Sustainability report

Objective
Our company’s primary objective is to achieve our financial goals, since failure to meet these goals could have a profound impact on the future of our company. The continued existence of Burckhardt Compression over the long term is ensured only if we manage to achieve financial results that at least average those of our direct competitors.

As part of the effort to maintain economic sustainability, Burckhardt Compression regularly produces a Mid-Range Plan, usually covering a period of five fiscal years. This is periodically reviewed and modified to reflect the prevailing economic, political and technological environment.

Investors
We maintain an open and transparent dialog with our investors and interested parties. The aim of our Investor Relations is to accurately portray our company to enable a fair valuation of Burckhardt Compression’s stock. We organize an Investor Day to that end. The latest Investor Day was held at the company’s headquarters in Winterthur in January 2018, where we presented the targets and objectives of our Mid-Range Plan for 2018 to 2022. The next Investor Day is scheduled in autumn 2020 and will again take place at the company’s headquarters in Winterthur.

Our investor relations activities are evaluated by independent firms and they receive consistently very good ratings considering the size of our company. The leading Swiss business newspaper “Finanz und Wirtschaft” gives us an A– rating (A being the highest rating) for investor relations as well as transparency and a B– rating for growth.

In the yearly ranking of annual reports conducted by HarbourClub and the business magazine “Bilanz”, our 2018 annual report scored a very high 34th (out of a total of 238 companies) in the “Value Reporting Print” category. A significant improvement was achieved in the “Value Reporting Online” category, where Burckhardt Compression jumped 69 places to number 34.

In the 2019 survey of company boards carried out by zRating in collaboration with the newspaper “Finanz und Wirtschaft,” Burckhardt Compression scored 24 points and ranked 39th among the 174 Swiss listed companies covered by the survey. This ranking is based on criteria pertaining to board organization, independence, transparency, compensation and sustainability.

Customers
Burckhardt Compression seeks to establish lasting customer relationships, given that the average useful life of our compressors is 30 to 50 years. Following the project phase, we provide our customers with the necessary services and components they need throughout the entire life cycle of the compressor systems. Our longest-standing customer relationship dates back to 1885, when we supplied BASF in Ludwigshafen with one of the first compressors ever built by our company.

The various business activities of Burckhardt Compression also call for a variety of tools for measuring customer satisfaction. Here a distinction is made between direct and indirect key performance indicators (KPI), which are measured and evaluated. Customer satisfaction is evaluated during claims and warranties meetings, which are an integral part of the management process and are held with the designated management team. Appropriate measures are then introduced and implemented based on the results of the evaluation. In the year under review, customer satisfaction surveys were focused on the Services Division.

Competition
We are committed to fair competition and have zero tolerance for price fixing, cartels or any other activities that distort competition. This is also clearly stated in our Code of Conduct. We value our corporate and business know-how, especially our technical and commercial expertise, and are constantly safeguarding it against loss or unauthorized access.

Suppliers
A well-functioning supply chain ensures our continual product development and manufacturing activities. Burckhardt Compression buys its products from various global and regional suppliers. We cooperate closely with them as early as the development stage and aspire to establish long-lasting partnerships. We adhere to the principles set out in our Code of Conduct and ensure that they are strictly complied with in all dealings with our suppliers. The Code of Conduct is available to the public and can be downloaded at www.burckhardtcompression.com/about-us/vision-mission-values. We systematically test their suitability and annually assess their performance by means of visits and audits, and by measuring key performance indicators.

Strategic procurement is an integral part of Burckhardt Compression’s strategic management cycle. The relevant procurement managers report at regular intervals on the most important changes in the global procurement market, such as price trends for raw materials and finished products. Decisions are made together with the divisional management teams to ensure a smooth supply chain. Every year, we reward the best suppliers in the various categories, to encourage them to achieve even more. In the year under review, we organized a Supplier Day in Switzerland and in India to deepen our contact with our suppliers and inform them about various changes and projects.

We were honored with the SAP Gold Award in the “Fast Delivery” category in connection with the roll-out of SAP’s Success Factors HR software in the previous fiscal year. SAP’s award is given in recognition of superb project planning and the fast and cost-effective implementation of SAP software solutions, focusing closely on SAP standards.

Innovation
Burckhardt Compression was named world market leader for reciprocating compressor systems in fiscal year 2017. The Global Market Leaders Index was developed by the Business School of the University of St. Gallen in collaboration with the Akademie Deutscher Weltmarktführer. The index lists companies that offer leading technology and outstanding products and services.

Process improvement
The quest for continuous improvement by Burckhardt Compression’s executives and employees forms the foundation of our company.

Every year, the personal objectives of our executives and employees include implementing continuous improvement projects. These projects are implemented using a method developed by Burckhardt Compression and evaluated by its executives. We also work with suppliers, universities, institutions, and advisors worldwide to develop and improve products or processes in areas where we do not have the necessary expertise. Collaboration with external experts and specialists fosters new ideas and maximizes creative potential, also within the company.

