Long-Term Corporate Resilience

Presentation to Swiss-American Chamber of Commerce Long-Term Corporate Resilience Ton Büchner, CEO of Sulzer Ltd March 23, 2009

Sulzer s vision and values: What are we? How do we behave? 1 Our vision Sulzer s vision is to be a recognized leader in innovative, sustainable, engineered, and customerfocused solutions for performance-critical applications in six main markets and selected industries. Our values Our Mission Sulzer aims to be a multi-industry company with a strong brand a provider of solutions that combine products, services, engineering, and customer-application expertise close to the customer by being primarily direct-sales driven an engineering, innovation, and technology driven firm an attractive employer where employees can excel We exceed the expectations We perform on the basis of a company of our customers that creates with value for structured its shareholders work processes innovative and and LEAN principles. competitive solutions. We are committed to high standards and show respect for people. Swiss-AmCham March 23, 2009 slide 3

Today s Sulzer Portfolio From 15+ to 4 divisions plus central R&D 1 Sulzer Pumps Pumping solutions and services Sulzer Metco Surface technology solutions and services Sulzer Chemtech Separation columns and static mixing Sulzer Turbo Services Service and repair for thermal turbomachinery Sulzer Innotec Contract research and technical services Swiss-AmCham March 23, 2009 slide 4

Six key markets 1 Automotive Industry Aviation Pulp and paper Oil and gas (upstream) HPI 1) (oil and gas, downstream) Power generation 1) HPI: Hydrocarbon Processing Industry Swiss-AmCham March 23, 2009 slide 5

Strong position in our end markets 1 Oil and gas (upstream) HPI (oil and gas, downstream) Power generation Pulp and paper Aviation Automotive industry Other industrial markets Share of sales Sulzer Pumps Sulzer Metco Sulzer Chemtech Sulzer Turbo Services Swiss-AmCham March 23, 2009 slide 6

Sulzer is a strategic holding with some common operational core processes 1 Financial Holding Strategic Holding Operational Holding Financial consolidation Small HQ Strategic direction Mid-Size HQ Operational control Driving with key focus topics Operational management by HQ Processes driven by HQ Large HQ @ We defined 6 core processes including related KPIs Our core processes define the split of responsibilities between HQ and Divisions Our reporting mechanism ensures execution and follow-ups on the core processes Swiss-AmCham March 23, 2009 slide 7

Sulzer defined six corporate activities which together with the CEO team drive the divisions 1 Corporate Finance and Controlling Corporate Human Resources Corporate Strategic Planning and Acquisitions Operational Control and Business Improvement Health and safety Lean Management & Lean Operations Corporate Innovation and Technology Innotec R&D initiated and funded from Corporate Corporate Communication Those six core activities: Request data/input from divisions Define and drive actions Create action plans to be executed by the divisions Are a core tool of the CEO team (CEO/CFO/GS) Swiss-AmCham March 23, 2009 slide 8

A clearly defined and implemented strategy leads to a strong increase of profitability and value creation Operating leverage and continued operational improvements 1 EBIT and ROS 1) millions of CHF Capital employed and ROCE 2) millions of CHF 500 12.8 14% 1800 35% 450 400 350 300 250 200 150 100 50 6.6 136 6.7 167 10.6 296 11.1 394 475 12% 10% 8% 6% 4% 2% 1600 1400 1200 1000 800 600 400 200 1 201 11.3 1 253 13.3 23.7 1 247 1 625 24.2 30.6 1 554 30% 25% 20% 15% 10% 5% 0 2004 2005 2006 2007 2008 0% 0 2004 2005 2006 2007 2008 0% EBIT ROS in % Capital employed ROCE in % 1) Return on sales (EBIT/sales) 2) Return on average capital employed incl. goodwill at net book values Annual results 2005 Master presentation V1-02 15/02/06 slide 9

Long Term Corporate Resilience is based on: 1 2 3 4 Vision, Mission & Strategy Culture & Communication & Toolboxes Structure - Corporate Governance - Management Team - Processes Flexibility - Know your cyclicality - Build flexibility in good times to respond to bad times: create buffer Swiss-AmCham March 23, 2009 slide 10

Clearly defined key focus areas simple to communicate and intensely repeated help a lot 2 Corporation-wide operational excellence based on LEAN principles Health and safety Increased and faster high-quality innovation Transition into emerging markets Increased focus on service Swiss-AmCham March 23, 2009 slide 11

As a publicly quoted company, statements and results are strongly linked and publicized 2 Sulzer established a culture of high but achievable aspirations Sulzer transparently communicated the aspirations Sulzer kept the aspirations constant over a certain period of time Sulzer delivered on the aspirations Consistent communication of our consistent behaviour has been a strong contributor to Sulzer s credibility in the last years. Swiss-AmCham March 23, 2009 slide 12

Our aspirations are based on our market assessment 2 Oil and gas (upstream) HPI (Oil and gas, downstream) Power generation Pulp and paper Market condition in 2008 Very good Good Very good Weakening Assessment 2009 Reduced project activity Clearly reduced project activity Reduced project activity Weak Aviation Automotive industry Stable Weakening toward year-end Uncertain Transient Swiss-AmCham March 23, 2009 slide 13

and clearly communicated internally and externally A realistic scenario in a highly uncertain environment 2 Key figures Achievements 2008 Midrange outlook 3) ROS - Return on sales 1) 12.8% ~10% ROCE - Return on capital employed 2) Sales growth 30.6% 5.0% >20% -5% to -8% (CAGR adj. 4) ) Measures ongoing charges possible Culture of actions; advance announcements only when required Also more pessimistic scenarios prepared 1) EBIT/sales 2) Average capital employed incl. goodwill at net book values 3) Status: February, 2009 4) Compound annual growth rate, adjusted for currency effects as well as acquisitions and divestitures Swiss-AmCham March 23, 2009 slide 14

