Sustainablity

SUSTAINABILITY REPORT

Burckhardt Compression has made a long-term commitment to the economy, society, and the environment. The aim is to create the framework at all levels to continue the company’s 177-year history of success. This can only be achieved if a balance is found between the different interests of individual stakeholders.

For Burckhardt Compression, the 2020 fiscal year marked the start of a systematic evolution in its sustainability approach. Sustainability activities are being expanded and focused more strategically. A materiality analysis involving the most important stakeholders was conducted as part of this process. The results and an outlook are presented at the end of this Sustainability Report. One milestone in this evolution will be a more comprehensive Sustainability Report that follows international standards and will be published for the first time alongside the 2021 Annual Report.

Burckhardt Compression adjusted and recertified its health and safety system while also evolving its environmental management system. In addition, findings from the employee survey were translated into workshops, initiatives and projects designed to further improve employee satisfaction.

Burckhardt Compression’s sustainability credentials are evaluated by an external specialist (GAM) on a regular basis. During the latest assessment in 2018 we again achieved our goal of exceeding the average rating for a selected group of comparable Swiss companies.

Burckhardt Compression aims for a prudent and holistic approach. The appropriate involvement of the different stakeholder groups plays a central role here, as does integrated risk management. In addition to the specific involvement of the individual groups, in the 2020 fiscal year Burckhardt Compression began to establish a Speak Up channel (grievance channel) for all internal and external stakeholders. This complaints system can be used to report violations of our values and behavioral guidelines and is hosted by a third party. The system will be launched in the following reporting year.

Investors
Burckhardt Compression maintains open and transparent dialog with its investors and interested parties. The aim of Investor Relations is to accurately portray the company and its markets to enable a fair valuation of Burckhardt Compression stock. The company’s third Investor Day was held in Winterthur in November 2020. Among other things, the company presented its focus points for sustainable value creation for all stakeholders within the current Mid-Range Plan period and beyond.

Burckhardt Compression’s investor relations activities are evaluated by independent firms and receive consistently very good ratings considering the size of the company. Leading Swiss business newspaper “Finanz und Wirtschaft” gives it an A– rating (A being the highest rating) for investor relations and transparency and a B– rating for growth.
In the yearly ranking of annual reports conducted by HarbourClub and business magazine “Bilanz”, Burckhardt Compression’s 2019 annual report came in at a very good 37th (out of a total of 241 companies) in the “Value Reporting Print” category, and 57th for “Value Reporting Online”.

In the 2020 survey of company boards carried out by zRating in collaboration with the newspaper “Finanz und Wirtschaft,” Burckhardt Compression scored 28 points and ranked 21st among the 172 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 long-term customer relations. The average useful life of its compressors is 30–50 years. Following the project phase, the company provides its customers with the services and components they need throughout the entire compressor system life cycle. The longest-standing customer relationship dates back to 1885, when the company supplied BASF in Ludwigshafen with one of the first compressors ever built.

Customer satisfaction is measured using various tools. A distinction is drawn between direct and indirect key performance indicators (KPIs). Findings are discussed during the claims and warranties meetings that form part of the management process with the leadership team. Action is initiated and implemented in accordance with the results. In 2020, customer satisfaction surveys were focused on the Services Division.

Employees
Open dialog with employees is a central priority for Burckhardt Compression and is carried out in all sorts of different ways. In addition to employee surveys and continuous exchange with line managers, employees are informed online several times a year in person by members of the Executive Management about the state of the business and other matters, with opportunities to have questions answered. In Switzerland, France, and India, various other instruments of dialog are used within collective bargaining and workers’ representation arrangements.

Suppliers
A smoothly functioning, comprehensive supply chain ensures well-ordered development and manufacturing processes. Burckhardt Compression buys its inputs from various global and regional suppliers. The company works closely with these suppliers right from the development phase and seeks to establish long-term partnerships. The principles set out in the Burckhardt Compression’s own Code of Conduct are systematically implemented in all dealings with suppliers. In 2020, these principles evolved into a specific Code of Conduct for Business Partners. Suppliers are qualified using a set process and are evaluated through the measurement of key performance indicators. Exchanges and performance review take place on a regular basis via on-site visits, virtual meetings, audits or virtual inspections.

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. The necessary decisions are made together with divisional management teams to ensure a smooth supply chain. We reward the best suppliers in the various categories each year to encourage them to achieve even more.

Risk management
As the world’s leading manufacturer of reciprocating compressors, Burckhardt Compression is exposed to a number of risks. The company has developed a comprehensive risk management system, which is integrated into the planning and leadership process.