Capital expenditure
Burckhardt Compression has invested CHF 136.8 mn over the past five years (excluding acquisitions). Most of its capital expenditure during the period under review was spent in Winterthur and at Shenyang Yuanda Compressor.

Value-based management
We measure the value generated for our shareholders in two ways:

– Market capitalization as a percentage of equity
– Change in earnings per share

Market capitalization divided by shareholder equity at the end of the reporting year resulted in a quotient of 2.1 (previous year 2.7). This clearly shows that we continue to generate substantial value with the capital of our shareholders (shareholders’ equity) even in times with a coronavirus outbreak. Net income per share attributable to the shareholders of Burckhardt Compression for the period under review amounted to CHF 9.56 (previous year: CHF 8.15). We aim to increase this figure going forward.

All acquisition targets must meet three specific criteria: 1) The acquired activities must be a good strategic fit for our company; 2) the price must be in accord with our expectations; 3) the corporate culture of the target company must be compatible with our own.

Risk management
As the world’s leading manufacturer of reciprocating compressors, Burckhardt Compression is exposed to a number of risks. We have developed a comprehensive risk management plan for our company and integrated it into our planning and management process.

The Executive Board’s assessment of risks is discussed with the Audit Committee and the Board of Directors twice a year. We distinguish between two categories of risk:
1. Internal: Risks that Burckhardt Compression can directly influence.
2. External: Risks over which Burckhardt Compression has little or no influence.

The objectives of our risk management activities are:
– to systematically detect special risks;
– to establish processes for monitoring, reducing and, ideally, preventing risks;
– achieving a balance between risks and rewards for our business.

Warranty costs
The significant increase in warranty costs over the past three fiscal years is mainly due to additional costs incurred in the LNGM business.

Corporate culture
A well-founded and sound corporate culture is the foundation of a company’s competitiveness. Our “Values and Behaviors” policy document ensures that all employees at the Group’s various sites and subsidiaries share the same corporate values and principles. This shared understanding makes collaboration between teams and across borders much easier.

All employees are trained on the company’s values and behaviours and code of conduct. Members of the Executive Board have also stressed the importance of these common values and behaviors in video podcasts. These measures help to ensure that our employees are familiar with our corporate culture and live up to our core values. Our executives are important role models in this regard.

Sustainable HR policy
Only satisfied employees are willing to go that extra mile to meet the needs of our customers. That’s why we are committed to sustainable HR policies. We actively promote a good balance of employees in terms of gender and age. High levels of employee loyalty and identification with the company are confirmed by the fact that the typical employee has been with the company for 8.5 years.

Toward the end of the year under review, Burckhardt Compression conducted another survey of its employees around the world. The exceptionally high participation rate of 89% in the previous employee survey rose to an even higher 91% in the latest survey. Virtually every group-wide topic surveyed showed a very pleasing improvement, which indicates that the workshops, initiatives and projects initiated based on the results of the previous survey have produced the desired outcomes. Employee feedback regarding collaboration, supervisors, and employee focus and information policies showed the greatest improvement. The overall pleasing results reinforce Burckhardt Compression’s plans and intentions to pursue further such initiatives worldwide. This employee survey is conducted every two years to measure changes in employee satisfaction. The next employee survey is planned for fiscal year 2021.

We have a responsibility to ensure the expertise of our employees and promote the exchange of knowledge. Our employee orientation programs ensure that new hires are familiarized with their area of work and our corporate culture. Personal development is part of our annual appraisal and performance reviews and it is financed by Burckhardt Compression. We have developed an internal program with various technical, product- specific and management training modules to ensure the continual development of our technical and leadership competencies. Training courses for specific skill-sets are organized for the entire Burckhardt Compression Group several times a year.

Burckhardt Compression conducts an annual appraisal and performance review with every employee (MyPerformance@BC), comprising personal development goals and suggestions for continuous improvement. Periodic reviews of the progress made toward performance goals, formal meetings with employees and goal-setting are also part of our evaluation system.

Women make up 14.5% of our global work force (13.8% in the previous year) and we aim to steadily raise this percentage to 20% over the coming years. Both men and women sit on the Board of Directors and the Executive Board of our company. This meets one of the recommendations from the Code of Best Practice for Corporate Governance published by economiesuisse, but, more than that, we are convinced that mixed-gender teams perform better.

Burckhardt Compression conducted another global survey of its employees around the world. The remarkably high response rate of 91% reflects a high level of employee dedication.

