100
01 | General information
127
18 | Inventories
137
35 | Key accounting policies
and valuation methods
100
02 | Significant events and
127
19 | Percentage of completion
transactions during the
reporting period
contracts
148
36 | Subsequent events after
the balance sheet date
101
03 | Segment information
149
37 | Major subsidiaries
128
20 | Trade accounts receivable
104
04 | Acquisitions of subsidiaries
129
21 | Other accounts receivable
and prepaid expenses
106
05 | Critical accounting
129
22 | Cash and cash equivalents
estimates and judgments
107
06 | Financial risk management
114
07 | Corporate risk
management
129
23 | Marketable securities
129
24 | Share capital
131
25 | Earnings per share
114
08 | Personnel expenses
131
26 | Borrowings
114
09 | Employee benefit plans
132
27 | Provisions
119
10 | Research and development
133
28 | Other current and accrued
expenses
liabilities
119
11 | Other operating income
133
29 | Derivative financial
and expenses
instruments
120
12 | Financial income and
134
30 | Other financial
expenses
commitments
120
13 | Income taxes
134
31 | Contingent liabilities
123
14 | Intangible assets
134
32 | Share participation plans
125
15 | Property, plant, and
137
33 | Transactions with members
equipment
126
16 | Associates
of the Board of Directors,
Executive Committee, and
related parties
127
17 | Other financial assets
137
34 | Auditor remuneration
95
Consolidated income statement
January 1– December 31
millions of CHF
Sales
Cost of goods sold
Gross profit
Selling and distribution expenses
General and administrative expenses
Research and development expenses
Other operating income and expenses, net
Operating income
Interest and securities income
Interest expenses
Other financial income and expenses, net
Share of profit/(loss) of associates
Income before income tax expenses
Income tax expenses
Net income
Attributable to shareholders of Sulzer Ltd
Attributable to non-controlling interests
Earnings per share (in CHF)
Basic earnings per share
Diluted earnings per share
Notes
3
10
11
12
12
12
16
13
25
25
2016
2 876.7
– 1 997.3
879.4
– 309.2
– 324.6
– 71.4
– 58.9
115.3
5.2
– 17.4
– 7.1
– 0.8
95.2
– 35.1
60.1
59.0
1.1
1.73
1.72
2015
2 971.0
– 2 060.9
910.1
– 303.9
– 348.2
– 73.4
– 63.7
120.9
6.5
– 27.9
– 3.3
3.7
99.9
– 24.9
75.0
73.9
1.1
2.17
2.16
Financial Reporting—Consolidated Financial StatementsSulzer—Annual Report 2016
96
Consolidated statement of comprehensive income
January 1– December 31
millions of CHF
Net income
Items that may be reclassified subsequently
to the income statement
Cash flow hedges, net of tax
Currency translation differences
Total of items that may be reclassified
subsequently to the income statement
Items that will not be reclassified to the
income statement
Remeasurements of defined benefit obligations,
net of tax
Total of items that will not be reclassified to
the income statement
Notes
29
9
2016
60.1
– 1.8
– 5.7
– 7.5
– 82.1
– 82.1
2015
75.0
– 3.5
– 154.4
– 157.9
– 13.1
– 13.1
Total other comprehensive income
– 89.6
– 171.0
Total comprehensive income for the year
Attributable to shareholders of Sulzer Ltd
Attributable to non-controlling interests
– 29.5
– 30.3
0.8
– 96.0
– 96.6
0.6
Financial Reporting—Consolidated Financial StatementsSulzer—Annual Report 2016 97
Consolidated balance sheet
December 31
millions of CHF
Non-current assets
Goodwill
Other intangible assets
Property, plant, and equipment
Associates
Other financial assets
Non-current receivables
Deferred income tax assets
Total non-current assets
Current assets
Inventories
Advance payments to suppliers
Trade accounts receivable
Other accounts receivable and prepaid expenses
Marketable securities
Cash and cash equivalents
Total current assets
Total assets
Equity
Share capital
Reserves
Equity attributable to shareholders of Sulzer Ltd
Non-controlling interest
Total equity
Non-current liabilities
Non-current borrowings
Deferred income tax liabilities
Non-current income tax liabilities
Defined benefit obligations
Non-current provisions
Other non-current liabilities
Total non-current liabilities
Current liabilities
Current borrowings
Current income tax liabilities
Current provisions
Trade accounts payable
Advance payments from customers
Other current and accrued liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2016
2015
14
14
15
16
17
13
18
20
21
23
22
780.1
335.3
511.0
5.8
13.1
7.0
679.8
246.4
491.4
4.0
11.6
7.1
157.6
133.7
1 809.9
1 574.0
401.7
82.0
883.2
129.6
–
409.3
79.8
851.1
123.3
208.3
429.5
1 009.0
1 926.0
2 680.8
3 735.9
4 254.8
24
0.3
0.3
1 580.9
2 224.4
1 581.2
2 224.7
9.8
9.5
1 591.0
2 234.2
26
13
13
9
27
26
13
27
28
458.3
95.6
2.6
7.2
69.4
2.6
339.6
294.8
73.8
10.4
73.5
24.6
980.3
472.1
7.1
13.9
176.1
379.3
179.8
408.4
514.4
9.9
137.3
323.8
197.5
365.6
1 164.6
1 548.5
2 144.9
2 020.6
3 735.9
4 254.8
Financial Reporting—Consolidated Financial StatementsSulzer—Annual Report 2016 98
Consolidated statement of changes in equity
January 1– December 31
millions of CHF
Notes
Share
capital
Retained
earnings
Treasury
shares
Cash flow
hedge
reserve
Currency
translation
adjustment
Non-
controlling
interests
Total
Total
equity
Equity as of January 1, 2015
0.3
2 720.3
– 23.4
– 5.7
– 256.1
2 435.4
6.6
2 442.0
Attributable to shareholders of Sulzer Ltd
Comprehensive income for the year:
Net income
— Cash flow hedges, net of tax
— Remeasurements of defined benefit
obligations, net of tax
— Currency translation differences
Other comprehensive income
29
9
Total comprehensive income for the year
–
Transactions with owners of the company:
Changes in ownership in subsidiaries
Transactions in treasury shares
Share-based payments
Dividends
Change in scope of consolidation
32
73.9
– 13.1
– 13.1
60.8
– 1.8
– 7.0
8.3
– 119.2
73.9
– 3.5
– 13.1
– 153.9
– 153.9
– 153.9
– 170.5
– 153.9
– 96.6
– 3.5
– 3.5
– 3.5
– 1.8
– 1.4
8.3
1.1
– 0.5
– 0.5
0.6
0.9
75.0
– 3.5
– 13.1
– 154.4
– 171.0
– 96.0
– 0.9
– 1.4
8.3
– 119.2
– 1.9
– 121.1
–
5.6
–
Equity as of December 31, 2015
24
0.3
2 661.4
– 17.8
– 9.2
– 410.0
2 224.7
Comprehensive income for the year:
Net income
— Cash flow hedges, net of tax
— Remeasurements of defined benefit
obligations, net of tax
— Currency translation differences
Other comprehensive income
29
9
Total comprehensive income for the year
–
Transactions with owners of the company:
Allocation of treasury shares to share plan
participants
Acquisition of treasury shares
Share-based payments
Dividends
Equity as of December 31, 2016
32
24
59.0
– 82.1
– 82.1
– 23.1
– 4.1
7.5
– 617.5
–
4.1
– 3.2
– 1.8
– 1.8
– 1.8
– 5.4
– 5.4
– 5.4
59.0
– 1.8
– 82.1
– 5.4
– 89.3
– 30.3
–
– 3.2
7.5
0.3
2 024.2
– 16.9
– 11.0
– 415.4
1 581.2
9.8
1 591.0
– 617.5
– 0.5
– 618.0
3.3
9.5
1.1
– 0.3
– 0.3
0.8
3.3
2 234.2
60.1
– 1.8
– 82.1
– 5.7
– 89.6
– 29.5
–
– 3.2
7.5
Financial Reporting—Consolidated Financial StatementsSulzer—Annual Report 2016 Consolidated statement of cash flows
January 1– December 31
millions of CHF
Cash and cash equivalents as of January 1
Net income
Interest and securities income
Interest expenses
Income tax expenses
Depreciation, amortization, and impairments
Income from disposals of subsidiaries; property,
plant, and equipment; and financial instruments
Changes in inventories
Changes in advance payments to suppliers
Changes in trade accounts receivable
Changes in advance payments from customers
Changes in trade accounts payable
Change in provision for employee benefit plans
Changes in provisions
Changes in other net current assets
Other non-cash items
Interest received
Interest paid
Income tax paid
Total cash flow from operating activities
Purchase of intangible assets
Purchase of property, plant, and equipment
Sale of property, plant, and equipment
Acquisitions of subsidiaries, net of cash acquired
Acquisitions of associates
Divestitures of subsidiaries
Purchase of financial assets
Purchase of marketable securities
Sale of marketable securities
Total cash flow from investing activities
Dividend
Purchase of treasury shares
Sale of treasury shares
Dividend paid to non-controlling interests
Changes in non-controlling interests
Additions in non-current borrowings
Repayment of non-current borrowings
Additions in current borrowings
Repayment of current borrowings
Total cash flow from financing activities
Exchange gains/(losses) on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents
as of December 31
Notes
12
12
13
14,15
4
17
99
2016
1 009.0
2015
1 194.7
60.1
– 5.2
17.4
35.1
135.2
– 1.2
43.0
3.4
– 17.4
– 21.5
49.8
– 37.9
35.3
37.2
– 7.1
5.2
– 15.1
– 53.1
263.2
– 1.4
– 73.5
12.2
– 309.1
– 4.3
–
– 1.1
–
208.4
– 168.8
– 617.5
– 3.2
–
– 0.5
–
451.5
– 2.5
216.9
– 725.3
– 680.6
6.7
– 579.5
75.0
– 6.5
27.9
24.9
129.4
– 0.1
49.6
– 4.2
32.6
3.9
– 33.4
9.4
3.2
0.6
– 2.1
6.4
– 20.4
– 73.4
222.8
– 2.1
– 71.6
6.7
– 70.1
–
0.2
– 0.5
– 253.6
149.0
– 242.0
– 119.2
– 3.5
2.1
– 1.9
– 0.1
0.6
– 0.4
6.4
– 16.5
– 132.5
– 34.0
– 185.7
22
429.5
1 009.0
Financial Reporting—Consolidated Financial StatementsSulzer—Annual Report 2016 100
Notes to the Consolidated
Financial Statements
General information
1
Sulzer Ltd (the “company”) is a company domiciled in Switzerland. The address of the company’s registered
office is Neuwiesenstrasse 15 in Winterthur, Switzerland. The consolidated financial statements for the year
ended December 31, 2016, comprise the company and its subsidiaries (together referred to as the “group”
and individually as the “subsidiaries”) and the group’s interest in associates and joint ventures. The group
specializes in pumping solutions, service solutions for rotating equipment, separation and mixing, and appli-
cator technology. Sulzer was founded in 1834 in Winterthur, Switzerland, and employs around 14 000 people.
The company serves clients in over 180 production and service sites around the world. Sulzer Ltd is listed
on the SIX Swiss Exchange in Zurich, Switzerland (symbol: SUN).
The consolidated financial statements have been prepared in accordance with International Financial Re-
porting Standards (IFRS).They were authorized for issue by the Board of Directors on February 22, 2017.
Details of the group’s accounting policies are included in note 35.
Significant events and transactions during the reporting period
2
The financial position and performance of the group was particularly affected by the following events and
transactions during the reporting period:
— The acquisition of Geka, PC Cox, and Sulzer Rotating Equipment FZE (SRE FZE) resulted in an increase
in property, plant, and equipment of CHF 49.4 million and the recognition of goodwill (CHF 121.3 million)
and other intangible assets (CHF 134.3 million) at the date of acquisition (see note 4).
— As part of the Sulzer Full Potential Program (SFP), the group initiated several measures to adapt the
global manufacturing footprint and the organizational setup. Restructuring measures resulted in restruc-
turing expenses of CHF 57.0 million in 2016 (see note 11). Associated with restructuring initiatives, the
group further recognized impairments on property, plant, and equipment of CHF 18.4 million (see
note 11).
— The Swiss Pension Fund Board decided in June 2016 to reduce the guaranteed pension conversion rate
by 1.0 percentage points over four years, beginning January 1, 2018. The plan amendments, recog-
nized as past service cost, have had a positive impact of CHF 35.4 million in the income statement, of
which CHF 8.2 million were recorded as cost of goods sold and CHF 27.2 million as general adminis-
trative expenses (see note 9).
— The bond with original nominal amount of CHF 500 million and remaining outstanding amount of
CHF 493.4 million matured on July 11, 2016. In order to refinance this maturity, Sulzer has successfully
issued new bonds via dual tranches of total CHF 450 million. Cash settlement of both the matured bond
and the newly issued bonds was on July 11, 2016 (see note 26).
For a detailed discussion about the group’s performance and financial position please refer to the financial
review on pages 33 to 37.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 101
Segment information
3
Segment information by divisions
millions of CHF
Pumps Equipment
2016
2015
Order intake (unaudited)
1 401.7
1 500.8
Rotating Equipment
Services
2016
661.1
2015
698.2
Nominal growth (unaudited)
– 6.6%
– 13.0%
– 5.3%
– 3.7%
Adjusted growth1) (unaudited)
– 5.4%
– 6.7%
– 3.1%
– 0.9%
Chemtech
2015
708.9
– 1.3%
1.4%
2016
744.5
5.0%
6.1%
Order backlog as of December 31
(unaudited)
880.3
998.0
195.8
205.0
362.9
307.7
Sales2)
Nominal growth
1 503.5
1 621.0
666.8
693.2
– 7.2%
– 7.6%
– 3.8%
– 4.3%
Adjusted growth1) (unaudited)
– 6.2%
– 1.6%
– 1.9%
– 1.9%
opEBITA3)
in % of sales4)
86.3
5.7%
118.1
7.3%
66.2
9.9%
in % of average capital employed
11.3%
15.8%
16.5%
Restructuring expenses
Amortization
Impairments on tangible and intangible
assets
Non-operational items
EBIT5)
– 41.5
– 17.9
– 8.8
– 11.0
7.1
– 23.8
– 17.2
– 6.4
– 7.9
62.8
1.8
– 6.3
– 3.8
– 0.6
57.3
70.8
10.2%
16.8%
– 10.3
– 6.3
– 1.3
– 1.5
51.4
718.1
7.2%
8.0%
82.1
11.4%
18.5%
– 16.1
– 21.7
– 5.9
– 1.2
37.2
669.6
– 9.7%
– 7.8%
67.4
10.1%
16.6%
– 7.2
– 16.7
– 5.4
– 4.6
33.5
Depreciation
– 27.0
– 29.2
– 15.0
– 14.7
– 25.1
– 26.3
Total assets as of December 31
1 512.2
1 557.9
Operating assets
Unallocated assets
Operating liabilities
Unallocated liabilities
Total liabilities as of December 31
Operating net assets
Unallocated net assets
Total net assets as of December 31
Capital expenditure
Employees (number of full-time
equivalents) as of December 31
1 512.2
1 557.9
594.6
624.8
1 273.8
846.9
–
–
740.8
688.8
–
740.8
771.4
–
771.4
25.1
–
688.8
869.1
–
869.1
30.6
–
594.6
158.5
–
158.5
436.1
–
436.1
16.2
–
624.8
210.4
–
210.4
414.4
–
414.4
16.6
–
1 273.8
596.0
–
596.0
677.8
–
677.8
32.9
–
846.9
324.5
–
324.5
522.4
–
522.4
24.0
6 261
6 996
3 436
3 538
4 135
3 539
1) Adjusted for currency effects.
2) Sales between segments are not material.
3) Operating income before restructuring, amortization, impairments, and non-operational items.
4) Return on sales before restructuring, amortization, impairments, and non-operational items (opEBITA/sales).
5) Operating income.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 102
Segment information by divisions
millions of CHF
Total Divisions
Others2)
Total Sulzer
Order intake
Nominal growth (unaudited)
Adjusted growth1) (unaudited)
Order backlog as of December 31
(unaudited)
Sales
Nominal growth
Adjusted growth1) (unaudited)
opEBITA3)
in % of sales4)
in % of average capital employed
16.7%
16.3%
Restructuring expenses
Amortization
Impairments on tangible and intangible
assets
Non-operational items
EBIT5)
– 55.8
– 45.9
– 18.5
– 12.8
101.6
– 41.3
– 40.2
– 13.1
– 14.0
147.7
2016
2015
2 807.3
2 907.9
– 3.5%
– 8.2%
– 2.0%
– 3.6%
2016
– 9.8
n/a
n/a
2015
2016
2015
– 12.1
2 797.5
2 895.8
n/a
n/a
– 3.4%
– 8.4%
– 2.0%
– 3.7%
1 439.0
1 510.7
0.1
–
1 439.1
1 510.7
2 888.4
2 983.8
– 11.7
– 12.8
2 876.7
2 971.0
– 3.2%
– 7.4%
– 2.0%
– 3.1%
234.6
8.1%
256.3
8.6%
n/a
n/a
4.3
n/a
n/a
– 1.2
– 1.4
0.1
11.9
13.7
n/a
n/a
– 2.2
n/a
n/a
0.1
– 2.1
0.1
– 22.7
– 26.8
– 3.2%
– 7.5%
– 2.0%
– 3.2%
238.9
8.3%
254.1
8.6%
15.7%
17.0%
– 57.0
– 47.3
– 18.4
– 0.9
115.3
– 41.2
– 42.3
– 13.0
– 36.7
120.9
Depreciation
– 67.1
– 70.2
– 2.4
– 3.9
– 69.5
– 74.1
Operating assets
Unallocated assets
3 380.6
3 029.6
– 216.4
– 159.3
3 164.2
2 870.3
–
–
Total assets as of December 31
3 380.6
3 029.6
Operating liabilities
Unallocated liabilities
1 495.3
1 223.7
–
–
Total liabilities as of December 31
1 495.3
1 223.7
571.7
355.3
1.7
647.9
649.6
1 384.5
571.7
1 384.5
1 225.2
3 735.9
4 254.8
106.6
690.3
796.9
1 497.0
1 330.3
647.9
690.3
2 144.9
2 020.6
Operating net assets
Unallocated net assets
1 885.3
1 805.9
– 218.1
– 265.9
1 667.2
1 540.0
–
–
1 420.8
Total net assets as of December 31
1 885.3
1 805.9
1 202.7
Capital expenditure
74.2
71.2
0.7
694.2
428.3
2.5
1 420.8
694.2
3 088.0
2 234.2
74.9
73.7
Employees (number of full-time
equivalents) as of December 31
13 832
14 073
173
180
14 005
14 253
1) Adjusted for currency effects.
2) The most significant activities under “Others” relate to the Corporate Center. Interdivisional order intake, sales, and
operating assets and liabilities are eliminated in this column.
3) Operating income before restructuring, amortization, impairments, and non-operational items.
4) Return on sales before restructuring, amortization, impairments, and non-operational items (opEBITA/sales).
5) Operating income.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 103
Information about reportable segments
Operating segments are determined based on the reports reviewed by the Chief Executive Officer that are
used to track performance, make strategic decisions, and allocate resources to the segments. The busi-
ness is managed on a divisional basis and the reported segments have been identified as follows:
Pumps Equipment—pump technology and solutions:
This division offers a wide range of pumping solutions and related equipment. The market focus is on (a)
production, transport, and processing of crude oil and its derivates, (b) supply, treatment, and transport of
water as well as wastewater collection, (c) fossil-fired, nuclear, and renewable power generation, and (d)
specific general industries, e.g., pulp and paper, fertilizers, and other markets. A global manufacturing and
service network ensures high customer proximity.
Rotating Equipment Services—provider of service solutions for rotating equipment:
This division offers a full range of repair and maintenance services. The market focus is on (a) industrial gas
and steam turbines, (b) turbocompressors, (c) generators and motors, and (d) pumps.
Chemtech—separation, mixing, and service solutions:
This division offers products and services for separation, reaction, liquid application, and mixing technology.
The market focus is on (a) separation solutions, (b) tower field services, (c) liquid application systems for the
dental, healthcare, and cosmetics markets, and (d) two-component mixing and dispensing systems. Customers
benefit from advanced solutions in the fields of process technology and separation equipment, as well as
two-component mixing and dispensing systems.
Applicator Systems:
Starting January 1, 2017, Sulzer has separated the business for liquid applications and mixing technolo-
gies, previously reported in the Chemtech division, into a new division called Applicator Systems. The
market focus is on (a) mixing and dispenser systems and (b) liquid application systems for the dental,
healthcare, and cosmetics markets. As of December 31, 2016, the business was still reported within the
Chemtech division, in line with the reports reviewed by the Chief Executive Officer.
Others:
Certain expenses related to the Corporate Center are not attributable to a particular segment and are re-
viewed as a whole across the group. Also included are reconciling and other items, e.g., adjustments made
in preparing the financial statements, and interdivisional order intake, sales, and operating assets and lia-
bilities elimination.
The Chief Executive Officer primarily uses a measure of adjusted earnings before interest, tax, and amorti-
zation (operational EBITA) to assess the performance of the operating segments. However, the Chief
Executive Officer also receives information about the segments’ order intake and backlog, revenue, and
operating assets and liabilities on a monthly basis.
Operational EBITA (opEBITA) excludes amortization, restructuring expenses, and impairments when the
impairment is the result of an isolated, non-recurring event. It also excludes certain non-operational items
that are non-recurring or do not regularly occur in similar magnitude such as acquisition-related expenses,
gains and losses from sale of businesses or real estate, expenses related to the Sulzer Full Potential pro-
gram, or amendments to the pension plans.
Revenue from external customers reported to the Chief Executive Officer is measured in a manner consis-
tent with that in the income statement. There are no significant sales between the segments. No individual
customer represents a significant portion of the group’s revenue.
Operating assets and liabilities are assets or liabilities related to the operating activities of an entity and
contributing to the operating income.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 104
Segment information by region
The allocation of assets is based on their geographical location. Non-current assets exclude other financial
assets, deferred tax assets, and employee benefit assets. The allocation of sales is based on the location
of the customer.
millions of CHF
Europe, Middle East, Africa
— thereof Switzerland
— thereof Germany
— thereof United Kingdom
— thereof Sweden
— thereof other countries
Americas
— thereof USA
— thereof Brazil
— thereof other countries
Asia-Pacific
— thereof China
— thereof India
— thereof other countries
Total
Non-current assets
by region
Sales by region
2016
2015
2016
2015
1 203.3
1 003.2
1 271.8
1 214.0
161.9
292.5
159.9
259.8
329.2
290.5
238.3
23.9
28.3
171.9
21.3
171.4
295.9
342.7
279.3
227.3
20.8
31.2
138.3
137.1
68.2
22.2
47.9
76.8
17.5
42.8
22.7
199.1
143.9
40.0
866.1
19.4
160.7
191.2
41.5
801.2
1 041.9
1 134.9
735.9
101.3
204.7
563.0
206.4
49.9
306.7
778.0
89.9
267.0
622.1
236.2
51.6
334.3
1 632.1
1 419.6
2 876.7
2 971.0
Acquisitions of subsidiaries
4
Acquisitions in 2016
The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the
date of acquisition, including the resulting goodwill and the total consideration paid.