Board of Directors Members of the Sulzer Board 3 Sulzer developed (in 2000) Corporate Governance requests for a Board Member: CEO experience Not in other Boards together (now changed with Renova) Industry experts International composition New composition of the Board of Directors of Sulzer since 2001. Smaller size increased efficiency and effectiveness. Swiss-AmCham March 23, 2009 slide 16

Sulzer s Executive Committee Experience, energy, values, ethics are key for the team 3 Relatively young crew Established track record High Asia experience High service experience New Executive Committee members were selected internally based on: energy, experience, values, ethics Swiss-AmCham March 23, 2009 slide 17

Sustainability at Sulzer 3 Economic Social Ecological Sulzer s prime objective is sustainable value creation Our aspiration is zero accidents Efficient processes and solutions to minimize the ecological impact 30% 25% 20% 15% 10% Return on capital employed 1) Cases / total working hours) * 1 Mio working hours Accident frequency rate 14 12 10 8 6 4 150 100 50 Energy/Net Value Added [GJ/1000 CHF] Energy/empl [GJ] 2 1.5 1 0.5 5% 2 0% 2004 2005 2006 2007 2008 0 2006 2007 2008 0 2004 2005 2006 2007 2008 2) 0 Financial year 1) EBIT/capital employed (incl. goodwill at net book values) 2) 2008 data provisional Swiss-AmCham March 23, 2009 slide 18

Why is Sulzer today better positioned for harder times than 10 years ago? 4 Sulzer around 2000 Swiss company Lack of speed Conglomerate, no profile Low credibility Rarely benchmark performance Sulzer today International company Flexible Clear profile High credibility Good performance Today s existence of: Speed Flexibility International experience helps Sulzer to deal with harder times like this financial crisis Swiss-AmCham March 23, 2009 slide 20

Know AND ACCEPT your position in the industry cycle is very important for a management team 4 Industry growth cycle Industry 1 Industry 2 Industry 3 Industry 4 Industry 5 Industry 6 Experience is key to understand cyclicality - and its cash requirements Living a cycle makes you humble and that s a strength Swiss-AmCham March 23, 2009 slide 21

Even within Sulzer not all the businesses have the same amplitude regarding cyclicality 4 CAPEX cycle (e.g. new pumps, column equipment) Production service cycle (e.g. coating services) GDP/ Repair and spare parts cycle Each company has to recognise, know and understand its cycles The management team has to manage the cyclicality. During good times one has to build up buffer to deal with the bad times Swiss-AmCham March 23, 2009 slide 22

Long Term Corporate Resilience It s all common sense living it is the hard part is based on: 1 2 3 4 Vision, Mission & Strategy Culture & Communication & Toolboxes Structure - Corporate Governance - Management Team - Processes Flexibility - Know your cyclicality - Build flexibility in good times to respond to bad times: create buffer needs to be in place needs to be developed and then maintained top-down and bottom up can be communicated internally & externally for additional strength & discipline Swiss-AmCham March 23, 2009 slide 23

Thank you for your attention Ton Büchner, CEO of Sulzer Ltd March 23, 2009

Back-up Swiss-AmCham March 23, 2009 slide 25

Sulzer Pumps Market leader in pump technology and hydraulics No. 1: Pulp and paper No. 2: Oil and gas (upstream and HPI) Ton No. Büchner, 3: Power generation CEO of Sulzer Ltd March 23, 2009

Sulzer Pumps is a major engineered and preengineered pump player in several markets Sulzer Pumps main segments: Oil and Gas Hydrocarbon Processing Industry Pulp and Paper Power Swiss-AmCham March 23, 2009 slide 27

Sulzer Metco Leader in surface technology No. 1: Coating equipment No. 1: Coating materials Ton No. Büchner, 3: Coating CEO services of Sulzer Ltd March 23, 2009

Industrial Markets/Automotive: Coating is used for Cutting Tools Thin film coating of cutting tools: Higher hardness and lower friction Longer tool life Reduced machining time Less cutting fluid Swiss-AmCham March 23, 2009 slide 29

Sulzer Chemtech Components and services for separation technology and static mixing No. 1: Static mixers (at high viscosity) No. 1: Two component mixing and dispensing systems Ton No. Büchner, 2: Separation CEO of columns Sulzer Ltd March 23, 2009

Mass Transfer Technology (MTT) Components for Separation Columns Gas Liquid Structured Packings Distributor Rings Trays Enhanced plant performance, reduced operating costs Tower diameter 0.3 14m, tower height 2 80m Trays, structured packings, rings, distributors, supports, etc. Swiss-AmCham March 23, 2009 slide 31

Sulzer Turbo Services Leading independent service provider No. 1: Industrial gas turbines No. 1: Steam turbines Ton Büchner, CEO of Sulzer Ltd March 23, 2009 No. 1: Turbo compressors

Sulzer Turbo Services is a major player in the service business of gas and steam turbines & compressors Swiss-AmCham March 23, 2009 slide 33