The Executive Management’s assessment of risks is discussed with the Audit Committee and Board of Directors twice a year. A distinction is made between operational, strategic, legal and financial risks.

The aim of risk management is:

– to systematically detect special risks;
– to establish processes for monitoring, reducing, and, ideally, preventing risks;
– to achieve a balance between risks and rewards.

Long-term success
The Group’s ultimate goal is the long-term success of Burckhardt Compression. This requires a stable operating environment and the achievement of financial goals.

As part of the effort to maintain economic sustainability, Burckhardt Compression regularly produces a Mid-Range Plan, usually covering a period of five financial years. This is periodically reviewed and adjusted in line with the economic, political and technological environment.

Process improvement
The quest for continuous improvement by Burckhardt Compression’s executives and employees lies at the very heart of the company.

Every year, the personal objectives of executives and employees include the implementation of continuous and sustainable improvement projects. These projects are implemented using a method developed by Burckhardt Compression and evaluated by its executives.

The company also works with suppliers, universities, institutions, and advisors worldwide to develop and improve products or processes in areas where it does not have the necessary expertise. Cooperation with external experts and specialists also fosters new ideas and maximizes creative potential within the company.

Capital expenditure
Burckhardt Compression has invested CHF 112.3 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. Shenyang’s new factory was completed and stated work in September 2020.

Acquisitions
Over the past five years, Burckhardt Compression acquired the following businesses: Shenyang Yuanda Compressor Co. Ltd. (China), IKS Industrie- und Kompressorenservice GmbH (Germany), CSM Compressor Supplies & Machine Word Ltd. (Canada), Arkos Group LLC (USA), Compressor Business of the Japan Steel Works Ltd. (Japan). Acquisitions always have to meet the following three pre-defined criteria.

Acquisitions must always generate additional financial value for the company, strengthen the local presence or further expand the product range, and be able to integrate due to similar corporate culture or values.

Promoting fair competition
Burckhardt Compression is committed to fair competition and has zero tolerance for price fixing, cartels, or any other activities that distort competition. This is also clearly stated in the company’s own Code of Conduct. Burckhardt Compression is protective of its operational and business expertise and works systematically to prevent the loss of, or unauthorized access to, its technical and commercial knowledge.

Value-based management
Added value generated for shareholders is measured by two key metrics:

– Return on net operating assets (RONOA)
– Earnings per share (EPS)

Return on net operating assets for the period under review amounted to 14.0% (previous year 12.0%). Net income per share attributable to the shareholders of Burckhardt Compression for the period under review amounted to CHF 13.00 (previous year: CHF 9.56). The aim is to increase this still further. Warranty costs The effective warranty costs decreased in the 2020 fiscal year. In the fiscal years 2017 to 2019 extraordinary additional costs were incurred for the LNGM business.

Corporate culture
A well-founded and sound corporate culture forms the foundation for a company’s competitiveness. A comprehensive values program called “Values and Behaviors” ensures that employees in the Group’s different locations and companies share and actively uphold the same corporate values and principles. The internal Code of Conduct sets fundamental standards and principles for how employees should behave in relation to each other and to partners, stakeholders, and the environment. The code is reviewed and updated at regular intervals, most recently in the 2020 fiscal year. This shared understanding makes collaboration between teams and across borders much easier. A Speak Up channel hosted by a third party, will be implemented in fiscal year 2021 and can be used to report violations of the values and behavioral guidelines.

All employees are trained in the company’s values and behaviors, which also form a compulsory part of the induction program for new employees. Members of the Executive Management have also stressed the importance of these common values and behaviors in video podcasts. This ensures that the entire staff are aware of the corporate culture and act according to the defined values. Company executives are important role models in this regard.

Burckhardt Compression ranked as one of the most attractive Swiss employers in 2021. In the mechanical engineering sector the company ranked third.

Sustainable HR policy
Only satisfied employees will go the extra mile to meet the needs of our customers, so Burckhardt Compression is committed to a sustainable personnel policy, as well as diversity in workforce and structures. 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.

Before the beginning of the year under review, the company conducted another worldwide employee survey. The impressive response rate of 91% reflects a high level of employee engagement. It was also pleasing to see the improvement in almost all the survey values at Group level. The findings were systematically evaluated and resulted in the implementation of measures designed to improve satisfaction even more in the main areas. Account was taken of the specific local needs of employees at individual subsidiaries. The employee survey is carried out every two years in order to identify any changes and then respond accordingly. The next employee survey is planned for the fiscal year 2021.