Net assets acquired
millions of CHF
Intangible assets
Property, plant, and equipment
Cash and cash equivalents
Trade accounts receivable
Other current assets
Liabilities with third parties
Deferred tax liabilities
Net identifiable assets
Goodwill
Total consideration
Satisfied by:
Purchase price paid in cash
Existing 49% shareholding in SRE FZE
Total consideration
Geka
PC Cox
SRE FZE
122.6
11.7
46.7
8.2
32.9
38.2
– 35.7
– 34.6
178.3
117.1
295.4
295.4
–
295.4
2.1
8.5
4.1
4.0
– 9.8
– 2.3
18.3
4.0
22.3
22.3
–
22.3
–
0.6
1.0
1.2
0.8
– 1.4
–
2.2
0.2
2.4
1.2
1.2
2.4
Total
134.3
49.4
17.7
38.2
43.0
– 46.9
– 36.9
198.8
121.3
320.1
318.9
1.2
320.1
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 105
Geka
On August 23, 2016, Sulzer acquired a 100% controlling interest in Geka for CHF 295.4 million. The head-
quarters of Geka is in Bechhofen, Germany, and the company has approximately 900 employees. Geka is
a leading manufacturer of applicator devices for the cosmetics industry with an emerging business in
healthcare. Through this transaction, Sulzer almost doubles the size of its most profitable business unit,
Sulzer Mixpac Systems (SMS), a business unit of the Chemtech division. SMS adds Geka’s leading position
in the cosmetics segment to its current leadership in the dental and industrial adhesives segments. The
goodwill is attributable to synergies from combined solutions and shared services. None of the goodwill is
expected to be deductible for tax purposes. Transaction cost recognized in the income statement amount
to CHF –1.4 million. Since the acquisition date, the acquired business has contributed order intake of
CHF 63.3 million, sales of CHF 63.3 million, and net income of CHF – 0.2 million to the group.
PC Cox
On April 4, 2016, Sulzer acquired a 100% controlling interest of PC Cox for CHF 22.3 million.The head-
quarters of PC Cox is in Newbury, UK, and the company has approximately 170 employees. PC Cox is a
leading manufacturer of handheld sealant and adhesive dispensers for industrial applications. Through the
acquisition, Sulzer Mixpac Systems, a business unit of the Chemtech division, becomes a leading manu-
facturer of dispensers for industrial applications. The goodwill is attributable to synergies from combined
solutions and shared services. None of the goodwill is expected to be deductible for tax purposes. Trans-
action costs recognized in the income statement amount to CHF – 0.6 million. Since the acquisition date,
the acquired business has contributed order intake of CHF 15.9 million, sales of CHF 15.3 million, and net
income of CHF – 0.3 million to the group.
Sulzer Rotating Equipment FZE (SRE FZE)
Having previously held 49% of the issued share capital of SRE FZE, Sulzer acquired on December 21, 2016
the remaining share capital for CHF 1.2 million and obtained control of SRE FZE. The company is located
in Dubai, United Arab Emirates, and it has approximately 21 employees. The company provides services
for rotating equipment for oil and gas and power customers in Southern Iraq. The remeasurement of the
group’s existing 49% interest in SRE FZE resulted in no profit or loss.
Acquired receivables
The fair value of acquired trade accounts receivable is CHF 38.2 million. The gross contractual amount for
trade account receivables due is CHF 38.8 million, of which CHF 0.6 million is expected to be uncollectible
at the date of acquisition.
Pro forma revenue and profit contribution
Had all above acquisitions occurred on January 1, 2016, management estimates that total net sales of the
group would amount to CHF 2 992.0 million, and the consolidated net income would be CHF 60.0 million.
Cash flow from acquisitions of subsidiaries
millions of CHF
Cash consideration paid
Contingent consideration paid
Cash acquired
Payments for acquisitions in prior years
Total cash flow from acquisitions, net of cash acquired
Contingent consideration
millions of CHF
Balance as of January 1
Assumed in a business combination
Payment of contingent consideration
Release to other operating income
Currency translation difference
Total contingent consideration as of December 31
2016
– 318.9
– 7.7
17.7
– 0.2
– 309.1
2016
22.1
–
– 7.7
– 4.8
– 0.1
9.5
2015
– 45.6
– 22.0
0.8
– 3.3
– 70.1
2015
56.5
6.7
– 22.0
– 12.9
– 6.2
22.1
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 106
As of December 31, 2016, there was a decrease of CHF 4.8 million recognized in the income statement for
the contingent consideration arrangements, as the assumed probability-adjusted gross profit and EBITDA
(earnings before interests, taxes, depreciation, and amortization) was recalculated.
Critical accounting estimates and judgments
5
All estimates and assessments are continually reviewed and are based on historical experience and other
factors, including expectations regarding future events that appear reasonable under the given circum-
stances. The group makes estimates and assumptions that relate to the future. By their nature, these esti-
mates will only rarely correspond to actual subsequent events. The estimates and assumptions that carry
a significant risk, in the form of a substantial adjustment to the present values of assets and liabilities
within the next financial year, are set out below.
Contingent considerations
As of December 31, 2016, total contingent considerations resulting from business combinations amounted
to CHF 9.5 million (December 31, 2015: CHF 22.1 million). The total payments under contingent consider-
ations arrangements could be up to CHF 15.0 million (December 31, 2015: CHF 55.0 million). The estimat-
ed amounts are the expected payments, determined by considering the possible scenarios of forecast
sales and other performance criteria, probabilities of occurrence, and the use of simulation models. The
estimates could change substantially over time as new facts emerge and scenarios develop.
Employee benefit plans
The present value of the pension obligation and the plan assets depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. Assumptions used in determining the
defined benefit obligation and the plan assets include the discount rate, future salary and pension increas-
es, and mortality rates. The assumptions are reviewed and reassessed at the end of each year based on
observable market data, i.e. interest rate of high-quality corporate bonds denominated in the corresponding
currency and asset management studies. Further details are provided in note 9.
Income taxes
The group is obliged to pay income taxes in numerous jurisdictions. Significant assumptions are required in
order to determine income tax provisions. There are many transactions and calculations for which the
ultimate tax determination is uncertain during the ordinary course of the business. The group recognizes
liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where
the final tax outcome of these matters is different from the amounts that were initially recorded, such differ-
ences will impact the income tax and deferred tax provisions in the period in which such determination is
made. Management believes that the estimates are reasonable, and that the recognized liabilities for
income tax related uncertainties are adequate. Further details are disclosed in note 13.
Goodwill and other intangible assets
As of December 31, 2016, total goodwill amounted to CHF 780.1 million (December 31, 2015: CHF 679.8 mil-
lion). In accordance with the accounting policies set forth in section 35.6 “Intangible assets,” the group
carries out an annual impairment test on goodwill in the fourth quarter of the year, or when indications of a
potential impairment exist. The recoverable amount from cash-generating units is measured on the basis
of value-in-use calculations influenced materially by the terminal growth rate, the discount rate, and the
projected cash flows. Information about assumptions and estimation uncertainties that have significant risk
of resulting in a material adjustment in the year ending December 31, 2016, are disclosed in note 14.
Revenue recognition
The group uses the percentage of completion method (PoC) in accounting for major long-term contracts.
The use of the PoC method requires the group to estimate the proportional revenue and costs. If circum-
stances arise that may change the original estimates of revenues, costs, or extent of progress toward
completion, estimates are revised. These revisions may result in increases or decreases in estimated reve-
nues or costs and are reflected in income in the period in which the circumstances that give rise to the
revision become known by management. Revenue from the application of the PoC method recognized in
the year 2016 amounted to CHF 597.2 million (2015: CHF 469.8 million). Further details are disclosed
in note 19.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 107
Provisions
Provisions are made, among other reasons, for warranties, disputes, litigation, and restructuring. A provi-
sion is recognized in the balance sheet when the group has a legal or constructive obligation as a result of
a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The nature of these costs is such that judgment has to be applied to estimate the timing and amount of
cash outflows. Depending on the outcome of the respective transactions, actual payments may differ from
these estimates. Further details are disclosed in note 27.
6
Financial risk management
Financial risk factors
6.1
The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value
interest rate risk, cash flow interest rate risk, and price risk), credit risk, and liquidity risk. The group’s over-
all risk management program focuses on the unpredictability of financial markets and seeks to minimize
potential adverse effects on the group’s financial performance. The group uses derivative financial instru-
ments to hedge certain risk exposures.
Risk management is carried out by a central treasury department (Group Treasury). Group Treasury identi-
fies, evaluates, and hedges financial risks in close cooperation with the group’s subsidiaries. Principles for
overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest
rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and
investment of excess liquidity exist in writing.
Market risk
Foreign exchange risk
a)
(I)
The group operates internationally and is exposed to foreign exchange risk arising from various currency
exposures. Foreign exchange risk arises when future commercial transactions or recognized assets or
liabilities are denominated in a currency that is not the entity’s functional currency. Management has set up
a policy to require subsidiaries to manage their foreign exchange risk against their functional currency. The
subsidiaries are required to hedge their major foreign exchange risk exposure using forward contracts or
other standard instruments, usually transacted with Group Treasury.
Presently, most of the contracts are designated as cash flow hedges. External foreign exchange contracts
are designated as hedges of foreign exchange risk on specific assets, liabilities, or future transactions on a
gross basis. The group has certain investments in foreign operations, whose net assets are exposed to
foreign currency translation risk. If required, currency exposure arising from the net assets of the group’s
foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.
Derivative financial instruments are only used on an ad hoc basis to manage foreign currency translation risk.
The following tables show the hypothetical influence on the income statement for 2016 and 2015 related
to foreign exchange risk of financial instruments. The volatility used for the calculation is the one-year his-
toric volatility on December 31 for the relevant currency pair and year. For 2016, the currency pair with the
most significant exposure and inherent risk was the EUR versus the USD. If, on December 31, 2016, the
EUR had increased by 8.3% against the USD with all other variables held constant, profit after tax for the
year would have been CHF 0.5 million lower mainly due to foreign exchange losses on USD-denominated
financial assets. A decrease of the rate would have caused a gain of the same amount.
Hypothetical impact of foreign exchange risk on income statement
millions of CHF
Currency pair
Exposure
Volatility
Effect on profit after tax (rate increase)
Effect on profit after tax (rate decrease)
EUR/
USD
– 7.8
8.3%
– 0.5
0.5
EUR/
RUB
3.0
20.6%
0.5
– 0.5
EUR/
CNY
6.8
7.7%
0.4
– 0.4
2016
USD/
INR
7.9
5.1%
0.3
– 0.3
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 108
millions of CHF
Currency pair
Exposure
Volatility
Effect on profit after tax (rate increase)
Effect on profit after tax (rate decrease)
EUR/
CHF
– 10.4
EUR/
RUB
– 3.4
EUR/
CNY
5.4
2015
EUR/
USD
– 5.4
22.6%
27.8%
12.6%
12.3%
– 1.8
1.8
– 0.7
0.7
0.5
– 0.5
– 0.5
0.5
The following tables show the hypothetical influence on equity for 2016 and 2015 related to foreign
exchange risk of financial instruments for the most important currency pairs as at December 31 of the re-
spective year. The volatility used for the calculation is the one-year historic volatility on December 31 for the
relevant currency pair and year. Most of the hypothetical effect on equity is a result of fair value changes of
derivative financial instruments designated as hedges of future cash flows in foreign currencies.
Hypothetical impact of foreign exchange risk on equity
millions of CHF
Currency pair
Exposure
Volatility
Effect on equity, net of taxes
(rate increase)
Effect on equity, net of taxes
(rate decrease)
millions of CHF
Currency pair
Exposure
Volatility
Effect on equity, net of taxes
(rate increase)
Effect on equity, net of taxes
(rate decrease)
USD /
MXN
– 44.5
GBP/
USD
49.0
17.0%
14.1%
USD /
CHF
– 42.1
7.9%
USD /
INR
– 56.6
5.1%
EUR /
USD
34.9
8.3%
USD /
BRL
– 15.1
18.4%
2016
EUR /
CHF
– 30.4
4.5%
– 5.7
5.2
– 2.5
– 2.2
2.2
– 2.1
– 1.0
5.7
– 5.2
2.5
2.2
– 2.2
2.1
1.0
USD/
CHF
EUR/
CHF
USD/
MXN
USD/
BRL
– 43.0
– 29.0
– 48.6
– 23.7
EUR/
USD
39.2
22.9%
22.6%
10.9%
21.2%
12.3%
GBP/
USD
47.9
8.4%
2015
USD/
INR
– 40.6
6.3%
– 7.4
– 4.9
– 4.0
– 3.8
3.6
3.0
– 1.9
7.4
4.9
4.0
3.8
– 3.6
– 3.0
1.9
Price risk
(II)
As of December 31, 2016, the group was not exposed to significant price risk related to investments in
equity securities either classified as “available-for-sale” or at “fair value through profit or loss.”
Interest rate sensitivity
(III)
The group’s interest rate risk arises from interest-bearing assets and liabilities. Assets and liabilities at vari-
able rates expose the group to cash flow interest rate risk. Assets and liabilities at fixed rates only expose
the group to fair value interest rate risk in the case of debt instruments that are classified as at fair value
through profit or loss. The group analyzes its interest rate exposure on a net basis, and if required, enters
into derivative instruments in order to keep the volatility of net interest income or expense limited. Currently,
the group has not entered into such derivative financial instruments related to interest rate risk manage-
ment. The group’s interest-bearing liabilities mainly comprise two bonds with a fixed interest rate.
The following table shows the hypothetical influence on the income statement for variable-interest-bearing
assets net of liabilities at variable interest rates, assuming market interest rate levels would have increased/
decreased by 100 basis points. For the most significant currencies, USD, EUR, CNY, CHF, and INR, in-
creasing interest rates would have had a positive impact on the income statement, since the value of vari-
able-interest-bearing assets (comprising mainly cash and cash equivalents) would exceed the value of
variable-interest-bearing liabilities.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 109
Hypothetical impact of interest rate risk on income statement
millions of CHF
Variable-interest-bearing assets (net)
USD
EUR
CNY
CHF
INR
millions of CHF
Variable-interest-bearing assets (net)
CHF
USD
CNY
INR
EUR
Sensitivity in
basis points
Impact on post-tax profit
rate increase
rate decrease
2016
100
100
100
100
100
1.4
0.3
0.3
0.3
0.2
– 1.4
– 0.3
– 0.3
– 0.3
– 0.2
2015
Sensitivity in
basis points
Impact on post-tax profit
rate increase
rate decrease
100
100
100
100
100
2.5
1.6
0.4
0.2
– 0.2
– 2.5
– 1.6
– 0.4
– 0.2
0.2
Amount
191.6
43.0
40.5
36.5
23.3
Amount
331.0
212.3
58.9
31.6
– 28.0
On December 31, 2016, if the interest rates on USD-denominated assets net of liabilities had been 100 ba-
sis points higher with all other variables held constant, post-tax profit for the year would have been
CHF 1.4 million higher (2015: CHF 1.6 million higher), mainly as a result of higher interest income on cash
and cash equivalents. A decrease of interest rates on USD-denominated assets net of liabilities would have
caused a loss of the same amount. As of December 31, 2016, the CHF amount exposed to interest rate
risk was reduced compared with 2015, mainly because of the dividend payment of CHF 617.5 million to
the shareholders, which reduced the cash held in CHF accordingly.
Credit risk
b)
Credit risk arises from cash and cash equivalents, derivative financial instruments, and deposits with banks
and financial institutions, as well as credit exposures to customers, including outstanding receivables and
committed transactions. The maximum exposure to credit risk per class of financial assets is outlined in the
fair value table in note 6.3. Not exposed to credit risks are equity securities classified as available-for-sale.
Credit risks of banks and financial institutions are monitored and managed centrally. Generally, only inde-
pendently rated parties with a strong credit rating are accepted, and the total volume of transactions is split
among several banks to reduce the individual risk with one bank.
For every customer with a large order volume, an individual risk assessment of the credit quality of the
customer is performed that considers independent ratings, financial position, past experience, and other
factors. Additionally, bank guarantees and letters of credit are requested. For more details on the credit risk
out of trade accounts receivable, please refer to note 20.
Liquidity risk
c)
Prudent liquidity risk management includes the maintenance of sufficient cash and marketable securities,
the availability of funding from an adequate number of committed credit facilities, and the ability to close
out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury maintains
flexibility in funding through a committed credit line.
Management anticipates the future development of the group’s liquidity reserve on the basis of expected
cash flows by performing regular group-wide cash forecasts. In 2015, the syndicated credit line of
CHF 500 million has been extended to 2020, with two further one-year extension options, and in 2016, the
credit line has been extended to 2021 accordingly. If special needs arise, financing will be reviewed case
by case.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 110
The following table analyzes the group’s financial liabilities into relevant maturity groupings based on the
remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows calculated with the year-end closing rates. Borrowings include
the notional amount as well as interest payments.
Maturity profile of financial liabilities
millions of CHF
Borrowings
Trade accounts payable
Other current and non-current liabilities
millions of CHF
Borrowings
Trade accounts payable
Other current and non-current liabilities
Carrying
amount
465.4
379.3
63.8
Carrying
amount
521.6
323.8
79.4
< 1 year
1– 2 years
3 – 5 years
> 5 years
10.1
379.3
53.4
8.7
–
9.2
9.3
454.0
–
–
–
1.2
< 1 year
1– 2 years
3 – 5 years
> 5 years
522.0
323.8
54.8
5.9
–
17.0
1.8
–
6.2
0.2
–
1.4
2016
Total
482.1
379.3
63.8
2015
Total
529.9
323.8
79.4
Capital risk management
6.2
The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. In this respect, the group aims at maintaining an in-
vestment grade credit rating, either as a perceived rating or an external rating issued by a credit rating
agency.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The following table shows the net debt / EBITDA ratio as at December 31, 2016 and 2015. The change of
the net liquidity into a net debt situation is mainly due to the extraordinary dividend paid, as well as due to
the acquisitions completed in 2016.
Net debt / EBITDA ratio
millions of CHF
Net liquidity / (net debt)
EBITDA
Net debt / EBITDA
2016
– 35.9
250.5
0.14
2015
695.7
250.3
– 2.78
Another important ratio for the group is the gearing ratio (debt-to-equity ratio), which is calculated as total
financial debt divided by equity attributable to shareholders of Sulzer Ltd. The equity capital as shown in
the balance sheet corresponds to the managed equity capital.
The increase in the gearing ratio during 2016 resulted from a decrease in equity mainly due to the extra-
ordinary dividend paid in 2016.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 111
As of December 31, 2016 and 2015, the gearing ratio was as follows:
Gearing ratio
millions of CHF
Borrowings
Equity attributable to shareholders of Sulzer Ltd
Borrowings-to-equity ratio (gearing)
2016
465.4
1 581.2
0.29
2015
521.6
2 224.7
0.23
Fair value estimation
6.3
The following tables present the carrying amounts and fair values of financial assets and liabilities as of
December 31, 2016 and 2015, including their levels in the fair value hierarchy. For financial assets and
financial liabilities not measured at fair value in the balance sheet, fair value information is not provided if the
carry ing amount is a reasonable approximation of fair value.
Fair values are categorized into three different levels in a fair value hierarchy based on the inputs used in the
valuation techniques as follows:
The fair value of financial instruments traded in active markets (including the outstanding bonds, or a fund
investment classified as at fair value through profit or loss held in 2015 and sold during 2016) is based on
quoted market prices at the balance sheet date. Such instruments are included in level 1.
The fair values included in level 2 are based on valuation techniques using observable market input data.
This may include discounted cash flow analysis, option pricing models or reference to other instruments
that are substantially the same, while always making maximum use of market inputs and relying as little as
possible on entity-specific inputs. The fair values of forward contracts are measured based on broker
quotes for foreign exchange rates and interest rates. Other financial assets measured at fair value through
profit or loss include time deposits and other interest-bearing investments with maturities between 3 and
12 months, and their fair value is determined based on discounted cash flows. All these investments have
been sold during 2016.
Fair values measured using unobservable inputs are categorized within level 3 of the fair value hierarchy.
This applies particularly to contingent considerations in business combinations.
Contingent considerations are linked to the fulfillment of certain parameters, mainly related to earn-out
clauses and technology transfer. For more information please refer to note 4.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 112
Fair value table
millions of CHF
Financial assets measured at fair value
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative assets—non-current
Derivative assets—current
Total financial assets measured
at fair value
Financial assets not measured
at fair value
Loans and receivables
Non-current receivables (excluding
non-current derivative assets)
Trade accounts receivables
Other accounts receivables (excluding
current derivative assets)
Cash and cash equivalents
Total financial assets not measured
at fair value
Financial liabilities measured
at fair value
Derivative liabilities—non-current
Derivative liabilities—current
Contingent considerations
Total financial liabilities measured
at fair value
Financial liabilities not measured
at fair value
Outstanding bond
Bank loans and other borrowings
Other non-current liabilities (excluding
non-current derivative liabilities)
Trade accounts payable
Other current liabilities (excluding current
derivative liabilities)
Total financial liabilities not measured
at fair value
Notes
Carrying
amount
Fair value
Level 1
Level 2
Level 3
December 31, 2016
–
–
–
–
–
–
–
–
–
–
–
4.5
–
6.6
11.1
–
0.2
9.2
–
9.4
–
–
–
–
–
–
–
–
9.5
9.5
23
17
29
21, 29
–
4.5
–
6.6
–
4.5
–
6.6
11.1
11.1
17
20
21
22
8.6
7.0
883.2
82.9
429.5
1 411.2
–
0.2
9.2
9.5
0.2
9.2
9.5
18.9
18.9
29
28, 29
4
26
26
452.9
452.9
–
–
450.4
15.0
10.2
379.3
28
44.2
899.1
452.9
452.9
–
–
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements Fair value table
millions of CHF
Financial assets measured at fair value
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative assets—non-current
Derivative assets—current
Total financial assets measured
at fair value
Financial assets not measured
at fair value
Loans and receivables
Non-current receivables (excluding
non-current derivative assets)
Trade accounts receivables
Other accounts receivables (excluding
current derivative assets)
Cash and cash equivalents
Total financial assets not measured
at fair value
Financial liabilities measured
at fair value
Derivative liabilities—non-current
Derivative liabilities—current
Contingent considerations
Total financial liabilities measured
at fair value
Financial liabilities not measured
at fair value
Outstanding bond
Bank loans and other borrowings
Other non-current liabilities (excluding
non-current derivative liabilities)
Trade accounts payable
Other current liabilities (excluding current
derivative liabilities)
Total financial liabilities not measured
at fair value
113
Notes
Carrying
amount
Fair value
Level 1
Level 2
Level 3
December 31, 2015
–
–
–
–
–
–
–
–
22.1
23
17
29
21, 29
208.3
208.3
98.4
109.9
4.5
–
6.4
4.5
–
6.4
–
–
–
4.5
–
6.4
219.2
219.2
98.4
120.8
17
20
21
22
7.1
7.1
851.1
78.4
1 009.0
29
28, 29
4
26
26
1 952.7
–
0.4
11.2
22.1
0.4
11.2
22.1
33.7
33.7
–
–
–
–
–
–
0.4
11.2
–
11.6
22.1
506.4
506.4
–
–
499.6
22.0
24.2
323.8
28
43.6
913.2
506.4
506.4
–
–
Sulzer—Annual Report 2016Financial Reporting—Notes to the Consolidated Financial Statements 114
Corporate risk management
7
Sulzer has an integrated risk management system that is under constant scrutiny for further improvement.