Our employees are regularly informed about the course of business and other corporate developments by their managers. Burckhardt Compression employees in Switzerland are informed twice a year by the CEO and the heads of their divisions. The employee turnover rate of 9.5% in the period under review (previous year: 9.8%) includes all persons leaving as well as all expired temporary labor agreements and is attributed to the good state of the global economy. The rate of voluntary departures within overall employee turnover for the year under review stood at 5.8%, below the defined upper threshold of 6%.

Promoting new talent and career development
We actively promote and support new talent at all levels and we are committed to the Swiss system of apprentice training. There are currently 58 apprentices in Switzerland and 31 in India receiving vocational training in eight different trades. We are a founding member of the initiative launched under the auspices of the Swiss Federal Office for Professional Education and Technology and the Swiss-Indian Chamber of Commerce to establish an apprenticeship system of learning in India patterned after the Swiss model and we are a corporate sponsor of the AZW Training Center in Winterthur for vocational career pathways. Apprentices with a good performance record are generally retained by Burckhardt Compression upon completion of their apprenticeship. Burckhardt Compression’s annual spending on apprenticeship training programs (cash out) amounts to about CHF 1.4 mn. An internal talent review process is in place to identity potential new managers and specialists at an early stage and guide them through selective talent development programs. Vacant job positions at all levels are also advertised internally. External as well as internal candidates must go through a proprietary screening process. The systematic evaluation and development of the company’s future managers, which we have practiced internally with success for many years, enabled us to again fill various management vacancies during the past year with internal candidates. If there are no suitable candidates available in-house to succeed a departing executive or to fill a new management-level position, we are in a good position to recruit well-qualified external candidates, not least due to our company profile and image.

Another Internal Management Development Program, or IMDP for short, was organized during the past fiscal year. Promising mid- and upper-management talents from around the world receive training through this program. The IMDP consists of several modules that go beyond the functional roles of each participant and is intended to give them a better understanding of the company as a whole. Participants also work on multinational project teams with a strategic focus on the Mid-Range Plan as part the program.

Occupational health and safety
Workplace safety is very important to Burckhardt Compression. We go to great lengths to ensure that every employee is aware of potential workplace risks and accident prevention measures. Regular training is provided on work safety topics. Work safety audits are carried out annually by external professionals. Internal safety inspections are performed to identify and mitigate hazards. The subsequent recommendations will be duly implemented.

The health and general well-being of our employees are also important to us. Burckhardt Compression acknowledges that physical and mental health correlates with employee productivity and performance. For this reason, Burckhardt Compression launched in this fiscal year the program Dr BeWell. It contains an extensive range of physical activities, preventative measures and theme-specific campaigns help improve employee satisfaction, health and motivation, and to reduce absences. In fiscal year 2018 the occupational health and safety management system of every Burckhardt Compression site received OHSAS 18001 certification and we intend to upgrade our certification to ISO 45001 in the 2020 fiscal year. Numerous measures ranging from detailed risk assessments and safety inspections accompanied by management to workplace safety training and mandatory protective footwear requirements for certain employees have led to a further improvement in the relevant key performance indicators.

With 6.8 days (previous year: 6.1 days) the average number of working days lost per employee remained on a low level. We aim to bring this down to less than 6.0 days. Further action has been taken to achieve this goal.

Environmental management
Every Burckhardt Compression site received ISO 14001 certification in the fiscal year 2018. In addition to compliance with the applicable standards, activities here were primarily focused on environmentally relevant aspects, with the aim of reducing energy consumption. A comprehensive chemicals management concept was also drawn up, hazardous chemicals were replaced with less hazardous ones , and our storage practices were optimized.

Social environment
We are well established in our social environment. We actively cooperate with citizens and the authorities at all locations. Our company supports employees who are committed to doing good for the community. Therefore, we support the engagement of our executives and employees in political and charitable aspirations with the aim of alleviating problems facing society. For example, our Board Chairman has held the unpaid position of Chairman of the Swiss Employers’ Association since 2011 and of “Check your Chance”, a Swiss association that seeks to reduce youth unemployment, since 2014. Our CEO also serves as the honorary chair of the Swiss, Eastern Europe (non-EU), Central Asia and South Caucasus Joint Chamber of Commerce. To strengthen our local social networks, we run programs at the locations of our biggest companies in Switzerland and India that support local, social and cultural projects. In doing so, we specifically encourage our employees to become personally involved in such projects.

Employees in India have helped to build small man-made lakes in Kondhapuri and Vadner that will retain rainwater which can then be used by the surrounding communities for agricultural purposes.

Geographic breakdown of the workforce, 2019
100% = 2’621

“We are a company that cares about the environment and that strongly supports responsible and prudent consumption of energy and our planet’s finite natural resources. By exercising foresight and prudence, we help to minimize the use of energy, water and chemicals of all kinds while addressing the issue of harmful emissions.” (Code of Conduct)

Innovation
Environmental protection starts with product design and development. Here, the focus is on sustainable and efficient development, taking into account the entire life cycle of a product. This is indispensable since our compressor systems have an average service life of 30 to 50 years. Whenever it makes sense, our customers are included early on in the development stage of new products, in order to find joint innovative solutions and verify ideas.