A defined risk management process and four common tools (risk assessment schedule, risk-profiling ma-
trix, risk description schedule, loss control schedule) are applied in order to assess and control all key risks,
to implement and maintain risk financing and risk transfer measures, to monitor the results, and to define
and implement corrective actions if required. In order to reflect the organizational changes towards a more
market-oriented approach, the risk management process was adapted accordingly. Key risks were as-
sessed on business unit level and consolidated on group level. The business units together with the divi-
sions and the group functions generate their respective key risk-profiling matrices and complete and update
the related risk control schedules on an annual basis. These schedules identify specific risk exposures and
the related risk objectives, list existing loss controls, address their effectiveness, list (where required) addi-
tional or alternative loss controls, and determine responsibilities and time frames for their implementation.
The business units’ key risk-profiling matrices are reviewed at the group level and are then consolidated into
a Sulzer key risk-profiling matrix. The head of Risk Management informs the Audit Committee at least once
a year of the current risks and risk mitigation as well as of the progress toward achieving major risk objec-
tives. The assessment of risk management processes is included within the charter and scope of Group
Internal Audit.
8
Personnel expenses
millions of CHF
Salaries and wages
Defined contribution plan expenses
Defined benefit plan expenses/(income)
Cost of share-based payment transactions
Other personnel costs
Total personnel expenses
2016
795.8
30.1
– 16.6
7.5
154.3
971.1
2015
802.4
23.9
29.0
8.3
157.2
1 020.8
Pension plan amendments in Switzerland in 2016 had a positive impact of CHF 35.4 million in the income
statement and were recorded as a reduction of defined benefit expenses. For further details refer to note 9.
Employee benefit plans
9
The defined benefit obligation for the active members of pension plans is the present value of accrued
pension obligations at balance sheet date considering future salary and pension increases as well as turn-
over rates (using the Project Unit Credit Method). The defined benefit obligation for the retirees is the pres-
ent value of the current and future pension benefits considering future pension increases.
Funded
plans
Switzerland
Funded
plans
United
Kingdom
Funded
plans
USA
Funded
plans
Others
Unfunded
plans
Total
2016
millions of CHF
Reconciliation of the amount
recognized in the balance sheet
as of December 31
Present value of funded defined
benefit obligation
Fair value of plan assets
1 213.4
479.7
42.8
47.4
Overfunding (+) / underfunding (–)
– 57.8
– 186.5
– 22.1
– 14.8
– 1 271.2
– 666.2
– 64.9
– 62.2
–
–
–
– 2 064.5
1 783.3
– 281.2
Present value of unfunded defined
benefit obligation
Adjustment to asset ceiling
Asset (+) / liability (–) recognized
in the balance sheet
— thereof as liabilities under defined
–
– 2.2
–
–
–
–
–
– 46.4
– 0.1
–
– 46.4
– 2.3
– 60.0
– 186.5
– 22.1
– 14.9
– 46.4
– 329.9
benefit obligation
– 69.6
– 186.5
– 22.1
– 15.0
– 46.4
– 339.6
— thereof as prepaid expenses
9.6
–
–
0.1
–
9.7
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 115
Funded
plans
Switzerland
Funded
plans
United
Kingdom
Funded
plans
USA
Funded
plans
Others
Unfunded
plans
Total
2015
millions of CHF
Reconciliation of the amount
recognized in the balance sheet
as of December 31
Present value of funded defined
benefit obligation
Fair value of plan assets
1 239.6
478.6
41.3
Overfunding (+) / underfunding (–)
– 86.6
– 119.7
– 22.3
45.1
– 9.5
– 1 326.2
– 598.3
– 63.6
– 54.6
–
–
–
– 2 042.7
1 804.6
– 238.1
Present value of unfunded defined
benefit obligation
Adjustment to asset ceiling
Asset (+) / liability (–) recognized
in the balance sheet
— thereof as liabilities under defined
–
– 1.3
–
–
–
–
–
–
– 45.8
–
– 45.8
– 1.3
– 87.9
– 119.7
– 22.3
– 9.5
– 45.8
– 285.2
benefit obligation
– 97.5
– 119.7
– 22.3
– 9.5
– 45.8
– 294.8
— thereof as prepaid expenses
9.6
–
–
–
–
9.6
Sulzer operates major funded defined benefit (“DB”) pension plans in Switzerland, UK, Ireland, and the USA.
Unfunded defined benefit plans relate to German pension benefit plans. The plans are exposed to actuarial
risks, e.g. longevity risk, currency risk, interest rate risk, and the funded plans additionally to market (invest-
ment) risk.
In Switzerland, Sulzer contributes to two pension plans funded via two different pension funds, i.e. a base
plan for all employees and a supplementary plan for employees with salaries exceeding a certain limit. Both
plans provide benefits depending on the pension savings at retirement. They include certain legal minimum
interest credits to the pension savings (i.e. investment return) and guaranteed rates of conversion of pension
savings into an annuity at retirement. In addition, the plans offer death in service and disability benefits. The
two pension funds are collective funds administrating pension plans of Sulzer group companies and also
unrelated companies. In case of a material underfunding of the pension plans, the regulations include pre-
defined steps, such as higher contribution by employer and employees or lower interest on pension sav-
ings, to eliminate the underfunding. The pension funds are legally separated from the group. The vast ma-
jority of the active participants in the two pension funds are employed by companies not belonging to the
Sulzer group. The Board of Trustees for the base plan comprises ten employee and ten employer represen-
tatives. Based on the actual market environment, the average discount rate decreased in 2016 to 0.5%
(2015: 0.7%). The lower discount rate resulted in lower return on plan assets and higher DBOs. The income
statement effect for 2016 was an income of CHF 17.9 million, impacted by pension plan amendments
(2015: expense of CHF 18.0 million). The Swiss Pension Fund Board decided in June 2016 to reduce the
guaranteed pension conversion rate by 1.0 percentage points over four years, beginning January 1, 2018.
The plan amendments, recognized as past service cost, have had a positive impact of CHF 35.4 million in
the income statement, of which CHF 8.2 million were recorded as cost of goods sold and CHF 27.2 million
as general administrative expenses.
In the UK, Sulzer operates two funded defined benefit plans managed as sections of the Sulzer Pension
Scheme. The Company operates a defined benefit scheme in the UK which is a final salary plan and provides
benefits linked to salary at retirement or earlier date of leaving service. The scheme consists of two sections, of
which both sections are closed to new entrants and future accruals. The scheme is managed by six trustees
forming the Board. Both plans are multi-employer schemes with Sulzer (UK) Holding being the principal
sponsor. Based on the persistent low market interest rate, the discount rate decreased to 2.5% (2015:
3.6%), which resulted in higher net pension liabilities of CHF 186.5 million in 2016 (2015: CHF 119.7 million).
The total expense recognized in the income statement in 2016 was CHF 4.0 million compared to
CHF 13.3 million in 2015, due to income from past service cost and lower employer contribution.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 116
In the USA, Sulzer operates non-contributory defined benefit retirement plans covering substantially all of
their employees. The salaried plans provide benefits that are based on years of service and the employee’s
compensation, averaged over the five highest consecutive years preceding retirement. The hourly plans’
benefits are based on years of service and a flat dollar benefit multiplier. All plans were closed for new en-
trants. In 2016, an expense of CHF 0.9 million was recognized in the income statement (2015: an expense
of CHF 0.7 million). The discount rate remained unchanged in 2016 at 4.0%. The amount recognized in
other comprehensive income (OCI) in 2016 was CHF – 0.6 million (2015: CHF 4.3 million).
In Germany, Sulzer operates a range of different DB pension plans. The majority of these plans are unfund-
ed and benefits are paid directly by the employer to the beneficiaries as they became due. All DB plans are
closed for new joiners and a new defined contribution plan for all employees was introduced in 2007.
Existing employees who participated in the DB plans continued to be eligible for these DB pensions but
became also eligible for the new defined contribution pensions. However, benefits received under the
defined contribution plan are offset against the benefits under the DB plans. The different DB plans offer
retirement pension, disability pension, and survivor’s pension benefits.
Employee benefit plans
millions of CHF
Reconciliation of effect of asset ceiling
Adjustment to asset ceiling at January 1
Change in effect of asset ceiling excl. interest income/(expense)
Adjustment to asset ceiling at December 31
Reconciliation of asset (+) / liability (–) recognized in
the balance sheet
Asset (+) / liability (–) recognized at January 1
Defined benefit cost recognized in the income statement
Defined benefit cost recognized in OCI
Employer contribution
Acquired through business combination
Currency translation differences
2016
– 1.3
– 1.0
– 2.3
– 285.2
9.8
– 98.2
28.3
– 7.0
22.4
2015
– 2.4
1.1
– 1.3
– 270.2
– 35.8
– 13.6
25.7
–
8.7
Asset (+) / liability (–) recognized at December 31
– 329.9
– 285.2
Components of defined benefit cost in the income statement
Current service cost (employer)
Interest cost
Interest income on plan assets
Past service cost
Effects of curtailments and settlement
Other administrative cost
Income/(expense) recognized in the income statement
— thereof charged to personnel expenses
— thereof charged to financial expense
Components of defined benefit cost in OCI
Actuarial gain/(loss) on defined benefit obligation
Return on plan assets excl. interest income
Change in effect of asset ceiling excl. interest expense/income
Return on reimbursement right excl. interest income
Defined benefit cost recognized in OCI1)
– 20.8
– 33.5
26.7
37.6
0.4
– 0.6
9.8
16.6
– 6.8
– 202.5
104.9
– 1.0
0.4
– 98.2
– 28.4
– 38.1
31.3
–
0.2
– 0.8
– 35.8
– 29.0
– 6.8
54.6
– 69.5
1.1
0.2
– 13.6
1) The tax effect on defined benefit cost recognized in OCI amounted to CHF 16.1 million (2015: CHF 0.5 million).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
117
Employee benefit plans
millions of CHF
Reconciliation of defined benefit obligation
2016
2015
Defined benefit obligation as of January 1
– 2 088.5
– 2 219.1
Interest cost
Current service cost (employer)
Contributions by plan participants
Past service cost
Benefits paid/deposited
Effects of curtailments and settlement
Acquired through business combination
Other administrative cost
Actuarial gain (+) / loss (–) on obligation
Currency translation differences
Defined benefit obligation as of December 311)
Reconciliation of the fair value of plan assets
– 33.5
– 20.8
– 9.0
37.6
128.2
2.6
– 20.0
– 0.6
– 202.5
95.6
– 2 110.9
– 38.1
– 28.4
– 9.1
–
111.5
0.2
–
– 0.9
54.6
40.8
– 2 088.5
Fair value of plan assets as of January 1
1 804.6
1 951.3
Interest income on plan assets
Employer contribution
Contributions by plan participants
Benefits paid/deposited
Effects of curtailments and settlement
Acquired through business combination
Return on plan assets excl. interest income
Currency translation differences
Fair value of plan assets as of December 31
Total plan assets at fair value—quoted market price
Cash and cash equivalents
Equity instruments third parties
Debt instruments third parties
Real estate funds
Investment funds
Others
26.7
28.3
9.0
– 128.0
– 2.2
13.0
104.9
– 73.0
1 783.3
134.6
598.6
526.6
30.0
4.0
38.3
31.3
25.7
9.1
– 111.3
–
–
– 69.5
– 32.0
1 804.6
95.3
646.1
558.3
33.7
0.2
34.0
Total assets at fair value—quoted market price
as of December 31
1 332.1
1 367.6
Total plan assets at fair value—non-quoted market price
Properties occupied by or used by third-parties (real estate)
Others
Total assets at fair value—non-quoted market price
as of December 31
267.0
184.2
451.2
265.8
171.2
437.0
Best estimate of contributions for upcoming financial year
Contributions by the employer
25.0
28.6
1) The defined benefit obligation 2016 includes the funded part (CHF 2 064.5 million) and the unfunded part (CHF 46.4 million).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 118
Employee benefit plans
millions of CHF
Components of defined benefit obligation, split
Defined benefit obligation at December 31 for active members
Defined benefit obligation at December 31 for pensioners
Defined benefit obligation at December 31 for deferred members
Total defined benefit obligation at December 31
Components of actuarial gain/(losses) on obligations
Actuarial gain/(loss) arising from changes in financial assumptions
Actuarial gain/(loss) arising from changes in demogr. assumptions
Actuarial gain/(loss) arising from experience adjustments
Total actuarial gain/(loss) on defined benefit obligation
Components of economic benefit available
Economic benefits available in form of reduction in future contribution
Total economic benefit available
2016
2015
– 334.8
– 1 367.9
– 408.2
– 2 110.9
– 158.0
– 27.5
– 17.0
– 202.5
9.8
9.8
– 475.7
– 1 362.5
– 250.3
– 2 088.5
17.7
4.4
32.5
54.6
10.5
10.5
Maturity profile of defined benefit obligation
Weighted average duration of defined benefit obligation in years
13.5
12.7
Since the defined benefit obligation for the Swiss and UK pension plans represents more than 94% (2015:
94%) of the group, the following significant actuarial assumptions apply exclusively to the two countries:
millions of CHF
Principal actuarial assumptions
as of December 31
Discount rate for active employees
Discount rate for pensioners
Future salary increases
Future pension increases
2016
2015
Switzerland
United Kingdom
Switzerland
United Kingdom
0.8%
0.4%
1.0%
0.0%
2.5%
2.5%
0.0%
2.5%
1.1%
0.6%
1.0%
0.0%
3.6%
3.6%
3.4%
2.5%
Life expectancy at retirement age (male/female)
in years
22/24
22/24
22/24
22/24
millions of CHF
2016
2015
Sensitivity analysis of defined benefit obligation
Discount rate (decrease 0.25%)
Discount rate (increase 0.25%)
Future salary growth (decrease 0.25%)
Future salary growth (increase 0.25%)
Life expectancy (decrease 1 year)
Life expectancy (increase 1 year)
– 75.6
71.0
3.7
– 3.8
113.4
– 111.7
– 67.3
71.6
3.5
4.9
115.7
– 105.2
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 Research and development expenses
10
A breakdown of the research and development expenses per division is shown in the table below:
119
millions of CHF
Pumps Equipment
Rotating Equipment Services
Chemtech
Others
Total
11 Other operating income and expenses
millions of CHF
Income from release of contingent consideration
Income from sale of property, plant, and equipment
Release of real estate provision
Operating currency exchange gains, net
Other operating income
Total other operating income
Restructuring expenses
Impairments of tangible and intangible assets
Cost for mergers and acquisitions
Loss from PP&E sold
Expenses related to defined benefit plans
Loss from legal cases
Operating currency exchange losses, net
Other operating expenses
Total other operating expenses
Total other operating income and expenses, net
2016
33.3
0.5
37.5
0.1
71.4
2016
4.8
3.1
–
4.1
11.4
23.4
– 57.0
– 18.4
– 5.0
– 1.9
–
–
–
–
– 82.3
– 58.9
2015
32.8
1.3
37.6
1.7
73.4
2015
12.9
0.3
6.8
–
14.5
34.5
– 41.2
– 13.0
– 3.4
– 0.5
– 8.8
– 10.8
– 3.8
– 16.7
– 98.2
– 63.7
During 2016, the group reassessed the achievement of the earn-out targets related to contingent consid-
eration arrangements. The reassessment resulted in an income of CHF 4.8 million (2015: CHF 12.9 million).
In 2015, the group released a provision of CHF 6.8 million for warranties made relating to the sale of Sulzer
Real Estate Ltd in 2010.
Other operating income includes income from litigation cases, government grants and incentives, and re-
charges to third parties not qualified as sales from customers.
Following the restructuring announcements in 2016, the group recognized restructuring cost of
CHF 57.0 million (2015: CHF 41.2 million). As part of the Sulzer Full Potential (SFP) program, Sulzer has
initiated several measures to adapt the global manufacturing capacities and streamline the organizational
setup. The restructuring expenses are mainly associated with restructuring plans in Switzerland, Sweden,
Germany, and Brazil. These measures entailed a reduction of roughly 1 350 full-time equivalents. The group
further performed impairment tests on the related production machines and facilities leading to impairments
of CHF 18.4 million (2015: CHF 13.0 million). For more details refer to note 15.
Following the decision of the arbitral tribunal regarding a dispute with the purchaser of the locomotive
business (sold in 1998), the group recognized, in addition to the existing provision, expenses of CHF 8.7 million
as loss from legal cases in 2015.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 120
The functional allocation of the total restructuring expenses and impairments is as follows:
Cost of goods sold CHF – 52.7 million (2015: CHF – 42.7 million), selling and distribution expenses
CHF – 2.9 million (2015: CHF –1.5 million), and general and administrative expenses CHF –19.8 million
(2015: CHF –10.0 million).
12
Financial income and expenses
millions of CHF
Interest and securities income
Total interest and securities income
Interest expenses
Interest expenses on employee benefit plans
Total interest expenses
Net interest expenses
Income from investments and other financial assets
Fair value changes
Other financial income/(expenses)
Currency exchange gains/(losses) (net)
Total other financial expenses
Total financial expenses
— thereof from financial assets held at fair value through profit or loss
— thereof from loans and receivables
— thereof from borrowings
— thereof from investments
— thereof from employee benefit plans
2016
5.2
5.2
– 10.6
– 6.8
– 17.4
– 12.2
0.1
2.0
– 1.6
– 7.6
– 7.1
– 19.3
2.0
– 4.0
– 10.6
0.1
– 6.8
2015
6.5
6.5
– 21.1
– 6.8
– 27.9
– 21.4
0.1
12.8
– 1.4
– 14.8
– 3.3
– 24.7
12.8
– 9.7
– 21.1
0.1
– 6.8
The income on interest and securities slightly decreased, while interest expenses decreased significantly
compared with 2015, mainly due to an extraordinary interest expense of CHF 5.2 million in 2015 related to
the dispute with the purchaser of the locomotive business, as well as lower coupon expenses on the new
CHF 450 million bond issued on July 11, 2016, replacing the maturing CHF 500 million bond (as further
detailed in note 26). Thus, total interest expenses on bonds in 2016 reduced to CHF 7.4 million from
CHF 12.0 million in 2015. The “Fair value changes” largely comprise the fair valuation of derivative financial
instruments that are classified as financial assets or financial liabilities at fair value through profit or loss and
that are used as hedging instruments with regard to foreign exchange risks.
13
Income taxes
millions of CHF
Current income tax expenses
Deferred income tax income
Total income tax expenses
2016
-54.3
19.2
-35.1
2015
– 52.9
28.0
– 24.9
The weighted average tax rate results from applying each subsidiary’s statutory income tax rate to the in-
come before taxes. Since the group operates in countries that have differing tax laws and rates, the con-
solidated weighted average effective tax rate will vary from year to year according to variations in income
per country and changes in applicable tax rates.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 121
Reconciliation of income tax expenses
millions of CHF
Income/(loss) from continuing operations before income tax expenses
Weighted average tax rate
Income taxes at weighted average tax rate
Income taxed at different tax rates
Effect of tax loss carryforwards and allowances for deferred income
tax assets
Expenses not deductible for tax purposes
Effect of changes in tax rates and legislation
Prior year items and others
Total income tax expenses
Effective income tax rate
2016
95.2
23.1%
– 22.0
3.4
– 6.0
– 4.0
– 1.9
– 4.6
– 35.1
36.9%
2015
99.9
23.2%
– 23.2
13.0
– 3.7
– 4.3
– 1.0
– 5.7
– 24.9
24.9%
The increase in the effective income tax rate to 36.9% (2015: 24.9%) is related to restructuring expenses
with no corresponding tax effect. Excluding the restructuring expenses, the effective income tax rate would
have been at 24.3%. Lower intercompany payments during 2016 resulted in a decrease of income taxed
at different tax rates to CHF 3.4 million (2015: CHF 13.0 million).
Income tax liabilities
millions of CHF
Balance as of January 1
Acquired through business combination
Additions
Released as no longer required
Utilized
Currency translation differences
Total income tax liabilities as of December 31
— thereof non-current
— thereof current
2016
12.5
3.8
51.6
– 9.0
– 40.5
– 1.9
16.5
2.6
13.9
Summary of deferred income tax assets and liabilities in the balance sheet
millions of CHF
Intangible assets
Property, plant, and equipment
Other financial assets
Inventories
Other assets
Non-current provisions
Defined benefit plans
Current provisions
Other current liabilities
Tax loss carryforwards
Elimination of intercompany profits
2016
Assets
Liabilities
Net
Assets
Liabilities
0.3
4.6
0.8
22.9
27.1
17.3
60.5
25.5
24.4
28.8
0.7
– 98.9
– 15.4
– 1.5
– 5.2
– 11.5
– 2.3
– 0.6
– 0.5
– 15.0
–
–
– 98.6
– 10.8
– 0.7
17.7
15.6
15.0
59.9
25.0
9.4
28.8
0.7
62.0
0.3
2.9
3.4
20.6
16.8
15.0
52.4
26.3
23.2
25.4
0.7
– 70.1
– 16.3
– 0.8
– 6.8
– 9.2
– 2.8
–
– 1.2
– 15.5
–
–
187.0
– 122.7
Tax assets/liabilities
212.9
– 150.9
Offset of assets and liabilities
– 55.3
55.3
–
– 53.3
53.3
–
Net recorded deferred income tax assets
and liabilities
157.6
– 95.6
62.0
133.7
– 69.4
64.3
2015
35.0
0.7
54.7
– 13.4
– 61.6
– 2.9
12.5
2.6
9.9
2015
Net
– 69.8
– 13.4
2.6
13.8
7.6
12.2
52.4
25.1
7.7
25.4
0.7
64.3
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 122
Cumulative deferred income taxes directly recorded in equity as of December 31, 2016, amounted to
CHF 48.8 million (December 31, 2015: CHF 33.1 million). In compliance with the exception clause of
IAS 12, the group does not recognize deferred taxes on investments in subsidiaries in the balance sheet.
Movement of deferred income tax assets and liabilities in the balance sheet
millions of CHF
Intangible assets
Property, plant, and equipment
Other financial assets
Inventories
Other assets
Non-current provisions
Defined benefit plans
Current provisions
Other current liabilities
Tax loss carryforwards
Elimination of intercompany profits
Total
millions of CHF
Intangible assets
Property, plant, and equipment
Other financial assets
Inventories
Other assets
Non-current provisions
Defined benefit plans
Current provisions
Other current liabilities
Tax loss carryforwards
Elimination of intercompany profits
Total
Balance as
of January 1
Recognized
in profit or
loss
Recognized
in other
comprehen-
sive income
Acquisition
of
sub sidiaries
Currency
translation
differences
– 69.8
– 13.4
6.2
1.8
–
–
– 36.7
0.8
–
– 1.0
–
–
–
–
–
–
–
1.7
–
0.5
0.7
1.9
0.3
– 3.7
1.1
– 3.7
0.9
–
– 3.4
– 0.4
4.2
6.1
2.5
– 4.9
– 1.2
5.4
2.5
–
–
–
–
16.1
–
–
–
–
2.6
13.8
7.6
12.2
52.4
25.1
7.7
25.4
0.7
64.3
19.2
15.7
– 36.9
– 0.3
Balance as
of January 1
Recognized
in profit or
loss
Recognized
in other
comprehen-
sive income
Acquisition
of
subsidiaries
Currency
translation
differences
– 82.4
– 20.0
– 1.1
12.7
17.6
9.7
50.7
23.8
0.5
21.6
2.5
35.6
7.2
5.9
1.1
0.9
– 5.0
3.2
– 0.3
3.5
5.8
7.5
– 1.8
28.0
–
–
0.8
–
–
–
0.5
–
–
–
–
– 0.3
–
–
–
–
–
–
–
–
–
–
1.3
– 0.3
5.7
0.7
1.8
0.2
– 5.0
– 0.7
1.5
– 2.2
1.4
– 3.7
–
– 0.3
2016
Balance
as of
Decem-
ber 31
– 98.6
– 10.8
– 0.7
17.7
15.6
15.0
59.9
25.0
9.4
28.8
0.7
62.0
2015
Balance
as of
Decem-
ber 31
– 69.8
– 13.4
2.6
13.8
7.6
12.2
52.4
25.1
7.7
25.4
0.7
64.3
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 Tax loss carryforwards
millions of CHF
Expiring in the next 3 years
Expiring in 4 –7 years
Available without limitation
millions of CHF
Expiring in the next 3 years
Expiring in 4 –7 years
Available without limitation
Total tax loss carryforwards as of December 31
163.9
123
2016
TLCF
0.8
20.4
27.3
48.5
2015
TLCF
1.6
23.3
12.1
37.0
Amount
Potential tax
assets
Valuation
allowance
Carrying
amount
0.2
19.4
19.0
38.6
– 0.2
– 4.5
– 5.1
– 9.8
–
14.9
13.9
28.8
Amount
Potential tax
assets
Valuation
allowance
Carrying
amount
1.9
15.5
16.8
34.2
– 1.1
– 4.7
– 3.0
– 8.8
0.8
10.8
13.8
25.4
0.8
85.0
78.1
10.1
69.1
61.0
Total tax loss carryforwards as of December 31
140.2
Deferred income tax assets are recognized for tax loss carryforwards to the extent that the realization of the
related tax benefit through future taxable profits is probable. No deferred income tax assets have been
recognized on tax loss carryforwards in the amount of CHF 48.5 million (2015: CHF 37.0 million) and on
restructuring provisions in the amount of CHF 32.0 million (2015: CHF 0.0 million).
14
Intangible assets
millions of CHF
Acquisition cost
Balance as of January 1
Acquired through business combination
Additions
Disposals
Reclassifications
Goodwill
Trademarks
and licenses
Research
and
develop-
ment
Computer
software
Customer
relationship
Total
2016
1 019.8
121.3
133.2
11.2
–
–
–
–
0.1
–
4.8
6.3
2.2
0.2
–
–
–
44.6
0.8
1.2
– 1.0
1.6
0.9
332.4
120.1
–
– 6.6
–
1 536.3
255.6
1.4
– 7.5
1.6
– 12.9
– 28.2
Currency translation differences
– 21.0
Balance as of December 31
1 120.1
149.3
8.7
48.1
433.0
1 759.2
Accumulated amortization
Balance as of January 1
340.0
Additions
Disposals
Reclassifications
Impairments
Currency translation differences
–
–
–
–
–
Balance as of December 31
340.0
93.4
13.5
0.1
–
–
– 2.0
105.0
Net book value
As of January 1
As of December 31
679.8
780.1
39.8
44.3
1.1
1.4
–
–
–
–
2.5
5.2
6.2
39.5
3.7
– 1.0
–
–
0.8
43.0
136.1
610.1
28.7
– 6.6
–
–
– 4.9
153.3
47.3
– 7.5
–
–
– 6.1
643.8
5.1
5.1
196.3
279.7
926.2
1 115.4
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
124
millions of CHF
Acquisition cost
Goodwill
Trademarks
and licenses
Research
and
develop-
ment
Computer
software
Customer
relationship
Total
2015
Balance as of January 1
1 033.7
144.6
9.6
44.7
348.3
1 580.9
Acquired through business combination
31.4
Additions
Disposals
Reclassifications
Currency translation differences
Balance as of December 31
–
–
–
– 45.3
1 019.8
Accumulated amortization
Balance as of January 1
340.0
Additions
Disposals
Reclassifications
Impairments
Currency translation differences
–
–
–
–
–
Balance as of December 31
340.0
693.7
679.8
Goodwill
780.1
264.1
Net book value
As of January 1
As of December 31
Goodwill impairment test
millions of CHF
Goodwill, net book value as of
December 31 is allocated as follows
Pumps Equipment—business unit Water
Pumps Equipment—other business units,
individually not significant
Rotating Equipment Services—region
EMEA
Rotating Equipment Services—other
business units, individually not significant
Chemtech
0.4
–
–
0.1
– 11.9
133.2
82.5
13.1
–
–
–
– 2.2
93.4
62.1
39.8
–
–
– 0.7
– 0.1
– 2.5
6.3
2.0
1.0
– 0.7
–
1.1
– 2.3
1.1
7.6
5.2
–
2.1
– 0.7
0.7
– 2.2
44.6
38.3
4.0
– 0.7
–
–
– 2.1
39.5
8.5
–
– 0.1
– 0.4
40.3
2.1
– 1.5
0.3
– 23.9
– 85.8
332.4
1 536.3
119.4
582.2
24.2
– 0.1
– 0.1
–
– 7.3
136.1
42.3
– 1.5
– 0.1
1.1
– 13.9
610.1
6.4
5.1
228.9
196.3
998.7
926.2
Growth rate
residual
value
2016
Pre-tax
discount
rate
1.0%
10.6%
Growth rate
residual
value
2015
Pre-tax
discount
rate
1.0%
11.0%
Goodwill
679.8
272.9
25.2
2.0%
11.6%
25.3
2.0%
10.6%
129.9
2.0%
10.0%
145.1
2.0%
10.8%
82.6
278.3
2.0%
1.0%
10.0%
8.9%
79.2
157.3
2.0%
0.0%
10.6%
10.0%
Goodwill is allocated to the smallest cash-generating unit (CGU) at which the goodwill is monitored for
internal management purposes (i.e. business units or areas). The fair value of these units is determined by
calculating its value in use over a three-year cash flow projection period. The calculation uses the budget
for next year and the two-year plan for subsequent periods that have been reviewed and approved by
management. Cash flows beyond this planning period are extrapolated using a terminal value including the
growth rates as stated above.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 125
Sensitivity analyses
The recoverable amount from cash-generating units is measured on the basis of value-in-use calculations
influenced materially by the terminal growth rate used to determine the residual value, the discount rate,
and the projected cash flows. A reduction of the terminal growth rate by 1% or an increase of the pre-tax
discount rate by 1% would not lead to an impairment for all the cash-generating units.
15
Property, plant, and equipment
millions of CHF
Acquisition cost
Machinery
and
technical
equipment
Other
non-current
assets
Assets
under
construc-
tion
Land and
buildings
2016
Total
Balance as of January 1
377.2
679.1
189.7
26.0
1 272.0
Acquired through business combination
Additions
Disposals
Reclassifications
Currency translation differences
Balance as of December 31
Accumulated depreciation
Balance as of January 1
Additions
Disposals
Reclassifications
Impairments
Currency translation differences
Balance as of December 31
Net book value
As of January 1
As of December 31
Thereof leased property, plant, and equipment
Acquisition cost of leased property, plant, and
equipment
Accumulated depreciation
Net book value as of December 31
Leasing commitments (present value)
as of December 31
Pledged assets as of December 31
9.9
9.0
31.1
25.3
2.7
8.7
5.7
30.5
49.4
73.5
– 14.8
– 36.5
– 17.5
–
– 68.8
3.6
– 1.3
21.4
– 7.4
2.6
1.0
383.6
713.0
187.2
– 29.2
– 0.4
32.6
– 1.6
– 8.1
1 316.4
155.5
12.4
– 8.9
–
6.8
– 1.0
164.8
473.9
42.7
– 33.9
–
11.0
– 5.1
151.2
14.4
– 15.0
–
0.6
0.8
488.6
152.0
–
–
–
–
–
–
–
780.6
69.5
– 57.8
–
18.4
– 5.3
805.4
221.7
218.8
205.2
224.4
38.5
35.2
26.0
32.6
491.4
511.0
2.1
2.1
–
1.7
0.4
1.1
0.2
0.9
0.8
0.2
0.3
0.2
0.1
0.1
–
–
–
–
–
–
3.5
2.5
1.0
2.6
0.6
Following restructuring announcements and underabsorption in 2016, the group performed impairment
tests on the related production machines and facilities, resulting in impairments of CHF 18.4 million as of
December 31, 2016 (December 31, 2015: CHF 11.9 million), all of which were charged to other operating
expenses. The assets do not meet the criteria for classification as held for sale as of December 31, 2016.
In 2016, fixed assets with a book value of CHF 11.0 million (2015: CHF 6.4 million) were sold for
CHF 12.2 million (2015: CHF 6.7 million), resulting in a gain of CHF 1.2 million (2015: gain of CHF 0.3 million).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 126
millions of CHF
Acquisition cost
Machinery
and
technical
equipment
Other
non-current
assets
Assets
under
construc-
tion
Land and
buildings
2015
Total
Balance as of January 1
381.1
701.4
198.6
34.7
1 315.8
Acquired through business combination
Additions
Disposals
Reclassifications
Currency translation differences
Balance as of December 31
Accumulated depreciation
Balance as of January 1
Additions
Disposals
Reclassifications
Impairments
Currency translation differences
Balance as of December 31
Net book value
As of January 1
As of December 31
8.9
5.2
– 3.2
9.9
– 24.7
377.2
148.0
13.7
– 3.0
0.1
6.3
– 9.6
155.5
5.2
24.5
– 35.6
28.4
– 44.8
679.1
488.4
43.5
– 30.6
– 0.3
5.1
– 32.2
473.9
2.1
6.8
– 5.8
2.7
– 14.7
189.7
148.7
16.9
– 4.6
0.4
0.5
– 10.7
151.2
–
35.1
–
– 41.4
– 2.4
26.0
–
–
–
–
–
–
–
16.2
71.6
– 44.6
– 0.4
– 86.6
1 272.0
785.1
74.1
– 38.2
0.2
11.9
– 52.5
780.6
233.1
221.7
213.0
205.2
49.9
38.5
34.7
26.0
530.7
491.4
Thereof leased property, plant, and equipment
Acquisition cost of leased property, plant,
and equipment
Accumulated depreciation
Net book value as of December 31
0.5
0.5
–
0.4
–
0.4
0.2
–
0.2
Leasing commitments (present value)
as of December 31
0.2
0.3
0.2
Pledged assets as of December 31
–
2.3
–
–
–
–
–
–
16
Associates
millions of CHF
Balance as of January 1
Additions
Disposal as a result of the acquisition of SRE FZE
Share of profit/(loss) of associates
Dividend payments received
Currency translation differences
Total investments in associates as of December 31
2016
4.0
5.0
– 1.1
– 0.8
– 0.7
– 0.6
5.8
1.1
0.5
0.6
0.7
2.3
2015
2.5
0.1
–
3.7
– 2.3
–
4.0
In 2016, Sulzer paid in line with the proportion of ownership interest CHF 4.8 million to its associated com-
pany Hua Rui in China. Sulzer’s share in the associated company remained accordingly at 49%.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 127
As of December 21, 2016, the group acquired 51% of the shares and voting interests in SRE FZE. As a
result, the group’s equity interest in SRE FZE increased from 49% to 100% (see note 4). Consequently, the
associated share of 49% was eliminated from investments in associates.
17 Other financial assets
millions of CHF
Balance as of January 1
Additions
Currency translation differences
Balance as of December 31
millions of CHF
Balance as of January 1
Additions
Currency translation differences
Balance as of December 31
Available-for-
sale
Loans and
receivables
4.5
–
–
4.5
7.1
1.1
0.4
8.6
Available-for-
sale
Loans and
receivables
4.5
–
–
4.5
7.4
0.5
– 0.8
7.1
2016
Total
11.6
1.1
0.4
13.1
2015
Total
11.9
0.5
– 0.8
11.6
Financial assets that belong to the category “Available-for-sale financial assets” include investments in
equity securities. The category “Loans and receivables” includes items with maturities beyond 12 months.
18
Inventories
millions of CHF
Raw materials, supplies, and consumables
Work in progress
Finished products and trade merchandise
Total inventories as of December 31
2016
134.6
180.8
86.3
401.7
2015
120.9
207.6
80.8
409.3
In 2016, Sulzer recognized write-downs of CHF 13.3 million (2015: CHF 22.5 million) in the income
statement. Total accumulated write-downs on inventories amounted to CHF 69.4 million as of Decem-
ber 31, 2016 (2015: CHF 72.9 million). Material expenses in 2016 amounted to CHF 1 095.8 million (2015:
CHF 1 137.6 million).
19
Percentage of completion contracts
millions of CHF
Contract revenue recognized for the year
Net receivables resulting from construction contracts as of December 31
Net liabilities resulting from construction contracts as of December 31
Advance payments received from customers for construction contracts
as of December 31
2016
597.2
230.2
– 32.1
2015
469.8
190.7
– 31.9
– 388.4
– 399.1
Sales recognized in accordance with the percentage of completion method for the year 2016 amounted to
CHF 597.2 million (thereof related to ongoing contracts CHF 353.3 million), which corresponds to 20.8%
of total sales (2015: CHF 469.8 million, or 15.8% of sales). The costs related to these sales amounted to
CHF 434.8 million (thereof related to ongoing contracts CHF 276.9 million) and to CHF 338.3 million in 2015.
The impact on gross profit was CHF 162.4 million (thereof related to ongoing contracts CHF 76.4 million),
which corresponds to 18.5% of total gross profit (2015: CHF 131.5 million, 14.4%; amount related to
ongoing contracts CHF 63.3 million).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 128
20
Trade accounts receivable
Aging structure of trade accounts receivable
millions of CHF
Not past due
Past due
1– 30 days
31– 60 days
61–120 days
>120 days
Total trade accounts receivable
as of December 31
Gross
amount
654.8
102.2
35.8
35.0
107.7
935.5
2016
Net book
value
Allowance
Gross
amount
Allowance
2015
Net book
value
– 0.3
654.5
613.8
– 1.0
612.8
– 0.6
– 0.5
– 1.4
– 49.5
– 52.3
101.6
35.3
33.6
58.2
883.2
85.7
38.8
33.9
116.6
888.8
– 0.5
– 0.6
– 2.0
– 33.6
– 37.7
85.2
38.2
31.9
83.0
851.1
2015
39.7
15.8
– 9.8
– 5.0
– 3.0
37.7
Allowance for doubtful trade accounts receivable
millions of CHF
Balance as of January 1
Additions
Released as no longer required
Utilized
Currency translation differences
Balance as of December 31
2016
37.7
27.6
– 8.9
– 4.8
0.7
52.3
Approximately 30% (2015: 31%) of the gross amount of trade accounts receivable were past due, and an
allowance of CHF 52.3 million (2015: CHF 37.7 million) was recorded. The recoverability of trade accounts
receivable is regularly reviewed, and the credit quality of new customers is thoroughly assessed. Due to the
large and heterogeneous customer base, the credit risk of the group is limited.
Accounts receivable by geographical region
millions of CHF
Accounts receivable by region
Europe, Middle East, Africa
— thereof United Kingdom
— thereof Germany
— thereof Switzerland
— thereof other countries
Americas
— thereof USA
— thereof Mexico
— thereof other countries
Asia-Pacific
— thereof China
— thereof India
— thereof other countries
Total as of December 31
2016
437.3
120.6
65.5
24.6
226.6
232.2
145.1
15.6
71.5
213.7
135.8
31.8
46.1
883.2
2015
453.2
167.2
54.1
39.6
192.3
203.5
143.4
27.0
33.1
194.4
134.1
25.1
35.2
851.1
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 129
21 Other accounts receivable and prepaid expenses
millions of CHF
Receivables from tax authorities
Derivative financial instruments
Other accounts receivable
Total other accounts receivable as of December 31
Insurance premiums
Prepaid contributions to employee benefit plans
Other prepaid expenses
Total prepaid expenses as of December 31
2016
57.4
6.6
25.5
89.5
–
9.7
30.4
40.1
2015
59.9
6.4
18.5
84.8
2.5
9.6
26.4
38.5
Total other accounts receivable and prepaid expenses
as of December 31
129.6
123.3
For further details on the position “Derivative financial instruments,” refer to note 29. Other accounts receiv-
able do not include any material positions that are past due or impaired.
22 Cash and cash equivalents
millions of CHF
Cash
Cash equivalents
Total cash and cash equivalents as of December 31
2016
397.5
32.0
429.5
2015
902.2
106.8
1 009.0
As of December 31, 2016 and 2015, the group held no significant restricted cash and cash equivalents.
23 Marketable securities
millions of CHF
Designated at fair value through profit or loss
Total marketable securities as of December 31
2016
–
–
2015
208.3
208.3
Marketable securities designated at fair value through profit or loss as of December 31, 2015, mainly com-
prised an investment in a fund investing in short-term bonds with high credit ratings. Further, during 2015,
the group invested in time deposits and other interest-bearing investments with maturity between 3 and 12
months. During 2016, all these marketable securities were sold.
24
Share capital
thousands of CHF
Number of
shares
2016
Share
capital
Number of
shares
Balance as of December 31 (par value CHF 0.01)
34 262 370
342.6
34 262 370
2015
Share
capital
342.6
The share capital amounts to CHF 342 623.70, made up of 34 262 370 shares with dividend entitlement and
a par value of CHF 0.01. All shares are fully paid in and registered.
Share ownership
Sulzer shares are freely transferable provided that, when requested by the company to do so, buyers de-
clare that they have purchased and will hold the shares in their own name and for their own account.
Nominees shall only be entered in the share register with the right to vote, provided that they meet the
following conditions: the nominee is subject to the supervision of a recognized banking and financial market
regulator; the nominee has entered into an agreement with the Board of Directors concerning its status; the
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 130
share capital held by the nominee does not exceed 3% of the registered share capital entered in the com-
mercial register; and the names, addresses, and number of shares of those individuals for whose accounts
the nominee holds at least 0.5% of the share capital have been disclosed. The Board of Directors is also
entitled, beyond these limits, to enter shares of nominees with voting rights in the share register, provided
that the above-mentioned conditions are met (see also paragraph 6a of the Articles of Association at www.
sulzer.com/regulations).
Shareholders holding more than 3%
Renova Group
T. Rowe Price Associates
Dec 31, 2016
Dec 31, 2015
Number of
shares
in %
Number of
shares
21 728 414
63.42
21 728 414
n/a
n/a
1 051 364
in %
63.42
3.07
Sulzer Ltd is not aware of any agreements between the shareholders named above regarding the shares
held or regarding the execution of voting rights.
Retained earnings
The retained earnings include prior years’ undistributed income of consolidated companies and all remea-
surements of the net liability for defined benefit plans.
Treasury shares
The total number of shares held by Sulzer Ltd as of December 31, 2016, amounted to 177 461 treasury
shares (December 31, 2015: 187 191 shares), which are mainly held for the purpose of issuing shares
under the management share-based payment programs.
Cash flow hedge reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash
flow hedging instruments where the hedged transaction has not yet occurred. Amounts are reclassified to
profit or loss when the associated hedged transaction affects the income statement.
Currency translation reserve
The currency translation reserve comprises all foreign exchange differences arising on the translation of the
financial statements of controlled entities, whose functional currency differs from the reporting currency of
the group. The cumulative amount is reclassified to profit or loss when the net investment is disposed of.
Dividends
On April 7, 2016, the Annual General Meeting approved an ordinary dividend of CHF 3.50 (2015: CHF 3.50)
per share and a special dividend of CHF 14.60 (2015: CHF 0.00) per share to be paid out of reserves. The
dividend was paid to shareholders on April 13, 2016. The total amount of the dividend paid was CHF 617.5 mil-
lion (2015: CHF 119.2 million).