Products
Highly functional products enable our compressor systems to run optimally. The following newly developed products and solutions promise to offer customers greater benefits while improving our environmental footprint:

• Compressor systems for marine applications: The dual-fuel propulsion system developed for LNG carriers can be powered by environmentally friendly natural gas instead of marine diesel oil. The Laby®-GI fuel gas compressors by Burckhardt Compression compress the boil-off gas from the LNG tanks, which is then injected directly into a diesel engine. The dualfuel propulsion system for LNG carriers significantly reduces C0₂, SO_X and NO_X emissions up to 30% when powered by natural gas.
• Process gas compressors per API 618: These compressors are used specifically in industrial processes for the desulfurization of fuels.
• Process gas compressors for hydrogen fueling applications: Innovative ring geometries enable process gas compressors to be operated without oil lubricants in fueling applications for hydrogen-powered trains, trucks or buses, with pressures of up to 500 bar. The technological advantages of reciprocating compressors for this market are unrivaled efficiency and long service lives.
• PROGNOST®-SILver: Systems for monitoring and diagnosing the condition of reciprocating compressors are key tools for increasing operational reliability, extending service intervals and preventing failures.

Procurement
We draw on the experience of our suppliers to help us continuously improve our products. Much of our value creation is dependent on them. Therefore, we place the same high demands on them as we do on ourselves. They are integrated into our environmental and quality policy. Checks are made on site or when goods arrive to ensure adherence to specifications and are verified by reviewing the required audit reports.

Manufacturing and logistics
In our efforts to transfer knowledge and production know-how between our various production and engineering centers, we are also transferring safe, efficient, and environmentally friendly production and engineering processes. We have optimized our internal logistics processes and transportation operations through the “PULL@BCAG” program. We are also reducing the number of transport runs by consolidating deliveries and deploying more container delivery solutions. PULL@BCAG is not simply a project but rather a reflection of our basic philosophy about the work we do. Local procurement of machine accessories brings us even closer to our customers and allows us to reduce transport runs.

Buildings and fixtures
At the Winterthur site, a multi-year project to save energy in our offices and workshops is underway.

Our plant in Pune reduced its energy consumption by 21% versus the 2015/16 base year and its freshwater consumption by 33%.

Shenyang Yuanda Compressor’s new plant in Shenyang will draw more of its energy needs from district heating systems. The insulation concept for the exterior walls also deserves special mention. The insulated sandwich wall panels used will reduce the amount of energy required for heating purposes. Furthermore, when the new plant is operational, employee workwear and protective clothing will be washed at a central laundromat instead of the current system where every department has its own washing machine. The new concept will save both water and energy.

A new sand mixer has been installed for Shenyang Yuanda Compressor’s foundry. The sand that is used for the casting molds can now be reprocessed and reused. The main building has also been renovated to improve energy efficiency.

Our plant in Pune received the GreenCo STAR Performer Award during the year under review. GreenCo is an environmental rating system introduced by the Confederation of Indian Industry (CII) that takes a holistic approach to measuring the effectiveness of a company’s environmental policies. Our plant in Pune received this award for achieving a 21% reduction in its energy consumption versus the 2015/16 base year and a 33% reduction in its freshwater consumption thanks to a rainwater harvesting system. Washing rather than disposing of oily cotton cleaning rags used in manufacturing processes saved 772 kg of cotton.

Environmental management, recycling and waste disposal
Hazardous goods and chemicals are transported, stored and disposed of in accordance with applicable laws and regulations. Internal collection points help our employees sort and dispose of waste correctly and allow us to recycle most of our waste. The rest is sent to a nearby waste incineration plant that produces district heat for Burckhardt Compression’s water and space heating systems. Specialized companies are engaged to ensure that certain materials (e.g. metals) are recycled in the proper, most environmentally friendly way.

The waste management concept introduced in in collaboration with external consultants was continued and expanded and will lead to even greater separation of waste in the future. Conventional lighting in Winterthur continued to be replaced with with LEDs during the past year. Burckhardt Compression optimized the chemicals concept at its Winterthur site during the year under review. Combustible chemicals were replaced with less flammable chemicals, and all storage containers were relabeled. Oil storage tanks were retrofitted with spill containment systems and special transport tanks, which improves our chemical safety practices and process efficiency. The substitution of hazardous chemicals further reduced our consumption of VOC gases (Volatile Organic Compounds), which are harmful for the environment. These and other measures are part of the EOHS system that has been introduced at all Group sites in compliance with ISO 14001 and OHSAS 18001 standards. Official certification was obtained in 2018.