The Board of Directors decided to propose to the Annual General Meeting 2017 a dividend for the year
2016 of CHF 3.50 per share (2015: ordinary dividend CHF 3.50 and special dividend CHF 14.60).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 131
25
Earnings per share
Net income attributable to shareholders of Sulzer Ltd
(millions of CHF)
Issued number of shares
Adjustment for the average treasury shares held
Average number of shares outstanding as of December 31
2016
59.0
34 262 370
– 159 760
34 102 610
2015
73.9
34 262 370
– 226 508
34 035 862
Adjustment for share participation plans
228 043
148 139
Average number of shares for calculating diluted earnings
per share as of December 31
34 330 653
34 184 001
Earnings per share, attributable to a shareholder of Sulzer Ltd
(in CHF) as of December 31
Basic earnings per share
Diluted earnings per share
26 Borrowings
millions of CHF
Bonds
Bank and other loans
Leasing obligations
Total borrowings as of December 31
— thereof due in <1 year
— thereof due in 1–5 years
— thereof due in >5 years
Borrowings by currency
1.73
1.72
Short-term
Long-term
Total
Short-term
Long-term
2016
–
6.9
0.2
7.1
7.1
–
–
450.4
450.4
499.6
5.4
2.5
12.3
2.7
458.3
465.4
–
7.0
7.1
7.0
451.3
451.3
14.5
0.3
514.4
514.4
–
–
BRL
CHF
EUR
KRW
SAR
Other
millions of
CHF
4.8
450.5
1.7
1.8
1.8
4.8
in %
1.0
96.8
0.4
0.4
0.4
1.0
Total as of December 31
465.4
100.0
2016
Interest
rate
8.0%
0.5%
4.8%
2.8%
2.9%
–
–
millions of
CHF
7.0
499.7
0.3
1.8
8.8
4.0
521.6
100.0
2.17
2.16
2015
Total
499.6
21.0
1.0
521.6
514.4
7.0
0.2
2015
Interest
rate
8.0%
2.4%
2.9%
2.9%
4.2%
–
–
–
6.5
0.7
7.2
–
7.0
0.2
in %
1.3
95.8
0.1
0.3
1.7
0.8
In 2015, Sulzer arranged a CHF 500 million syndicated credit facility with maturity date in May 2020 with
two one-year extension options. During 2016, the facility was extended for one year until May 2021. The
facility is available for general corporate purposes including financing of acquisitions. The facility is subject
to financial covenants based on net financial indebtedness and EBITDA, which were adhered to throughout
the reporting period. The facility was not used as per December 31, 2016 due to the group’s liquidity situ-
ation, and also the amount of other borrowings was further reduced compared with 2015.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 132
Outstanding bond
millions of CHF
2.25% 07/2011– 07/2016
0.375% 07/2016 – 07/2022
0.875% 07/2016 – 07/2026
Total as of December 31
Amortized
costs
–
325.5
124.9
450.4
2016
Nominal
Amortized
costs
2015
Nominal
–
499.6
500.0
325.0
125.0
450.0
–
–
–
–
499.6
500.0
On July 11, 2016, Sulzer issued new bonds via dual tranches of total CHF 450 million. The first tranche of
CHF 325 million has a term of six years and carries a coupon of 0.375% and has an effective interest rate
of 0.35%. The second tranche of CHF 125 million has a term of ten years and carries a coupon of 0.875%
and has an effective interest rate of 0.88%. The bonds were issued to refinance the CHF 500 million bond
maturing in July 2016 and are traded at the SIX Swiss Exchange.
27
Provisions
millions of CHF
Balance as of January 1, 2016
Acquired through business combination
Additions
Released as no longer required
Other
employee
benefits
Warran-
ties/
liabilities
Restruc-
turing
Environ-
mental
42.9
1.0
33.3
– 1.0
77.9
0.1
18.2
– 3.2
27.7
–
65.2
– 8.2
Utilized
– 30.3
– 16.8
– 27.9
Currency translation differences
1.5
0.4
0.8
Total provisions as of
December 31, 2016
— thereof non-current
— thereof current
47.4
33.9
13.5
76.6
4.0
72.6
57.6
2.8
54.8
Other
46.2
1.7
18.2
– 3.1
– 9.0
– 0.9
53.1
17.9
35.2
Total
210.8
2.8
135.0
– 15.5
– 84.2
1.0
249.9
73.8
176.1
16.1
–
0.1
–
– 0.2
– 0.8
15.2
15.2
–
The category “Other employee benefits” includes provisions for jubilee gifts, early retirement of senior man-
agers, and other obligations to employees. The additions and utilizations in “Other employee benefits”
provision are mainly related to medical insurances of employees of the US entities.
The category “Warranties/liabilities” includes provisions for warranties, customer claims, penalties, litigation,
and legal cases relating to goods delivered or services rendered.
As part of the Sulzer Full Potential (SFP) program, Sulzer has initiated several measures to adapt the global
manufacturing capacities and streamline the organizational setup. Restructuring provisions are mainly
associated with measures started in Switzerland, Sweden, Germany, and Brazil. These measures entailed
a reduction of roughly 1 350 full-time equivalents. In 2016, the group recognized restructuring provisions
of CHF 65.2 million. The remaining provision as of December 31, 2016, is CHF 57.6 million, of which
CHF 54.8 million is expected to be utilized within one year.
“Environmental” mainly consists of expected costs related to inherited liabilities.
“Other” includes provisions that do not fit into the aforementioned categories. A large number of these
provisions refer to indemnities, in particular related from divestitures. In addition, provisions for ongoing
asbestos lawsuits and other legal claims are included. Based on the currently known facts, Sulzer is of the
opinion that the resolution of the open cases will not have material effects on its liquidity or financial condi-
tion. Although Sulzer expects a large part of the category “Other” to be realized in 2017, by their nature the
amounts and timing of any cash outflows are difficult to predict.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 133
28 Other current and accrued liabilities
millions of CHF
Taxes (VAT, withholding tax)
Derivative financial instruments
Other current liabilities
Total other current liabilities as of December 31
Vacation and overtime claims
Salaries, wages, and bonuses
Contract-related costs
Other accrued liabilities
Total accrued liabilities as of December 31
Total other current and accrued liabilities as of December 31
29 Derivative financial instruments
2016
2016
18.9
9.2
25.3
53.4
27.5
96.8
123.5
107.2
355.0
408.4
2015
19.3
11.2
24.3
54.8
26.7
82.5
103.7
97.9
310.8
365.6
2015
Derivative assets
Derivative liabilities
Derivative assets
Derivative liabilities
millions of CHF
Notional
value
Fair
value
Notional
value
Fair
value
Notional
value
Fair
value
Notional
value
Fair
value
Forward
exchange
contracts
Total as of
December 31
— thereof due in
375.8
6.6
394.6
9.4
437.5
6.4
589.5
11.6
375.8
6.6
394.6
9.4
437.5
6.4
589.5
11.6
< 1 year
374.8
6.6
382.8
9.2
437.3
6.4
571.7
11.2
— thereof due in
1– 2 years
— thereof due in
3 – 5 years
1.0
–
–
11.7
0.2
0.1
0.2
–
–
17.7
0.4
0.1
The notional and the fair value of derivative assets and liabilities include current and also non-current deriv-
ative financial instruments. The cash flow hedges of the expected future sales were assessed as highly
effective. As at December 31, 2016, net cumulative unrealized losses of CHF 14.2 million (2015: loss of
CHF 12.8 million) with a deferred tax asset of CHF 3.2 million (2015: CHF 3.6 million) relating to these cash
flow hedges were included in other comprehensive income. In 2016, a gain of CHF 1.0 million (2015: a loss
of CHF 3.1 million) cash flow hedge reserve was recognized in profit or loss. There was no ineffectiveness
that arose from cash flow hedges in 2016 (2015: CHF 0.0 million). The maximum exposure to credit risk at
the reporting date is the fair value of the derivative assets in the balance sheet.
The hedged, highly probable forecast transactions denominated in foreign currency are mostly expected to
occur at various dates during the next 12 months. Gains and losses recognized in the hedging reserve (cash
flow hedges) in equity on forward foreign exchange contracts as of December 31, 2016, are recognized
either in sales, cost of goods sold, or in other operating income/expenses in the period or periods during
which the hedged transaction affects the income statement. This is generally within 12 months from the
balance sheet date unless the gain or loss is included in the initial amount recognized for the purchase of
fixed assets, in which case recognition is over the lifetime of the asset (five to ten years).
The group enters into derivative financial instruments under enforceable master netting arrangements.
These agreements do not meet the criteria for offsetting derivative assets and derivative liabilities in the
consolidated balance sheet. As per December 31, 2016, the amount subject to such netting arrangements
was CHF 3.2 million (2015: CHF 3.8 million). Considering the effect of these agreements, the amount of
derivative assets would be reduced from CHF 6.6 million to CHF 3.4 million (2015: from CHF 6.4 million to
CHF 2.6 million), and the amount of derivative liabilities would be reduced from CHF 9.4 million to
CHF 6.2 million (2015: from CHF 11.6 million to CHF 7.8 million).
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 134
30 Other financial commitments
millions of CHF
Maturity < 1 year
Maturity 1– 5 years
Maturity > 5 years
Operating lease as of December 31
Total commitments for future
investments and acquisitions
as of December 31
Rented
premises
22.0
51.8
16.5
90.3
Other
7.0
11.7
0.2
18.9
2016
Total
29.0
63.5
16.7
109.2
Rented
premises
20.4
51.8
23.1
95.3
2015
Total
29.4
64.1
23.1
Other
9.0
12.3
–
21.3
116.6
0.1
2.4
2.5
0.7
1.6
2.3
31 Contingent liabilities
millions of CHF
Guarantees in favor of third parties
Total contingent liabilities as of December 31
2016
10.0
10.0
2015
10.0
10.0
As of December 31, 2016, guarantees provided to third parties amounted to CHF 10 million and expiration
in 2022 regarding certain environmental matters related to disposed business.
Share participation plans
32
Share-based payments charged to personnel expenses
millions of CHF
Restricted share unit plan
Performance share plan
Total charged to personnel expenses
2016
2.6
4.9
7.5
2015
9.6
– 1.3
8.3
Restricted share unit plan settled in Sulzer shares
This long-term incentive plan covers the Board of Directors and until 2015 the members of the Sulzer Man-
agement Group. Restricted share units (RSU) are granted annually depending on the organizational position
of the employee. Vesting of the RSU is subject to continuous employment over the vesting period. Awards
to members of the Board of Directors automatically vest with the departure from the Board. The plan fea-
tures graded vesting over a three-year period. One RSU award is settled with one Sulzer share at the end
of the vesting period. The fair value of the RSU granted is measured at the grant date closing share price
of Sulzer Ltd, and discounted over the vesting period using a discount rate that is based on the yield of
Swiss government bonds for the duration of the vesting period. Participants are not entitled to dividends
declared during the vesting period. Consequently, the grant date fair value of the RSU is reduced by the
present value of the dividends expected to be paid during the vesting period.
During 2015, the Renova shareholder group exceeded the threshold of 50% of the voting rights in Sulzer
Ltd., qualifying as a Change of Control under the RSU plan. The Change of Control triggered the acceler-
ated vesting of all outstanding RSU and entitled the plan participants to immediately receive shares. The
group offered the plan participants the opportunity to continue participating in the RSU plans. If the plan
participants waived the right to accelerated vesting and immediate allocation of shares and agreed to hold
the RSU through to the end of their original vesting periods, plan participants, not including the members
of the Board of Directors and the Executive Committee, received additional RSU in a number equal to 20%
of the number of unvested RSU that the plan participants held at the time of the Change of Control. The
additional RSU granted will vest at the same date as the last tranche of the original RSU.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 Restricted share units
Grant year
2016
2015
2014
2013
2012
Total
135
Outstanding as of January 1, 2015
Granted
Exercised
Forfeited
Outstanding as of December 31, 2015
Outstanding as of January 1, 2016
–
–
–
–
–
–
Granted
Exercised
Forfeited
–
68 259
25 512
14 342
108 113
98 035
3 426
993
–
102 454
– 20 621
– 32 046
– 16 212
– 13 204
– 82 083
–
– 3 713
– 1 682
– 1 138
– 6 533
77 414
35 926
8 611
77 414
35 926
8 611
21 603
–
–
–
–
–
– 13 552
– 16 250
– 8 611
– 150
– 55
–
–
–
–
–
–
–
–
121 951
121 951
21 603
– 38 413
– 205
104 936
Outstanding as of December 31, 2016
21 603
63 712
19 621
Average fair value at grant date in CHF
72.61
102.18
122.00
166.61
129.13
Performance share plan settled in Sulzer shares
This long-term incentive plan covers the members of the Executive Committee and, starting 2016, also
covers the members of the Sulzer Management Group. Performance share units (PSU) are granted annu-
ally depending on the organizational position of the employee.
Vesting of the PSU is subject to continuous employment and to the achievement of performance conditions
over the performance period. Participants are not entitled to dividends declared during the vesting period.
Vesting of the PSP 2016 is based on three performance conditions: operational EBITA growth over the
performance period (weighted 25%), average ROCEA (weighted 25%), and on Sulzer’s total return to share-
holders (TSR), compared to a selected group of ten peer companies and the SMIM Index (weighted 50%).
Vesting of the PSP 2014 and 2015 is based on two equally weighted performance conditions: cumulated
operational EBITA and on Sulzer’s total return to shareholders (TSR), compared to a selected group of 30
peer companies.
TSR is measured with a starting value of the volume-weighted average share price (VWAP) over the first
three months of the first year, and an ending value of the VWAP over the last three months of the vesting
period. The rank of Sulzer’s TSR at the end of the performance period determines the effective number of
total shares. The exercise price of the PSU is zero.
The following inputs were used to determine the fair value of the PSU at grant date using a Monte Carlo
simulation:
Grant year
Fair value at grant date
Share price at grant date
Expected volatility
Risk-free interest rate
2016
118.05
98.50
25.46%
– 0.73%
2015
193.97
107.00
28.07%
– 0.72%
2014
206.63
121.50
32.25%
0.09%
The expected volatility of the Sulzer share, the peer group companies, and the SMIM Index is determined
by the historical volatility. The zero yield curves of those countries in which the companies and indices are
listed were used as the relevant risk-free rates. Historical data was used to arrive at an estimate for the
correlation between Sulzer, the peer companies, and the SMIM Index. For the TSR calculation, it is as-
sumed that all the dividends are reinvested immediately. This has the same economic implication as waiving
the payment of dividends. Accordingly, the expected dividend yield is zero.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 136
Performance share units—terms of awards
Grant year
Number of awards granted
Grant date
2016
116 472
2015
21 665
2014
15 965
August 1,16
April 1,15
April 1,14
Performance period for cumulative EBIT
01/16 –12/18
01/15 –12/17
01/14 –12/16
Performance period for TSR
Fair value at grant date in CHF
01/16 –12/18
04/15 – 03/18
04/14 – 03/17
118.05
193.97
206.63
Performance share units
Grant year
2016
2015
2014
2013
Total
Outstanding as of January 1, 2015
Granted
Exercised
Forfeited
Outstanding as of December 31, 2015
Outstanding as of January 1, 2016
Granted
Exercised
Forfeited
–
13 651
26 458
40 109
21 665
–
–
–
–
21 665
– 5 717
– 5 717
– 7 865
– 6 439
– 15 881
– 30 185
13 800
7 212
4 860
25 872
–
–
–
–
–
–
116 472
5 228
13 800
7 212
4 281
4 860
25 872
–
125 981
– 217
– 1 748
– 2 533
– 808
– 5 306
– 7 389
– 8 284
– 3 715
– 4 052
– 23 440
Outstanding as of December 31, 2016
108 866
8 996
5 245
–
123 107
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 137
Transactions with members of the Board of Directors,
33
Executive Committee, and related parties
Key management compensation
thousands of
CHF
Short-term
benefits
Equity-
based
compen-
sation
Pension
and social
security
contribu-
tions
Total
Short-term
benefits
Equity-
based
compen-
sation
Pension
and social
security
contribu-
tions
2016
2015
Total
Board of
Directors
Executive
Committee
1 365
468
265
2 098
1 068
1 570
135
2 773
9 829
4 076
2 517
16 422
5 375
57
1 781
7 213
Equity-based compensation is valued according to the requirements of IFRS 2. There are no outstanding
loans with members of the Board of Directors or the Executive Committee as per balance sheet date. No
shares have been granted to members of the Board of Directors, the Executive Committee, or related
persons, with the exception of shares granted in connection with equity-settled plans and service awards.
Related parties
As of December 31, 2016, sales with related parties controlled by the major shareholder (Renova Group)
amounted to CHF 0.8 million (2015: CHF 9.2 million) with open receivables of CHF 0.0 million (2015:
CHF 2.0 million). Open payables of CHF 3.7 million (2015: CHF 0.6 million) were recognized. Provision for
loss/unprofitable contracts/warranties/guarantees/liquidated damages recognized in the income statement
amounted to CHF 0.4 million (2015: CHF 0.0 million). Expenses for services from a company controlled by
the major shareholder of Sulzer amounted to CHF 0.2 million (2015: CHF 0.7 million).
Sales with the associated company Hua Rui recorded in 2016 amounted to CHF 0.3 million (2015:
CHF 2.5 million) with open receivables of CHF 0.2 million (2015: CHF 0.0 million). Open payables with
associates amounted to CHF 2.6 million (2015: CHF 1.0 million).
34 Auditor remuneration
Fees for the audit services by KPMG as the appointed group auditor amounted to CHF 2.7 million (2015:
CHF 2.7 million). Additional services provided by the group auditor amounted to a total of CHF 0.7 million
(2015: CHF 0.5 million). This amount includes CHF 0.4 million (2015: CHF 0.3 million) for tax and legal
advisory services and CHF 0.3 million for other consulting services (2015: CHF 0.2 million).
35 Key accounting policies and valuation methods
35.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Re-
porting Standards (IFRS) using the historical cost convention except for the following:
— financial instruments at fair value through profit or loss which are measured at fair value (incl. derivative
financial instruments),
— available-for-sale financial instruments, and
— net position from defined benefit plans, where plan assets are measured at fair value and the plan liabilities
are measured at the present value of the defined benefit obligation (see 35.19 a).
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and have been applied consistently by all subsidiaries.
The preparation of financial statements in conformity with IFRS requires the use of certain critical account-
ing estimates. It also requires management to exercise its judgment in the process of applying the group’s
accounting policies. The areas involving a higher degree of judgment or complexity or areas where assump-
tions and estimates are significant to the consolidated financial statements are disclosed in note 5 “Critical
accounting estimates and judgments.”
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
138
Standards, amendments, and interpretations which are effective for 2016
35.2 Change in accounting policies
a)
The group has adopted the following new standards and amendments with a date of initial application of
January 1, 2016. The adoption of these amendments did not have any impact on the current period.
— Amendment to IAS 1 ‘Presentation of Financial Statements’. The amendments clarify guidance in IAS 1
on materiality and aggregation of the presentation of subtotals, the structure of financial statements, and
the disclosure of accounting policies.
— Amendments to IAS 16 ‘Property, Plant, and Equipment’ and IAS 38 ‘Intangible Assets’. The amend-
ments clarify the acceptable methods of depreciation and amortization.
— Amendments deriving from the annual improvement program 2012–2014 addressing specific aspects
in various standards.
Standards, amendments, and interpretations issued but not yet effective which the group has
b)
decided not to early adopt in 2016
A number of new standards and amendments to standards have been published that are not mandatory
for December 31, 2016 reporting periods and have not been early adopted by the group. None of these
are expected to have a significant effect on the consolidated financial statements of the group, except the
following:
— Amendments to IAS 7 ‘Statement of Cash Flows’, requires disclosures that enable users of financial
statements to evaluate changes in liabilities arising from financing activities, including both changes
arising from cash flow and non-cash changes. The amendments are effective for annual reporting peri-
ods beginning on or after January 1, 2017.
— Amendments to IAS 12 ‘Income Taxes’. The amendments clarify the recognition of a deductible tempo-
rary differences for unrealized losses. The amendments are effective for annual reporting periods begin-
ning on or after January 1, 2017.
— IFRS 9 ‘Financial Instruments’, published in July 2014, replaces the existing guidance in IAS 39 ‘Finan-
cial Instruments: Recognition and Measurement’. IFRS 9 includes revised guidance on the classification
and measurement of financial instruments, including a new expected credit loss model for calculating
impairment on financial assets, and the new general hedge accounting requirements. It also carries
forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is
effective for annual reporting periods beginning on or after January 1, 2018. The group is assessing the
potential impact on its consolidated financial statements resulting from the application of IFRS 9.
— IFRS 15 ‘Revenue from Contracts with Customers’ establishes a comprehensive framework for deter-
mining whether, how much, and when revenue is recognized. It replaces existing revenue recognition
guidance, including IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and IFRIC 13 ‘Customer Loy-
alty Programs’. The core principle of IFRS 15 is that an entity should recognize revenue to depict the
transfer of promised goods and services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods and services. Under IFRS 15, an
entity recognizes revenue when a performance obligation is satisfied. IFRS 15 is effective for annual
reporting periods beginning on or after January 1, 2018. Sulzer has started a project and is assessing
the potential impact on its consolidated financial statements resulting from the application of IFRS 15.
At this stage, the group is not able to estimate the impact of the new standard on the group’s financial
statements. Sulzer will assess the impact in more detail over the next year.
— IFRS 16 ‘Leases’, published in January 2016, introduces a single lessee accounting model and requires
a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the
underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its
right to use the underlying leased asset and a lease liability representing its obligation to make lease
payments. Sulzer has started a project and is assessing the potential impact on its consolidated financial
statements resulting from the application of IFRS 16. So far, the most significant impact identified is that
the Group will recognize new assets and liabilities for its operating leases of buildings and equipment.
In addition, the nature of expenses related to those leases will now change as IFRS 16 replaces the
straight-line operating lease expense with a depreciation charge for right-of-use assets and interest
expense on lease liabilities. IFRS 16 is effective for annual periods beginning on or after January 1, 2019.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 139
Business combinations
35.3 Consolidation
a)
The group accounts for business combinations using the acquisition method when control is transferred to
the group (see 35.3 b). The consideration transferred in the acquisition is measured at the fair value of the
assets given, the liabilities incurred to the former owner of the acquiree, and the equity interest issued by
the group. Any goodwill arising is tested annually for impairment (see 35.6 a). Any gain on a bargain pur-
chase is recognized in the income statement immediately. Acquisition-related costs are expensed as in-
curred, except if related to the issue of debt or equity securities. Identifiable assets acquired, and liabilities
and contingent liabilities assumed in a business combination, are measured initially at their fair values at the
acquisition date.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent
consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in the in-
come statement.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the
acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement
awards is included in measuring the consideration transferred in the business combination. The determina-
tion is based on the difference between the market-based measure of the replacement awards compared
with the market-based measure of the acquiree’s awards and the extent to which the replacement awards
relate to pre-combination service.
Subsidiaries
b)
Subsidiaries are all entities controlled by the group. The group controls an entity when it is exposed to, or
has the rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the con-
solidated financial statements from the date on which control commences until the date on which control
ceases.
According to the full consolidation method, all assets and liabilities as well as income and expenses of the
subsidiaries are included in the consolidated financial statements. The share of non-controlling interests in
the net assets and results is presented separately as non-controlling interests in the consolidated balance
sheet and income statement, respectively.
Non-controlling interests
c)
The group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, at
the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable
net assets. Transactions with non-controlling interests that do not result in loss of control are accounted for
as equity transactions.
When the group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary,
and any related non-controlling interest and other components of equity. Any resulting gain or loss is rec-
ognized in the income statement. Any interest retained in the former subsidiary is measured at fair value
when control is lost.
Associates and joint ventures
d)
Associates are those entities in which the group has significant influence, but no control, over the financial
and operating policies. Significant influence is presumed to exist when the group holds, directly or indirect-
ly, between 20% and 50% of the voting rights. Joint ventures are those entities over whose activities the
group has joint control, established by contractual agreement and requiring unanimous consent for strate-
gic, financial, and operating decisions. Associates and joint ventures are accounted for using the equity
method and are initially recognized at cost.
Transactions eliminated on consolidation
e)
All material intercompany transactions and balances and any unrealized gains arising from intercompany
transactions are eliminated in preparing the consolidated financial statements. Unrealized losses are elimi-
nated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 140
Segment reporting
35.4
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief
Executive Officer. The Chief Executive Officer, who is responsible for allocating resources and assessing
performance (e.g. operating income) of the operating segments, has been identified as chief operating
decision maker.
Functional and presentation currency
35.5 Foreign currency translation
a)
Items included in the financial statements of subsidiaries are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated financial
statements are presented in Swiss francs (CHF).
The following table shows the major currency exchange rates for the reporting periods 2016 and 2015:
CHF
1 EUR
1 GBP
1 USD
100 CNY
100 INR
2016
2015
Average
rate
Year-end
rate
Average
rate
Year-end
rate
1.09
1.33
0.99
14.83
1.47
1.07
1.25
1.02
14.68
1.50
1.07
1.47
0.96
15.32
1.50
1.08
1.47
0.99
15.23
1.49
Transactions and balances
b)
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denom-
inated in foreign currencies are recognized in the income statement.
Changes in the fair value of monetary items, denominated in foreign currency classified as available-for-sale
are analyzed between translation differences resulting from changes in the amortized cost of the item and
other changes in the carrying amount of the item. Translation differences related to changes in the amor-
tized costs are recognized in profit or loss; other changes in the carrying amount are recognized in other
comprehensive income.
Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value
gain or loss. Translation differences on non-monetary financial assets and liabilities, such as equities held
at fair value through profit or loss, are recognized in the income statement as part of the fair value gain or
loss. Translation differences on non-monetary financial assets, such as equities classified as avail able-for-
sale, are included in the available-for-sale reserve in other comprehensive income.
Subsidiaries
c)
The results and balance sheet positions of all the subsidiaries (excluding the ones with hyperinflationary
economy) that have a functional currency different from the presentation currency of the group are translated
into the presentation currency as follows:
— assets and liabilities for each balance sheet presented are translated at the closing rate at the date of
that balance sheet, and
— income and expenses for each income statement are translated at average exchange rates.
Translation differences resulting from consolidation are taken to other comprehensive income. In the event
of a sale or liquidation of foreign subsidiaries, exchange differences that were recorded in other compre-
hensive income are recognized in the income statement as part of the gain or loss on sale or liquidation.
If a loan is made to a group company, and the loan in substance forms part of the group’s investment in the
group company, translation differences arising from the loan are recognized directly in other comprehensive
income as foreign currency translation differences. When the group company is sold or partially disposed
of, and control no longer exists, gains and losses accumulated in equity are reclassified to the income
statement as part of the gain or loss on disposal.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 141
Intangible assets
35.6
The intangible assets with finite useful life are amortized in line with the expected useful life, usually on a
straight-line basis. The period of useful life is to be assessed according to business rather than legal criteria.
This assessment is made at least once a year. An impairment might be required in the event of sudden or
unforeseen value changes.
Goodwill
a)
Goodwill represents the difference between the consideration transferred and the fair value of the group’s
share in the identifiable net asset value of the acquired business at the time of acquisition. Any goodwill
arising as a result of a business combination is included within intangible assets.
Goodwill is subject to an annual impairment test and valued at its original acquisition cost less accumulated
impairment losses. In cases where circumstances indicate a potential impairment, impairment tests are
conducted more frequently. Profits and losses arising from the sale of a business include the book value of
the goodwill assigned to the business being sold.
For impairment testing goodwill is allocated to those cash-generating units or groups of cash-generating
units that are expected to benefit from the business combination in which the goodwill arose. Goodwill
originating from the acquisition of an associated company is included in the book value of the participation
in associated companies.
Trademarks and licenses
b)
From third parties acquired trademarks, licenses, and similar rights are stated at acquisition cost. Such
assets are amortized over their expected useful life, generally not exceeding ten years.
Research and development
c)
Expenditure on research activities is recognized in the income statement as incurred. Development costs
for major projects are capitalized only if the expenditure can be measured reliably, the product or process
is technically and commercially feasible, future economic benefits are probable, and the group intends and
has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized
in the income statement as incurred. Subsequently such assets are measured at cost less accumulated
amortization (max. five years) and any accumulated impairment loss.
Computer software
d)
Acquired computer software licenses are capitalized on the basis of the cost incurred to acquire and bring
to use the specific software. These costs are amortized over their estimated useful lives (three to max. five
years).
Customer relationships
e)
As part of a business combination, acquired customer rights are recorded at fair value (cost at the time of
acquisition). These costs are amortized over their estimated useful lives, generally not exceeding 15 years.
35.7 Property, plant, and equipment
Property, plant, and equipment is stated at acquisition cost less depreciation and impairments. Acquisition
cost includes expenditure that is directly attributable to the acquisition of the item. Subsequent costs are
included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that the future economic benefits associated with the item will flow to the group and the cost of
the item can be measured reliably. The carrying amount of the replaced item is derec ognized. All other
repairs and maintenance are charged to the income statement during the financial period in which they
are incurred.
Depreciation is provided on a straight-line basis over the estimated useful life. Land is stated at cost and is
not depreciated.
The useful lives are as follows:
Buildings
Machinery
Technical equipment
Other non-current assets
20 – 50 years
5 – 15 years
5 – 10 years
max. 5 years
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
142
Property, plant, and equipment financed by long-term financial leases is capitalized and amortized in the
same way as other assets. The applicable leasing commitments are shown as liabilities and are included
under long-term borrowings. An asset’s carrying amount is impaired immediately to its recoverable amount
if the asset’s carrying amount is greater than its estimated recoverable amount.
Impairment of property, plant, and equipment and intangible assets
35.8
Assets with a finite useful life are only tested for impairment if relevant events or changes in circumstances
indicate that the book value is no longer recoverable. An impairment loss is recorded equal to the excess
of the carrying value over the recoverable amount. The recoverable amount is the higher of the fair value of
the asset less disposal costs and its value in use. The value in use is based on the estimated cash flow over
a three-year period and the extrapolated projections for subsequent years. The results are discounted using
an appropriate pre-tax, long-term interest rate. For the purposes of the impairment test, assets are grouped
together at the lowest level for which separate cash flows can be identified (cash-generating units).
35.9 Financial assets
Financial assets, including marketable securities, are classified into the following three categories: “financial
assets at fair value through profit or loss,” “available-for-sale financial assets,” and “loans and receivables”.
Classification depends on the purpose for which the financial assets were acquired. Management deter-
mines the classification of assets at the date of purchase.
Financial assets at fair value through profit or loss
a)
Assets in this category are either designated to this category upon initial recognition or are classified as held
for trading. Financial assets designated at fair value from inception are those that are managed and their
performance is evaluated on a fair value basis, in accordance with a documented investment strategy.
Derivative financial assets not designated in a hedge relationship are also classified as held for trading and
are presented as current assets or in case maturity is later than 12 months from the balance sheet date as
non-current assets.
Available-for-sale financial assets
b)
Available-for-sale financial assets are non-derivatives that are either designated in this category or not in any
of the other categories. They are included in non-current assets unless management intends to dispose of
the investment within 12 months of the balance sheet date.
Loans and receivables
c)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in the current assets, unless the maturity is greater than
12 months after the balance sheet date. These are classified as non-current assets. The group initially
recognizes loans and receivables on the date when they are originated. All other financial assets are
recognized on the trade date.
Financial assets are initially measured at fair value plus transaction costs for all financial assets not carried
at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value and transaction costs are expensed in the income statement. Available-for-sale
financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.
Loans and receivables are carried at amortized cost using the effective interest method. With the exception
of derivative financial instruments designated in a “cash flow hedge” or a “net investment hedge” gains or
losses arising from changes in the fair value of the financial assets at fair value through profit or loss are
recognized in the income statement line “Other financial income” in the period they arise. Changes in the
fair value of financial assets classified as available-for-sale are recognized in equity. When these assets are
sold or impaired, the accumulated fair value adjustments recorded in equity are reclassified and booked to
the financial income. The group assesses at each balance sheet date whether there is objective evidence
that a financial asset or group of financial assets is impaired.
Financial assets are derecognized when the right to receive cash flows from the investments has expired or
has been transferred and the group has transferred all substantial risks and rewards of ownership.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
143
35.10 Derivative financial instruments and hedging activities
The group uses derivative financial instruments, such as forward currency contracts, other forward contracts
and options, to hedge its risks associated with fluctuations in foreign currencies arising from operational
and financing activities. Such derivative financial instruments are initially recognized at fair value on the date
on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on the derivatives during the year that do not qualify
for hedge accounting are taken directly into profit or loss.
Sulzer applies hedge accounting to secure future cash flows which have a high probability of occurrence.
These hedges are classified as “cash flow hedges”, whereas the hedge instrument is recorded on the bal-
ance sheet at fair value and the effective portions are booked against “Other comprehensive income” in the
column “Cash flow hedge reserve.” If the hedge relates to a non-financial transaction which will subse-
quently be recorded on the balance sheet, the adjustments accumulated under “Other comprehensive in-
come” at that time will be included in the initial book value of the asset or liability. In all other cases, the
cumulative changes of fair value of the hedging instrument that have been recorded in other comprehensive
income are included as a charge or credit to income when the forecasted trans action is recognized or when
hedge accounting is discontinued as the criteria are no longer met. In general, the fair value of financial
instruments traded in active markets is based on quoted market prices at the balance sheet date.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain
or loss on the hedging instrument relating to the effective portion on the hedge is recognized in other
comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the
income statement. Gains and losses accumulated in equity are included in the income statement when the
foreign operation is partially disposed of or sold.
At the inception of the transaction, the group documents the relationship between hedging instruments and
hedged items, as well as its risk management objectives and strategy for undertaking various hedging
transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of hedged items.
35.11 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a
legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis
or realize the asset and settle the liability simultaneously.
35.12 Inventories
Raw materials, supplies, and consumables are stated at the lower of cost or net realizable value. Finished
products and work in progress are stated at the lower of production cost or net realizable value. Production
cost includes the costs of materials, direct and indirect manufacturing costs, and contract-related costs of
construction. Inventories are valued by reference to weighted average costs. Provisions are made for
slow-moving and excess inventories.
35.13 Trade receivables
Trade and other accounts receivable are stated at nominal value less provision for impairments. The respec-
tive value corresponds approximately to the amortized cost. Trade receivables are classified as loans and
receivables. A provision for impairment of trade receivables is established when there is objective evidence
that the group will not be able to collect all the amounts due according to the original payment terms of the
receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or
financial reorganization, and default or delinquency in payments are considered indicators that the trade
receivable is impaired. Receivables are subject to regular review and adequate impairment is considered.
The amount of the impairment provision is the difference between the carrying amount and the present
value of estimated future cash flows, discounted at the original effective interest rate. An impairment charge
is booked within selling and marketing expenses in the income statement and the carrying amount of the
trade receivable is deducted through an allowance account. When a trade receivable is uncollectible, it is
written off against the allowance account for trade receivables. Any subsequent recoveries of amounts
previously written off are credited against selling and marketing costs in the income statement.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 144
35.14 Cash and cash equivalents
Cash and cash equivalents comprise bills, postal giros, and bank accounts, together with other short-term
highly liquid investments with a maturity of three months or less from the date of acquisition. Bank over-
drafts are reported within borrowings in the current liabilities.
35.15 Share capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of ordinary shares and share
options are recognized as a deduction from equity, net of any tax effects. When share capital is repur-
chased, the amount of the consideration paid, which includes directly attributable cost, is net of any tax
effects and is recognized as a deduction from equity. Repurchased shares are classified as treasury shares
and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequent-
ly, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the
transaction is transferred to/from retained earnings.
35.16 Trade payables
Trade payables and other payables are stated at face value. The respective value corresponds approx-
imately to the amortized cost.
35.17 Borrowings
Financial debt is stated at fair value when initially recognized, after recognition of transaction costs. In sub-
sequent periods, it is valued at amortized cost. Any difference between the amount borrowed (after deduc-
tion of transaction costs) and the repayment amount is reported in the income statement over the duration
of the loan using the effective interest method. Borrowings are classified as current liabilities unless the
group has an unconditional right to defer settlement of the liability for at least 12 months after the balance
sheet date.
35.18 Current and deferred income taxes
The current income tax charge comprises the expected tax payable or receivable on the taxable income or
loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is
calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the
countries where the group’s subsidiaries and associates operate and generate taxable income. The man-
agement periodically evaluates positions taken in tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
The liability method is used to provide deferred taxes on all temporary differences between the tax base of
assets and liabilities and their carry ing amounts in the consolidated financial statements. Deferred taxes are
valued by applying tax rates (and regulations) substantially enacted on the balance sheet date or any that
have essentially been legally approved and are expected to apply at the time when the deferred tax asset
is realized or the deferred tax liability is settled.
Income tax is recognized in profit of loss except to the extent that it relates to items recognized directly in
equity or other comprehensive income, in which case it is recognized directly in equity or other comprehen-
sive income.
Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the
extent that it is probable that a taxable profit will be available against which they can be used. Deferred tax
liabilities arising as a result of temporary differences relating to investments in subsidiaries and asso ciated
companies are applied, unless the group can control when temporary differences are reversed and it is
unlikely that they will be reversed in the foreseeable future.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 145
Defined benefit plans
35.19 Employee benefits
a)
The group’s net obligation in respect of defined benefit plans is calculated separately for each plan by esti-
mating the amount of future benefit that employees have earned in the current and prior periods, discount-
ing that amount using interest rates of high-quality corporate bonds that are denominated in the currency
in which the benefits will be paid and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the project-
ed unit credit method. When the calculation results in a potential asset for the group, the recognized asset
is limited to the present value of economic benefits available in the form of any future refunds from the plan
or reductions in future contributions to the plan. To calculate the present value of economic benefits, con-
sideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return
on plan assets (excluding interest income on plan assets), and the effect of the asset ceiling (if any, exclud-
ing interest), are recognized immediately in OCI. The group determines the net interest expense/(income)
on the net defined benefit liability/(asset) for the period by applying the discount rate used to measure the
defined benefit obligation at the beginning of the annual period to the then net defined benefit liability/(asset),
taking into account any changes in the net defined benefit liability/(asset) during the period as a result of
contributions and benefit payments. Net interest expenses and other expenses related to defined benefit
plans are recognized in the income statement.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that
relates to past service or the gain or loss on curtailment is recognized immediately in the income statement.
The group recognizes gains and losses on the settlement of a defined benefit plan when the settlement
occurs.
Defined contribution plans
b)
Defined contribution plans are defined to be pure savings plans, under which the employer makes certain
contributions into a separate legal entity (fund) and does not have a legal or an extendible (constructive)
liability to contribute any additional amounts in the event this entity does not have enough funds to pay out
benefits. A “constructive” commitment exists when it can be assumed that the employer will voluntarily
make additional contributions in order not to endanger the relationship with its employees. Company con-
tributions to such plans are considered in the income statement as personnel expenses.
Other employee benefits
c)
Some subsidiaries provide other employee benefits like “Early retirement benefits” or “Jubilee gifts” to their
employees. Early retirement benefits are defined as termination benefits for employees accepting voluntary
redundancy in exchange for those benefits. Jubilee gifts are other long-term benefits. For example, in Swit-
zerland, Sulzer makes provisions for jubilee benefits based on a Swiss local directive. The provisions are
reported in the category “Other employee benefits” (Note 27).
Short-term benefits are payable within 12 months after the end of the period in which the employees render
the related employee service. In the case of liabilities of a long-term nature, the discounting effects and
employee turnover are to be taken into consideration.
Obligations to employees arising from restructuring measures are included under the category “Restruc-
turing provisions.”
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 146
35.20 Share-based compensation
Sulzer operates two equity-settled share-based payment programs. A performance share plan (PSP) covers
the members of the Executive Committee and starting 2016 also the members of the Sulzer Management
Group. A restricted stock plan (RSP) covers the members of the Board of Directors and until 2015 also
covered the members of the Sulzer Management Group.
Performance share plan (PSP)
a)
The fair value of the employee services received in exchange for the grant of the performance share units
is recognized as a personnel expense with a corresponding increase in equity. The total amount to be
expensed over the vesting period is determined by reference to the fair value of the share units granted,
excluding the impact of any non-market vesting conditions (e.g. profitability targets). At each balance sheet
date, the group reassesses its estimates of the number of share units that are expected to vest. It recog-
nizes the impact of the reassessment of original estimates, if any, in the income statement, and a corre-
sponding adjustment to equity. The fair value of performance share units granted is measured by external
valuation specialists based on a Monte Carlo simulation.
The group accrues for the expected cost of social charges in connection with the allotment of shares under
the PSP. The dilution effect of the share-based awards is considered when calculating diluted earnings per
share.
Restricted share plan (RSP)
b)
The fair value of the employee services received in exchange for the grant of the share units is recognized
as a personnel expense with a corresponding increase in equity. The total amount expensed is recognized
over the vesting period, which is the period over which the specified service conditions are expected to be met.
The fair value of the restricted share units granted for services rendered is measured at the Sulzer closing
share price at grant date, and discounted over the vesting period using a discount rate that is based on the
yield of Swiss government bonds with maturities matching the duration of the vesting period. Participants
are not entitled to dividends declared during the vesting period. The grant date fair value of the restricted
share units is consequently reduced by the present value of dividends expected to be paid during the
vesting period.
The group accrues for the expected cost of social charges in connection with the allotment of shares under
the RSP. The dilutive effect of the share-based awards is considered when calculating diluted earnings per
share.
35.21 Provisions
Provisions are recognized when: the group has a present legal or constructive obligation as a result of past
events; it is probable that an outflow of resources will be required to settle the obligation; and the amount
has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee
termination payments. Provisions are not recognized for future operating losses. Where there are a number
of similar obligations, the likelihood that an outflow will be required is determined by considering the class
of obligation as a whole. A provision is recognized even if the likelihood of an outflow with respect to a
single item included in the class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to the passage of time is recognized as
interest expense.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 147
35.22 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
rendering of services in the ordinary course of the group’s activities. Revenue is shown net of value-added
tax, returns, rebates, and discounts and after eliminating sales within the group. The group recog nizes
revenue when the amount of revenue can be reliably measured, when it is probable that future economic
benefits will flow to the entity, and when specific criteria have been met.
Sale of goods/products
a)
Revenue from the sale of goods/products derives in the ordinary course of business. Goods and products
are described as ordinary when they are part of the official product range of the organization. Goods and
products are those items produced/engineered and/or purchased for resale. This includes standard prod-
ucts (off the rack) as well as (pre-) engineered or tailor-made products.
Revenue from the sale of goods is recognized when all of the conditions stated below are fulfilled. The return
rights of products and goods are also considered. The conditions for the recognition of revenue from sale
of goods and products are as follows:
— it is probable that any future economic benefit associated with the revenue will flow to the entity,
— the revenue can be measured reliably,
— the cost incurred or to be incurred can be measured reliably,
— the entity (seller) has transferred significant risks and rewards of ownership to the buyer; basis of the
risk/reward terms are the agreed clauses with the customer in the sales contract, generally linked to the
internationally accepted Incoterms, and
— the entity (seller) has retained neither continuing managerial involvement nor effective control over the
goods.
Revenue is recognized only when it is probable that it is collectible and measurable. Revenue can only be
collectible when there is a binding sales agreement. Once revenue is recognized, any subsequent uncer-
tainty about the collectability of the revenue is recognized as an expense/adjustment to the amount receiv-
able rather than as an adjustment to revenue.
Rendering of services
b)
The rendering of services involves an entity performing an agreed task for a customer. This service may
involve asset maintenance; professional services; and the construction, development, or customization of
assets. Service contracts may be single-element contracts, in which the entity renders one type of service,
or multiple-element contracts that provide for the delivery of more than one service, or may include the
delivery of goods as well as services. Services are often performed within the reporting period.
Services that are provided over a period beyond the reporting period involve estimates. Revenue is then
recognized according to the stage, or percentage, of completion of the contract. The method used to de-
termine the stage of completion will depend on the nature of the contract. A consistent approach is taken
to the revenue recognition of similar contracts.
Revenue from rendering of services is recognized by reference to the stage of completion of the transaction
when the following conditions are cumulatively met:
— the amount of revenue can be measured reliably,
— the flow of economic benefits to the entity is probable,
— the state of completion at the period end can be measured reliably, and
— the cost incurred to date and the cost to completion can be measured reliably.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 148
Percentage of completion method (PoC)
c)
Major long-term customer orders are reported using the percentage of completion method (PoC), based
on the percentage of costs to date compared with the total estimated contract costs, contractual mile-
stones, or performance. The income statement contains a share of sales, including an estimated share of
profit, while the balance sheet includes the corresponding trade accounts receivable after adjustment for
advance payments received. When it appears probable that the total costs of an order will exceed the
expected income, the total amount of expected loss is recognized immediately in the income statement.
Other revenue
d)
Revenue from the use of entity assets by third parties yielding interest, royalties, and dividends in the form of:
— interest charges for the use of cash or cash equivalents or amounts due to the entity,
— royalty charges for the use of long-term assets (e.g. patents, trademarks, copyrights, and computer
software), and
— dividend distribution of profits to holders of equity investments in proportion to their holdings of a par-
ticular class of capital.
Interest is recognized using the effective interest method. Royalties are recognized on an accrual basis in
accordance with the substance of the relevant agreement. Dividends are recognized when the sharehold-
er’s right to receive payment is established.
35.23 Assets and disposal groups held for sale
A non-current asset or a group of assets is classified as “held for sale” if its carrying amount will be recov-
ered principally through a sale transaction rather than through continuing use. For this to be the case, the
management must be committed to sell the assets, the assets must be actively marketed for sale, and the
sale is expected to be completed within one year. A non-current asset or a group of assets classified as
“held for sale” shall be measured at the lower of its carrying amount or fair value less selling cost.
35.24 Dividend distribution
Dividend distribution to the shareholders of Sulzer Ltd is resolved upon decision at the Annual General
Meeting and will be paid in the same reporting period.
Subsequent events after the balance sheet date
36
The Board of Directors authorized these consolidated financial statements for issue on February 22, 2017.
They are subject to approval at the Annual General Meeting, which will be held on April 6, 2017. At the time
when these consolidated financial statements were authorized for issue, the Board of Directors and the
Executive Committee were not aware of any events that would materially affect these financial statements.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016 37 Major subsidiaries
December 31, 2016
December 31, 2016
Europe
Subsidiary
Switzerland
Sulzer Chemtech AG, Winterthur
Sulzer Mixpac AG, Haag
Sulzer Markets and Technology AG, Winterthur
Sulzer Management AG, Winterthur
Tefag AG, Winterthur
Sulzer International AG, Winterthur
Belgium
Sulzer Pumps Wastewater Belgium N.V./S.A.,
St. Stevens-Woluwe
Germany
Sulzer Pumpen (Deutschland) GmbH, Bruchsal
Sulzer Pumps Wastewater Germany GmbH, Bonn
Sulzer Pump Solutions Germany GmbH, Lohmar
Sulzer Chemtech GmbH, Linden
Sulzer Pumps Grundbesitz Germany GmbH, Lohmar
Black Deutschland GmbH1), Bechhofen
Geka GmbH1), Bechhofen
Denmark
Sulzer Mixpac Denmark A/S, Greve
Finland
France
Greece
Sulzer Pumps Denmark A/S, Farum
Sulzer Pumps Finland Oy, Kotka
Sulzer Pompes France SASU, Mantes
Sulzer Pumps Wastewater Greece A.E., Athens
Great Britain
Sulzer Pumps (UK) Ltd., Leeds
Sulzer Chemtech (UK) Ltd., Stockton on Tees
Dowding & Mills Plc., Birmingham
Sulzer (UK) Holdings Ltd., Leeds
Sulzer Mixpac (UK) Ltd.1), Newbury
Ireland
Sulzer Pump Solutions Ireland Ltd., Wexford
Italy
Sulzer Finance (Ireland) Limited, Wexford
Sulzer Pumps Wastewater Italy S.r.l.,
Casalecchio di Reno
Sulzer Chemtech Italia S.r.l., Milano
Norway
Sulzer Pumps Wastewater Norway A/S, Sandvika
Sulzer Pumps Norway A/S, Klepp Stasjon
The Netherlands
Sulzer Pumps Wastewater Netherlands B.V.,
Maastricht-Airport
Sulzer Chemtech Nederland B.V., Breda
Sulzer Turbo Services Rotterdam B.V., Europoort
Advanced Separation Company (Ascom) B.V., Arnhem
Process Laboratories Netherlands (PROLAB NL)
B.V., Arnhem
Sulzer Turbo Services Venlo B.V., Lomm
Sulzer Netherlands Holding B.V., Breda
Sulzer Capital B.V., Breda
1) Acquired in 2016.
149
Sulzer
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100%
100%
100%
100%
100%
100%
100%
100%
100%
CHF 10 000 000
CHF 100 000
CHF 4 000 000
CHF 500 000
CHF 500 000
CHF 100 000
EUR 123 947
EUR 3 000 000
EUR 300 000
EUR 1 000 000
EUR 300 000
EUR 300 000
EUR 870 000
EUR 878 600
DKK 500 000
DKK 500 000
EUR 16 000 000
EUR 6 600 000
EUR 117 400
GBP 9 610 000
GBP 100 000
GBP 15 409 555
GBP 6 100 000
GBP 1 000 000
EUR 2 222 500
EUR 100
EUR 600 000
EUR 100 000
NOK 502 000
NOK 500 000
EUR 15 882
EUR 1 134 451
EUR 18 000
EUR 18 000
EUR 18 000
EUR 444 704
EUR 10 010 260
EUR 50 000
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
150
37 Major subsidiaries
December 31, 2016
December 31, 2016
Europe
Subsidiary
Austria
Poland
Sulzer Austria GmbH, Wiener Neudorf
Sulzer Turbo Services Poland Sp. z o.o., Lublin
Sulzer Pumps Wastewater Poland Sp. z o.o.,
Warszawa
Russia
ZAO Sulzer Pumps, St. Petersburg
Sweden
Spain
Sulzer Pumps Rus LLC, Moscow
Sulzer Turbo Services Rus LLC, Moscow
Sulzer Chemtech LLC, Serpukhov
Sulzer Pumps Sweden AB, Norrköping
Sulzer Pumps Spain S.A., Madrid
Sulzer Pumps Wastewater Spain S.A.,
Rivas Vaciamadrid
Turkey
Sulzer Pompa Çözümleri Ltd. Sti., Istanbul
North America
Canada
Sulzer Pumps (Canada) Inc., Burnaby
Sulzer Chemtech Canada Inc., Edmonton
Sulzer Rotating Equipment Services (Canada) Ltd.,
Edmonton
USA
Sulzer Pumps (US) Inc., Houston, Texas
Sulzer Pumps Solutions Inc., Easley, South Carolina
Sulzer Pump Services (US) Inc., Houston, Texas
Sulzer Chemtech USA, Inc., Tulsa, Oklahoma
Sulzer Mixpac USA Inc., Salem, New Hampshire
Sulzer Turbo Services Houston Inc., La Porte, Texas
Sulzer Turbo Services New Orleans Inc.,
Belle Chasse, Louisiana
Sulzer Electro-Mechanical Services (US) Inc.,
Pasadena, Texas
Sulzer
owner-
ship and
voting
rights
Registered capital
(including paid-in
capital in the USA
t
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i
and Canada) D
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n
g
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i
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i
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c
v
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S
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
EUR 350 000
PLN 2 427 000
PLN 800 000
RUB 8 000 000
RUB 6 000 600
RUB 7 500 000
RUB 55 500 000
SEK 3 000 000
EUR 1 750 497
EUR 2 000 000
TRY 800 000
CAD 2 771 588
CAD 1 000 000
CAD 7 000 000
USD 40 381 108
USD 27 146 250
USD 1 000
USD 47 895 000
USD 100
USD 18 840 000
100%
USD 4 006 122
100%
USD 12 461 286
Sulzer US Holding Inc., Houston, Texas
100%
USD 200 561 040
Geka Manufacturing Corporation1), Elgin
Mexico
Sulzer Pumps México, S.A. de C.V., Cuautitlán Izcalli
Sulzer Chemtech, S. de R.L. de C.V., Cuautitlán Izcalli
100%
100%
100%
USD 603 719
MXN 4 887 413
MXN 31 345 500
1) Acquired in 2016.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
151
December 31, 2016
Central and
South America
Subsidiary
Sulzer
owner-
ship and
voting
rights
Registered capital
(including paid-in
capital in the USA
t
c
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r
i
and Canada) D
n
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i
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a
S
i
e
c
v
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e
S
Argentina
Brazil
Chile
Ecuador
Colombia
Venezuela
Africa
Sulzer Turbo Services Argentina S.A., Buenos Aires
Sulzer Brasil S.A., Jundiaí
Sulzer Pumps Wastewater Brasil Ltda., Curitiba
Sulzer Services Brasil, Triunfo
Sulzer Bombas Chile Ltda., Vitacura
Sulzer-Ecuador S.A., Quito
100%
100%
100%
100%
100%
100%
ARS 9 730 091
BRL 82 054 659
BRL 18 166 785
BRL 40 675 856
CLP 46 400 000
USD 12 500
Sulzer Pumps Colombia S.A.S., Cota
100% COP 7 142 000 000
Sulzer Pumps (Venezuela) S.A., Barcelona
100%
VEB 200 000 000
Sulzer Turbo Services Venezuela S.A., Caracas
100%
VEB 5 000
South Africa
Sulzer Pumps (South Africa) (Pty) Ltd., Elandsfontein
75%
ZAR 100 450 000
Sulzer (South Africa) Holdings (Pty) Ltd.,
Elandsfontein
Sulzer Chemtech (Pty) Ltd., Johannesburg
Sulzer Pumps Wastewater South Africa (Pty) Ltd.,
Johannesburg
Sulzer Maroc S.A.R.L. A.U., Ain Sebaa
Sulzer Pumps (Nigeria) Ltd., Lagos
Sulzer Zambia Ltd., Chingola
Morocco
Nigeria
Zambia
Middle East
United Arab Emirates
Sulzer Pumps Middle East FZCO, Dubai
Sulzer Rotating Equipment FZE1), Dubai
100%
100%
100%
100%
100%
100%
100%
100%
ZAR 16 476
ZAR 121
ZAR 1 001
MAD 3 380 000
NGN 10 000 000
ZMK 15 000 000
AED 500 000
USD 272 000
Saudi Arabia
Sulzer Saudi Pump Company Limited, Riyadh
75%
SAR 44 617 000
Bahrain
Sulzer Chemtech Middle East S.P.C., Al Seef
100%
BHD 50 000
1) Acquired in 2016.
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
152
37 Major subsidiaries
December 31, 2016
December 31, 2016
Asia
Subsidiary
India
Sulzer Pumps India Ltd., Navi Mumbai
Sulzer India Pvt. Ltd., Pune
Sulzer Tech India Pvt. Ltd., Navi Mumbai
Sulzer
owner-
ship and
voting
rights
99%
100%
100%
Registered capital
(including paid-in
capital in the USA
t
c
e
r
i
and Canada) D
n
o
i
t
a
p
c
i
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n
g
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l
s
e
a
S
i
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c
v
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e
S
INR 25 000 000
INR 34 500 000
INR 100 000
Indonesia
PT. Sulzer Indonesia, Purwakarta
100% IDR 28 234 800 000
PT Sulzer Pumps Indonesia, Purwakarta
100%
USD 300 000
Japan
Sulzer Daiichi K.K., Tokyo
Malaysia
Sulzer Japan Ltd., Tokyo
Sulzer Pumps Wastewater Malaysia Sdn. Bhd.,
Selangor Darul Ehsan
Advanced Separation Company Asia SDN BHD,
Kuala Lumpur
Singapore
Sulzer Singapore Pte. Ltd., Singapore
South Korea
Sulzer Korea Ltd., Seoul
60%
JPY 30 000 000
100%
JPY 10 000
100%
MYR 500 000
100%
100%
MYR 2
SGD 1 000 000
100%
KRW 222 440 000
Thailand
Sulzer Chemtech Co., Ltd., Rayong
100%
THB 25 000 000
People’s Republic
of China
Australia
Sulzer Dalian Pumps & Compressors Ltd., Dalian
Sulzer Pumps Suzhou Ltd., Suzhou
Sulzer Pump Solutions (Kunshan) Co., Ltd., Kunshan
Sulzer Shanghai Eng. & Mach. Works Ltd., Shanghai
100%
100%
100%
100%
CHF 21 290 000
CNY 82 069 324
USD 5 760 000
CNY 61 432 607
Sulzer Pumps Wastewater Shanghai Co. Ltd.,
Shanghai
100%
USD 1 550 000
Sulzer Chemtech Pty Ltd., Brisbane
Sulzer Australia Pty Ltd., Brisbane
Sulzer Australia Holding Pty Ltd., Melbourne
100%
100%
100%
AUD 500 000
AUD 5 308 890
AUD 34 820 100
Financial Reporting—Notes to the Consolidated Financial StatementsSulzer—Annual Report 2016
153
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 1Statutory Auditor’s Report To the General Meeting of Sulzer Ltd, Winterthur Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Sulzer Ltd and its subsidiaries (the Group), which comprise the consolidated balance sheet as at December 31, 2016 and the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion the consolidated financial statements (pages 93 to 152) give a true and fair view of the consolidated financial position of the Group as at December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for Opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Customer contracts – accuracy of revenue recognition, valuation of work in progress (WIP) and trade accounts receivable Provisions for liquidated damages and warranty Valuation of trade accounts receivable and WIP considering counterparty default risks Valuation of goodwill Accounting for the acquisition of GEKA Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 154
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 2 Customer contracts – accuracy of revenue recognition, valuation of work in progress (WIP) and trade accounts receivable Key Audit Matter Our response As per December 31, 2016, revenue from customer contracts amounts to CHF 2,876.7 million, WIP balance amounts to CHF 180.8 million and trade accounts receivable amount to CHF 883.2 million. Revenue and related costs from long-term customer orders (construction and service contracts) are recognized by applying the Percentage of Completion (PoC) method, provided they fulfill the criteria of International Financial Reporting Standards. The PoC method allows recognizing revenues by reference to the stage of completion of the contract. The application of the PoC method is complex and requires judgments by management when estimating the stage of completion, total project costs and the costs to complete the work. Incorrect assumptions and estimates can lead to revenue being recognized in the wrong reporting period or in amounts inadequate to the actual stage of completion, and therefore to an incorrect result of the period. During order fulfillment, contractual obligations may need to be reassessed. In addition, change orders or cancelations have to be considered. As a result, total estimated project costs may exceed total contract revenues and therefore require write-offs of WIP or PoC receivables and the immediate recognition of the expected loss. Sulzer further recognizes revenue from the sale of goods when the significant risks and rewards of ownership are transferred to the buyer and all the other relevant conditions are fulfilled. Regarding the non-PoC projects, the risk includes inappropriate revenue recognition from revenue being recorded in the wrong accounting period or at amounts not justified. Our procedures included among others obtaining an understanding of the project execution processes and relevant controls relating to the accounting for customer contracts. We tested selected key controls, including results reviews done by management, for their operating effectiveness and performed procedures to gain sufficient audit evidence on the accuracy of the accounting for customer contracts and related financial statement captions. These procedures included reading significant new contracts to understand the terms and conditions and their impact on revenue recognition. We performed enquiries with management to understand their project risk assessments and inspected meeting minutes from project reviews performed by management to identify relevant changes in their assessments and estimates. We challenged these estimates and judgments made for PoC projects including comparing estimated project financials between reporting periods and assessed the historical accuracy of these estimates. On a sample basis, we reconciled revenue to the supporting documentation, validated estimates of costs to complete, tested the mathematical accuracy of calculations and the adequacy of project accounting. We also examined costs included within WIP balances on a sample basis by verifying the amounts back to source documentation and tested their recoverability through comparing the net realizable values as per the agreements with estimated cost to complete. We further performed testing for non-PoC projects on a sample basis to confirm the appropriate application of revenue recognition policies. This included reconciling accounting entries to supporting documentation. When doing this, we specifically put emphasis on those transactions occurring close before or after the balance sheet date to obtain sufficient evidence over the accuracy of cut-off. For further information on customer contracts – accuracy of revenue recognition, valuation of work in progress (WIP) and trade accounts receivable refer to the following: — Note 19 to the consolidated financial statements, page 127 155
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 3 Provisions for liquidated damages and warranty Key Audit Matter Our response As per December 31, 2016, provisions in the amount of CHF 76.6 million are held on the balance sheet to cover expected costs arising from uncertain contract outcomes, in particular for liquidated damages and product warranties. Sulzer is exposed to claims from customers for not meeting contractual obligations. Remedying measures, addressing technical shortcomings or settlement negotiations with clients may take several months and cause additional costs. The assessment of these costs to satisfy order related obligations contains management assumptions with a higher risk of material misjudgment. Based on our knowledge gained through contract and project reviews, we assessed the need for and the accuracy of provisions. We further challenged management’s contract risk assessments by enquiries, inspection of meeting minutes and review of correspondence with customers where available. Where milestones or contract specifications were not met, we challenged the recognition and appropriateness of provisions by recalculating the amounts, obtaining written management statements and evidence from supporting documents such as correspondence with clients or legal assessments of external counsels where available. We also took into account the historical accuracy of estimates made by management through retrospective reviews. In order to gain a complete and clear understanding of legal matters we further performed enquiry procedures with the office of Sulzer’s General Counsel and reviewed relevant documents. For further information on provisions for liquidated damages and warranty refer to the following: — Note 27 to the consolidated financial statements, page 132 156
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 4 Valuation of trade accounts receivable and WIP considering counterparty default risks Key Audit Matter Our response Total balances from trade accounts receivable and WIP amount to CHF 1,064.0 million as at December 31, 2016. Sulzer carries significant receivables on its balance sheet from customers in the oil and gas industry or such where the funding for order depends on cash flows from this industry. A number of companies, including state owned enterprises, in this sector are under financial stress due to the low oil prices. Since the beginning of 2015, there is significant headwind in the oil and gas market, which is increasing the risk of financial difficulties or even default of Sulzer clients. Therefore, there is a higher risk on the recoverability of these balances. Our procedures included assessing the activities related to credit control and the receivables collection processes. We considered management’s assumptions and challenged the appropriateness of estimates used in the allowance calculation, based on an ageing analysis of amounts due, the existence of credit insurances, past payment practices as well as recent bad debt experience of customers in the oil and gas industry. We also considered management’s assessment of country risks in the case of public enterprises that are in financial difficulties and the results from selected customer’s confirmation of outstanding balances. We further tested subsequent payments and vouched cash received after year-end to bank records. For further information on valuation of trade accounts receivable and WIP considering counterparty default risks refer to the following: — Note 18 to the consolidated financial statements, page 127 — Note 20 to the consolidated financial statements, page 128 157
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 5 Valuation of goodwill Key Audit Matter Our response As at December 31, 2016, Sulzer’s balance sheet included goodwill amounting to CHF 780.1 million. Goodwill has to be assessed for impairment on a yearly basis by management using a discounted cash flow model to individually determine the value in use of goodwill balances. This requires the use of a number of key assumptions and judgments, including the estimated future cash flows, long-term growth rates, profitability levels and discount rates applied. The goodwill balance is significant compared to total assets, there are a number of judgments involved in performing the impairment test, and the economic conditions continue to be challenging in some of Sulzer’s key markets, specifically the oil and gas sector. With half of its business within this market segment, Sulzer’s financial performance is significantly affected by the low oil prices and the resulting subdued demand and price pressure from its oil and gas customers. Our audit procedures included, amongst others, evaluating the methodical and mathematical accuracy of the model used for the impairment testing, the appropriateness of the assumptions, and the methodology used by management to prepare its cash flow forecasts. We involved our own valuation specialists to support our procedures. We thereby focused on those cash generating units („CGUs”) with the most significant goodwill balances or where reasonably possible changes of key assumptions would lead to an impairment and performed the following procedures amongst others: gaining an understanding and assessing the reasonableness of business plans by comparing them to prior year’s assumptions; comparing business plan data against the management approved budgets and two-year plans; recalculating the value in use calculations; challenging the robustness of the key assumptions used to determine the value in use, including the allocation of goodwill to the adequate CGUs, cash flow forecasts, long-term growth rates and the discount rates based on our understanding of the commercial prospects of the related CGUs and by comparing them with publicly available data, where possible; conducting sensitivity analysis, taking into account the historical forecasting accuracy; and comparing the sum of calculated values in use to the market capitalization of the Group. We also considered the appropriateness of disclosures in the consolidated financial statements. For further information on valuation of goodwill refer to the following: — Note 14 to the consolidated financial statements, page 123 158
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 6 Accounting for the acquisition GEKA Key Audit Matter Our response During the reporting year, Sulzer acquired GEKA for a total consideration of CHF 295.4 million. As part of the acquisition accounting, International Financial Reporting Standards require the recognition and measurement of the identifiable assets acquired and liabilities assumed at their fair values, resulting in the recognition of goodwill in cases where the total consideration exceeds the fair value of the net assets acquired. There is an inherent uncertainty in assessing the fair values of the assets acquired and liabilities assumed. In particular, the valuation of intangible assets such as customer relationships and technology require estimates to be made by management. In determining the fair values of these intangible assets, management uses a valuation model that incorporates, amongst others, assumptions in respect of future revenues and margins, useful lives, customer attrition and royalty rates and discount rates. We read the purchase agreement to understand the key terms and conditions of the transaction and their implications on the accounting. We agreed the consideration transferred to the agreement and traced payments made to bank statements. Regarding the identification and valuation of intangible assets, we involved our own valuation specialists. They supported us in gaining sufficient assurance over the adequacy of valuation methodologies and the assumptions used. In addition, we discussed and challenged the underlying business forecasts with management and tested the calculations for their accuracy. We further reconciled the amounts as per the purchase price allocation to the opening balance sheet. We also considered the adequacy of the disclosures for the transaction in the consolidated financial statements. For further information on the accounting for the acquisition of GEKA refer to the following: — Note 4 to the consolidated financial statements, page 104 159
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 7Other Information in the Annual Report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements of the Company, the compensation report and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibility of the Board of Directors for the Consolidated Financial Statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Swiss law, ISAs and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. — Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. — Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. 160
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 8— Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. — Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. — Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. KPMG AG François Rouiller Nanda Buess Licensed Audit Expert Auditor in Charge Licensed Audit Expert Zurich, February 22, 2017 KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. 161
Five-year summaries of key financial data
Key figures from consolidated income statement and statement of cash flows
millions of CHF
Order intake
2016
2015
2014
2013
2012
2 797.5
2 895.8
3 160.8
3 249.9
3 343.4
Order intake gross margin
34.0%
33.8%
33.5%
33.5%
34.5%
Order backlog
Sales
Operating income
Operational EBITA
Operational EBITA margin (operational
EBITA/sales)
Return on capital employed (operational
EBITA in % of average capital employed)1)
Net income attributable to shareholders
of Sulzer Ltd
— in percentage of equity attributable
to shareholders of Sulzer Ltd
Reported EPS
Depreciation
Amortization
Impairments2)
Research and development expenses
Capital expenditure
Free cash flow
FCF conversion (free cash flow/net
income)
Employees (number of full-time
equivalents) as of December 31
Personnel expenses
1 439.1
1 510.7
1 699.6
1 672.1
1 753.6
2 876.7
2 971.0
3 212.1
3 263.9
3 340.7
EBIT
opEBITA
115.3
238.9
120.9
254.1
– 69.0
302.9
264.0
304.1
328.7
378.4
opROSA
8.3%
8.6%
9.4%
9.3%
11.3%
opROCEA
15.7%
17.0%
17.1%
14.6%
18.1%
ROE
EPS
59.0
73.9
275.0
234.4
302.9
3.7%
1.73
– 69.5
– 47.3
– 18.4
– 71.4
74.9
200.5
3.3%
2.17
– 74.1
– 42.3
– 13.0
– 73.4
73.7
155.8
11.3%
10.0%
13.7%
8.09
– 79.2
– 43.3
– 0.4
– 76.2
96.0
98.0
6.89
– 73.0
– 41.6
–
– 70.6
80.5
218.7
8.91
– 66.8
– 41.5
– 0.2
– 66.9
93.0
347.9
3.34
2.08
0.35
0.93
1.12
14 005
14 253
15 494
15 382
15 537
971.1
1 020.8
1 046.2
1 047.4
1 019.8
1) Since 2014 opEBITA/operational capital employed (excl. other intangible assets). For 2013 and earlier capital
employed.
2) Amortization does not include impairment on goodwill.
Sulzer—Annual Report 2016Financial Reporting—Five-Year Summaries of Key Financial Data 162
Key figures from consolidated balance sheet
millions of CHF
Non-current assets
2016
2015
2014
2013
2012
1 809.9
1 574.0
1 681.9
1 891.5
2 237.8
— thereof property, plant, and equipment
511.0
491.4
530.7
492.0
650.0
Current assets
1 926.0
2 680.8
2 971.1
2 652.4
2 371.7
— thereof cash and cash equivalents
and marketable securities
429.5
1 217.3
1 301.5
528.7
513.1
Total assets
3 735.9
4 254.8
4 653.0
4 543.9
4 609.5
Equity attributable to shareholders of Sulzer Ltd
1 581.2
2 224.7
2 435.4
2 334.4
2 216.6
Non-current liabilities
— thereof long-term borrowings
980.3
458.3
472.1
7.2
994.5
510.3
825.3
515.9
956.5
533.0
Current liabilities
1 164.6
1 548.5
1 216.5
1 377.9
1 429.6
— thereof short-term borrowings
7.1
514.4
17.7
56.6
76.0
Net liquidity1)
Equity ratio2)
– 35.9
695.7
773.5
– 36.2
– 95.9
42.3%
52.3%
52.4%
51.4%
48.1%
Borrowings-to-equity ratio (gearing)
0.29
0.23
0.22
0.25
0.27
1) Cash and cash equivalents and marketable securities, less short- and long-term borrowings from continuing and
discontinued operations.
2) Equity attributable to shareholders of Sulzer Ltd in relation to total assets.
Sulzer—Annual Report 2016Financial Reporting—Five-Year Summaries of Key Financial Data 163
Five-year summaries by division
millions of CHF
Divisions
2016
2015
2014
2013
2012
2016
2015
2014
2013
2012
2 807.3
2 907.9
3 169.1
3 250.7
3 334.6
2 888.4
2 983.8
3 221.0
3 270.9
3 332.6
Pumps Equipment/Sulzer Pumps3)
1 401.7
1 500.8
1 725.5
1 801.5
2 094.3
1 503.5
1 621.0
1 754.9
1 821.6
2 097.5
Order intake
Sales
Rotating Equipment Services/
Sulzer Turbo Services3)
Chemtech
Others
Total
661.1
744.5
– 9.8
698.2
708.9
– 12.1
725.2
718.4
– 8.3
699.3
749.9
– 0.8
535.2
705.1
8.8
666.8
718.1
– 11.7
693.2
669.6
– 12.8
724.6
741.5
– 8.9
705.6
743.7
– 7.0
510.5
724.6
8.1
2 797.5
2 895.8
3 160.8
3 249.9
3 343.4
2 876.7
2 971.0
3 212.1
3 263.9
3 340.7
millions of CHF
Divisions
2016
2015
2014
2013
2012
2016
2015
2014
2013
2012
1 439.0
1 510.7
1 703.6
1 672.1
1 754.3
13 832
14 073
15 361
15 198
15 362
Pumps Equipment/Sulzer Pumps3)
880.3
998.0
1 209.4
1 190.9
1 309.1
6 261
6 996
7 365
7 389
8 573
Order backlog
Employees1)
Rotating Equipment Services/
Sulzer Turbo Services3)
Chemtech
Others
Total
195.8
362.9
0.1
205.0
307.7
–
212.2
282.0
– 4.0
190.7
290.5
–
151.6
293.6
– 0.7
3 436
4 135
173
3 538
3 539
180
3 709
4 287
133
3 642
4 167
184
2 703
4 086
175
1 439.1
1 510.7
1 699.6
1 672.1
1 753.6
14 005
14 253
15 494
15 382
15 537
millions of CHF
Divisions
Pumps Equipment/Sulzer Pumps3)
Rotating Equipment Services/
Sulzer Turbo Services3)
Chemtech
Others
Total
Operational EBITA
Operational capital employed
2016
234.6
86.3
66.2
82.1
4.3
2015
256.3
118.1
70.8
67.4
– 2.2
238.9
254.1
2014
318.7
160.6
64.5
93.6
– 15.8
302.9
2013
332.9
166.9
71.0
95.0
– 28.8
304.1
2012
373.1
228.1
61.7
83.3
5.3
2016
2015
2014
20132)
20122)
1 605.0
1 574.6
1 866.9
2 158.7
2 270.1
760.6
746.3
1 115.6
n/a
1 464.6
400.6
443.8
– 85.1
422.0
406.3
– 76.8
408.7
342.6
– 99.6
n/a
412.8
– 68.9
371.5
434.0
– 26.2
378.4
1 519.9
1 497.8
1 767.3
2 089.8
2 243.9
1) Number of full-time equivalents as of December 31.
2) Since 2014 operational capital employed (excl. other intangible assets). For 2013 and earlier capital employed.
3) Values for the year 2012 are based on the former divisional structure with Sulzer Pumps, Sulzer Turbo Services, and
Sulzer Chemtech.
Sulzer—Annual Report 2016Financial Reporting—Five-Year Summaries of Key Financial Data 164
Five-year summaries by region
Order intake by region
millions of CHF
2016
2015
2014
2013
2012
Europe, Middle East, Africa
1 254.8
1 303.7
1 305.5
1 329.7
1 431.2
Americas
Asia-Pacific
Total
Sales by region
millions of CHF
949.8
592.9
1 065.3
1 165.4
1 123.2
1 214.9
526.8
689.9
797.0
697.3
2 797.5
2 895.8
3 160.8
3 249.9
3 343.4
2016
2015
2014
2013
2012
Europe, Middle East, Africa
1 271.8
1 214.0
1 264.7
1 402.4
1 421.2
Americas
Asia-Pacific
Total
1 041.9
1 134.9
1 177.4
1 130.0
1 145.5
563.0
622.1
770.0
731.5
774.0
2 876.7
2 971.0
3 212.1
3 263.9
3 340.7
Capital employed (average) by company location
millions of CHF
Europe, Middle East, Africa
Americas
Asia-Pacific
Total
2016
941.8
391.8
186.3
2015
875.5
415.8
206.5
2014
20131)
20121)
1 152.4
1 365.1
1 500.2
406.6
208.3
481.0
243.7
497.0
246.7
1 519.9
1 497.8
1 767.3
2 089.8
2 243.9
1) Since 2014 operational capital employed (excl. other intangible assets). For 2013 and earlier capital employed.
Employees by company location1)
Europe, Middle East, Africa
Americas
Asia-Pacific
Total
1) Number of full-time equivalents as of December 31.
2016
6 804
3 822
3 379
2015
6 504
4 139
3 610
2014
6 607
4 545
4 342
2013
6 749
4 361
4 272
2012
6 938
4 653
3 946
14 005
14 253
15 494
15 382
15 537
Sulzer—Annual Report 2016Financial Reporting—Five-Year Summaries of Key Financial Data 165
Financial Statements of Sulzer Ltd
167
Balance Sheet of Sulzer Ltd
168
Income Statement of Sulzer Ltd
168
Statement of Changes in Equity of Sulzer Ltd
169
Notes to the Financial Statements of Sulzer Ltd
174
Appropriation of Net Profit
175
Auditor’s Report
167
Balance sheet of Sulzer Ltd
December 31
millions of CHF
Current assets
Cash and cash equivalents
Marketable securities
Accounts receivable from subsidiaries
Other current accounts receivable
Prepaid expenses
Total current assets
Non-current assets
Loans to subsidiaries
Other loans and financial assets
Investments in subsidiaries
Investments in third parties
Total non-current assets
Total assets
Current liabilities
Current interest-bearing liabilities
Current interest-bearing liabilities with
subsidiaries
Current liabilities with subsidiaries
Other current liabilities
Accrued liabilities
Current provisions
Total current liabilities
Non-current liabilities
Non-current interest-bearing liabilities
Non-current provisions
Total non-current liabilities
Total liabilities
Equity
Registered share capital
Legal capital reserves
Voluntary retained earnings
— Free reserves
— Retained earnings
— Net profit for the year
Treasury shares
Total equity
Notes
3
4
6
6
5
5
2016
1.9
–
65.8
0.2
2.2
70.1
819.1
4.5
1 497.1
4.7
2 325.4
2015
563.3
98.4
392.9
1.2
1.8
1 057.6
472.9
4.5
1 465.4
3.6
1 946.4
2 395.5
3 004.0
–
43.7
78.6
0.5
16.7
5.3
144.8
450.4
37.9
488.3
633.1
0.3
205.5
1 486.5
82.2
4.8
– 16.9
1 762.4
499.6
21.9
22.1
2.6
20.1
5.7
572.0
–
57.8
57.8
629.8
0.3
205.5
1 786.5
170.6
229.2
– 17.9
2 374.2
Total equity and liabilities
2 395.5
3 004.0
Financial Reporting—Financial Statements of Sulzer LtdSulzer—Annual Report 2016 168
Income statement of Sulzer Ltd
January 1– December 31
millions of CHF
Income
Investment income
Financial income
Other income
Total income
Expenses
Administrative expenses
Financial expenses
Investment and loan expenses
Other expenses
Direct taxes
Total expenses
Net profit for the year
Notes
9
8
9
2016
86.2
42.8
38.0
167.0
60.9
14.2
82.3
3.5
1.3
162.2
4.8
2015
278.5
46.7
40.2
365.4
72.8
36.8
22.4
2.0
2.2
136.2
229.2
Statement of changes in equity of Sulzer Ltd
January 1– December 31
millions of CHF
Equity as of January 1,
2015
Dividend
Allocation of net income
Net profit for the year
Change in treasury shares
Equity as of December 31,
2015
Dividend
Allocation of net income
Net profit for the year
Change in treasury shares
Equity as of December 31,
2016
Share
capital
Legal
reserves
Free
reserves
Retained
earnings
Net
income
Treasury
shares
Total
0.3
205.5
1 486.5
15.5
575.0
– 27.0
2 255.8
– 119.9
300.0
155.1
– 455.1
229.2
9.1
– 119.9
–
229.2
9.1
0.3
205.5
1 786.5
170.6
229.2
– 17.9
2 374.2
– 617.5
– 300.0
– 88.4
388.3
4.8
1.0
– 617.5
– 0.1
4.8
1.0
0.3
205.5
1 486.5
82.2
4.8
– 16.9
1 762.4
Financial Reporting—Financial Statements of Sulzer LtdSulzer—Annual Report 2016 169
Notes to the Financial Statements
of Sulzer Ltd
General information
1
Sulzer Ltd, Winterthur, Switzerland (the Company), is the parent company of the Sulzer Group. Its uncon-
solidated financial statements are prepared in accordance with Swiss law and serve as complementary
information to the consolidated financial statements.
These financial statements were prepared according to the provisions of the Swiss Law on Accounting and
Financial Reporting (32nd title of the Swiss Code of Obligations). Where not prescribed by law, the significant
accounting and valuation principles applied are described below.
2
Key accounting policies and principles
Treasury shares
Treasury shares are recognized at acquisition cost and deducted from shareholders’ equity at the time of
acquisition. In case of a resale, the gain or loss is recognized through the income statement as financial
income or financial expenses.
Investments in subsidiaries and third parties
The participations are valued at acquisition cost or if the value is lower, at value in use, using generally
accepted valuation principles.
Marketable securities
Marketable securities mainly comprise an investment in a fund investing in short-term bonds with high
credit ratings and are valued at their quoted market price as at the balance sheet date. A valuation adjust-
ment reserve has not been accounted for.
Interest-bearing liabilities
Interest-bearing liabilities are recognized in the balance sheet at amortized cost. Discounts and issue costs
for bonds are amortized on a straight-line basis over the bond’s maturity period.
Share-based payments
Should treasury shares be used for share-based payment programs, the difference between the acquisition
costs and any consideration paid by the plan participants at grant date is recognized as compensation to
the Board of Directors.
Foregoing a cash flow statement and additional disclosures in the notes
As Sulzer Ltd has prepared its consolidated financial statements in accordance with a recognized account-
ing standard (IFRS), it has decided to forego presenting additional information on audit fees and inter-
est-bearing liabilities in the notes as well as a cash flow statement in accordance with the law.
Cash and cash equivalents
3
In 2015, Sulzer Ltd arranged a CHF 500 million syndicated credit facility with maturity date in May 2020
with two one-year extension options. During 2016, the facility was extended for one year until May 2021.
The facility is available for general corporate purposes including financing of acquisitions. The facility is
subject to financial covenants based on net financial indebtedness and EBITDA, which were adhered to
throughout the reporting period. The facility was not used as per December 31, 2016.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 170
Investments in subsidiaries
4
A list of the major subsidiaries held directly or indirectly by Sulzer Ltd is included in note 37 of the consoli-
dated financial statements.
Registered share capital
5
The share capital amounts to CHF 342 623.70, made up of 34 262 370 shares with a par value of CHF 0.01.
All shares are fully paid in and registered.
Shareholders holding more than 3%
Renova Group
T. Rowe Price Associates
Treasury shares held by Sulzer Ltd
millions of CHF
Balance as of January 1
Revaluation
Purchase
Sale
Share-based remuneration
Balance as of December 31
Dec 31, 2016
Dec 31, 2015
Number of
shares
in %
Number of
shares
21 728 414
63.42
21 728 414
n/a
n/a
1 051 364
in %
63.42
3.07
2016
Total
transaction
amount
2015
Total
transaction
cost
Number
of shares
17.9
254 940
–
3.1
–
– 4.1
16.9
–
37 298
– 22 964
– 82 083
187 191
27.0
– 3.5
3.8
– 2.0
– 7.4
17.9
Number
of shares
187 191
–
33 989
–
– 43 719
177 461
The total number of treasury shares held by Sulzer Ltd as of December 31, 2016, amounted to 177 461
(December 31, 2015: 187 191 shares), which are mainly held for the purpose of issuing shares under the
management share-based payment programs.
6
Interest-bearing liabilities
millions of CHF
2.25% 07/2011– 07/2016
0.375% 07/2016 – 07/2022
0.875% 07/2016 – 07/2026
Total as of December 31
2016
Book value
Nominal
Book value
–
325.5
124.9
450.4
–
499.6
–
–
325.0
125.0
450.0
2015
Nominal
500.0
–
–
499.6
500.0
On July 11, 2016, Sulzer issued new bonds via dual tranches of total CHF 450 million. The first tranche of
CHF 325 million has a term of six years and carries a coupon of 0.375% and has an effective interest rate
of 0.35%. The second tranche of CHF 125 million has a term of ten years and carries a coupon of 0.875%
and has an effective interest rate of 0.88%. The bonds were issued to refinance the CHF 500 million bond
maturing in July 2016 and are traded at the SIX Swiss Exchange.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 171
7
Contingent liabilities
millions of CHF
2016
2015
Guarantees, sureties, comfort letters for subsidiaries
— to banks and insurance companies
— to customers
— to others
Guarantees for third parties
Total contingent liabilities as of December 31
1 316.4
404.4
110.9
10.0
1 841.7
1 268.4
360.1
45.1
10.0
1 683.6
As of December 31, 2016, CHF 272.8 million (2015: CHF 336.2 million) of guarantees, sureties, and com-
fort letters for subsidiaries to banks and insurance companies were utilized.
8
Administrative expenses
millions of CHF
Compensation of Board of Directors
Other administrative expenses
Total administrative expenses
2016
2.1
58.8
60.9
2015
2.3
70.5
72.8
Sulzer Ltd does not have any employees. The compensation to the Board of Directors includes share-based
payments and remuneration. Other administrative expenses contain management services and cost related
to the Sulzer Full Potential program.
Investment income and investment and loan expenses
9
In 2016, the investment income contains ordinary and extraordinary dividend payments from subsidiaries
amounting to CHF 86.2 million (2015: CHF 131.3 million). In 2015, Sulzer Pumps Ltd was merged with
Sulzer Ltd. The merger gain amounted to CHF 135.2 million and is included in investment income.
The investment and loan expenses contain allowances on investments and loans amounting to
CHF 105.7 million (2015: CHF 18.4 million) and release of hidden reserves amounting to CHF 25.0 million.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 172
Share participation of the Board of Directors, Executive Committee,
10
and related parties
Restricted share units for members of the Board
The compensation of the Board of Directors consists of a fixed cash component and a restricted share unit
(RSU) component with a fixed grant value. The number of RSU is determined by dividing the fixed grant
value by the volume-weighted share price of the last ten days prior to the grant date. One-third of the RSU
each vest after the first, second, and third anniversaries of the grant date, respectively. Upon vesting, one
vested RSU is converted into one share of Sulzer Ltd. The vesting period for RSU granted to the members
of the Board of Directors ends no later than on the date on which the member steps down from the Board.
Board of Directors
Peter Löscher
Matthias Bichsel
Thomas Glanzmann
Axel C. Heitmann
Jill Lee
Mikhail Lifshitz
Marco Musetti
Gerhard Roiss
Executive Committee
Greg Poux-Guillaume
Daniel Bischofberger
Thomas Dittrich
Frédéric Lalanne
César Montenegro
Armand Sohet
Torsten Wintergerste
Perfor-
mance
share units
(PSU)
20142)
Perfor-
mance
share units
(PSU)
20153)
2016
Perfor-
mance
share units
(PSU)
20164)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Sulzer
shares
Restricted
share units
(RSU)1)
50 998
22 157
28 131
1 157
5 591
–
4 070
–
3 667
8 382
5 363
3 244
2 684
1 578
2 684
1 578
2 684
2 342
28 726
43 029
3 278
6 594
37 266
942
18 641
–
–
14 000
–
13 858
–
868
30 242
–
4 921
7 026
–
–
840
–
–
964
–
–
2 826
–
2 314
2 826
–
–
–
–
1 424
5 178
2 314
5 178
3 560
971
1) Restricted share units assigned by Sulzer.
2) The average fair value of one performance share unit 2014 at grant date amounted to CHF 206.63.
3) The average fair value of one performance share unit 2015 at grant date amounted to CHF 193.97.
4) The average fair value of one performance share unit 2016 at grant date amounted to CHF 118.05.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 173
Board of Directors
Peter Löscher
Matthias Bichsel
Thomas Glanzmann
Jill Lee
Marco Musetti
Gerhard Roiss
Klaus Sturany
Executive Committee
Greg Poux-Guillaume
Peter Alexander
Oliver Bailer
Fabrice Billard
Thomas Dittrich
César Montenegro
Perfor-
mance
share units
(PSU)
20132)
Perfor-
mance
share units
(PSU)
20143)
2015
Perfor-
mance
share units
(PSU)
20154)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Sulzer
shares
Restricted
share units
(RSU)1)
45 633
13 149
26 684
342
4 616
3 095
2 692
4 000
4 204
3 657
2 103
2 081
2 081
2 081
1 146
–
33 301
40 976
4 860
7 212
13 800
–
30 242
10 928
1 303
1 187
7 000
12 883
–
231
–
9 842
661
–
4 860
–
–
–
–
–
1 967
1 967
–
964
2 314
942
2 402
2 402
2 402
2 826
2 826
1) Restricted share units assigned by Sulzer.
2) The average fair value of one performance share unit 2013 at grant date amounted to CHF 294.14.
3) The average fair value of one performance share unit 2014 at grant date amounted to CHF 206.63.
4) The average fair value of one performance share unit 2015 at grant date amounted to CHF 193.97.
Granted Sulzer shares to members of the Board of Directors
Allocated to members of the Board of Directors
14 577
1 156 248
8 948
980 980
2016
2015
Quantity
Value in CHF
Quantity
Value in CHF
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 174
Subsequent events after the balance sheet date
11
At the time when these financial statements were authorized for issue, the Board of Directors were not
aware of any events that would materially affect these financial statements.
Appropriation of net profit
in CHF
Net profit for the year
Unallocated profit carried forward from previous year
Total available profit
2016
2015
4 800 000
229 200 000
82 184 595
170 532 721
86 984 595
399 732 721
Proposal by the Board of Directors: Appropriation from free reserves
100 000 000
300 000 000
Ordinary dividend
Special dividend
– 119 297 182
– 119 415 384
–
– 498 132 743
Balance carried forward
67 687 413
82 184 595
Distribution per share CHF 0.01
Gross dividend
less 35% withholding tax
Net payment
3.50
1.23
2.27
18.10
6.34
11.76
The Board of Directors proposes the payment of a dividend of CHF 3.50 per share to the Annual General
Meeting on April 6, 2017. The company will not pay a dividend on treasury shares held by Sulzer Ltd or one
of its subsidiaries.
Sulzer—Annual Report 2016Financial Reporting—Notes to the Financial Statements of Sulzer Ltd 175
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 1Statutory Auditor’s Report To the General Meeting of Sulzer Ltd, Winterthur Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Sulzer Ltd, which comprise the balance sheet as at December 31, 2016, the income statement and the statement of changes in equity for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion the financial statements (pages 165 to 174) for the year ended December 31, 2016 comply with Swiss law and the company’s articles of incorporation. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority We have determined that there are no key audit matters to communicate in our report. Responsibility of the Board of Directors for the Financial Statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. 176
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 2Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. — Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. — Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. — Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 177
Sulzer—Annual Report 2016Financial Reporting—Auditor’s Report 3Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. KPMG AG François Rouiller Nanda Buess Licensed Audit Expert Auditor in Charge Licensed Audit Expert Zurich, February 22, 2017 KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Imprint
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Sulzer—Annual Report 2016
Financial Reporting—Investor Information
179
Data per share
CHF
Net income attributable to a shareholder of Sulzer Ltd
Change from prior year
Equity attributable to a shareholder of Sulzer Ltd
Ordinary dividend
Special dividend
Payout ratio 2)
2016
1.73
– 20%
46.40
3.501)
–
202%
2015
2.17
– 73%
65.30
3.50
14.60
161%
2014
8.09
17%
71.60
3.50
–
43%
2013
6.89
– 23%
68.70
3.20
–
46%
2012
8.91
8%
65.20
3.20
–
36%
Average number of shares outstanding
34 102 610
34 035 862
34 007 309
33 999 429
34 009 267
Stock market information
Registered share (in CHF)
— high
— low
— year-end
Market capitalization as of December 31
— number of shares outstanding
— in millions of CHF
— in percentage of equity
P/E ratio as of December 31
Dividend yield as of December 31
2016
2015
2014
2013
2012
107.80
120.10
143.90
75.55
105.00
88.55
94.35
94.95
106.00
171.00
129.60
143.90
147.50
101.40
144.10
34 084 909
34 075 179
34 007 430
33 979 955
34 032 810
3 579
226%
60.6x
3.3%
3 215
145%
43.5x
3.7%
3 605
148%
13.1x
3.3%
4 890
209%
20.9x
2.2%
4 904
221%
16.2x
2.2%
Title
Security No.
Investdata
Reuters
Bloomberg
Listed on SIX Swiss Exchange registered share
3 838 891
SUN
SUN.S
SUN SW
Shareholder structure as of December 31, 2016
Number of shares
1 – 100
101 – 1 000
1 001 – 10 000
10 001 – 100 000
More than 100 000
Number of
shareholders
Shareholding
3 381
2 716
303
63
8
0.5%
2.5%
2.4%
5.6%
69.9%
Total registered shareholders and shares (excluding treasury shares Sulzer Ltd)
6 471
80.9%
1) Proposal to the Annual General Meeting.
2) Based on ordinary dividend.
Sulzer Ltd
8401 Winterthur
Switzerland
Phone +41 52 262 30 00
+41 52 262 31 00
Fax
www.sulzer.com