The employee turnover rate remained at 9.5%. This figure includes all departures, plus fixed-term employment contracts that came to an end. 4.3 percentage points of this are accounted for by voluntary departures, which is under the defined maximum value of 6%. For the coming fiscal year, we have set ourselves a maximum value of 5%. The proportion of employees who changed jobs because of employment conditions or salary was lower than in the previous year. The most common reasons for departures were related to personal or family factors.

20% of the Board of Directors was female. 20% of the Executive Management and 14.9% of the worldwide staff are women. Burckhardt Compression has a fundamental belief that mixed gender teams perform better.

Modern employment conditions
Employment conditions at Burckhardt Compression are always being adapted to the latest requirements, and the coronavirus pandemic lent even more impetus to this process during the 2020 fiscal year. The health of employees and their families has always been a priority during this time. The company has always ensured that the workforce at production plants could rely on appropriate protective measures. A strategy was quickly developed for office-based workers so that they could work from home with all the necessary infrastructure. Regular communication through various channels ensured that the most pressing issues could be sorted out quickly at any time. Thanks to the committed cooperation of all employees, the company coped well with the challenges presented by the coronavirus pandemic. Some innovations, such as large-scale home-working, were a new experience for Burckhardt Compression and proved positive for employees in some respects. The option to work from home more will therefore be retained in future, providing greater flexibility in the way people’s working life is organized.

Attractive employer
Burckhardt Compression ranked as one of the most attractive Swiss employers in 2021. This ranking is based on an independent survey of employees carried out by data analysts Statista via an online access panel, combined with input from the readers of “Handelszeitung” and “Le Temps”. More than 1,500 employers with 200 or more employees in Switzerland were identified for the survey. In the overall ranking, Burckhardt Compression achieved an impressive 26th place, while within the mechanical engineering sector it ranked third.

Employee development
Burckhardt Compression appreciates its employees’ expertise and promotes knowledge sharing. Employee orientation programs ensure that new hires are familiarized with their area of work and our corporate culture. Personal training and development is part of the annual appraisal and performance review process and is financed by the company. To ensure the ongoing development of technological expertise and management skills within the company, employees around the world participate in internal technical, product, and leadership training modules, which are conducted across the Group several times a year. Burckhardt Compression conducts an annual appraisal and performance review with every employee (MyPerformance@ BC), which includes personal development goals and suggestions for continuous improvement. Periodic reviews of progress made toward performance goals, formal meetings with employees and goal-setting are also part of our evaluation system.

Promoting new talent and career development
Burckhardt Compression promotes and supports new talent at all levels and is committed to the Swiss system of apprentice training. The company currently has 42 apprentices in Switzerland and 17 in India receiving vocational training in eight different trades. Burckhardt Compression is 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 in India based on the Swiss model; the company is
also 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. Approximately CHF 1.5 mn is spent on apprenticeships each year (cash out).

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 and internal candidates must go through a proprietary screening process. The systematic evaluation and development of the company’s future managers, which has taken place internally with success for many years, enabled the company once again to fill various management vacancies during the past year with internal candidates. Because it is well known and has a positive external reputation, Burckhardt Compression can recruit very good external candidates when there are no internal candidates for open leadership positions.

Burckhardt Compression runs an Internal Management Development Program (IMDP) every three years, most recently in 2019. Promising mid- and upper-management talents from around the world receive training through this program. This is composed of various modules that deliberately take participants beyond their normal field of activity in order to give them a comprehensive understanding of the company. As part of the program, participants also work in multinational project teams with a strategic focus on the Mid-Range Plan.

Occupational health and safety
Occupational safety is a high priority at Burckhardt Compression. Every employee should be made aware of potential workplace risks and accident prevention measures, so regular training sessions are held on these topics, supplemented by annual audits conducted by external experts. Internal safety inspections are performed to identify and mitigate hazards. Action is taken on the basis of the inspections’ findings.

The health and well-being of employees is another high priority. Burckhardt Compression knows that physical and mental health is closely linked to performance, which is why it launched the Dr BeWell program in 2019. Implemented locally, this includes a varied range of physical exercises as well as preventative measures and special topics. The program is just one of the ways in which Burckhardt is improving employee satisfaction, health, and motivation is improved and and reducing absences.

In the fiscal year 2020, the health and safety system at all Burckhardt Compression locations was certified under the new ISO 45001 standard (replaces OHSAS 18001). The only exceptions were the subsidiaries SAMR, Prognost, Arkos, and Shenyang Yuanda, all of which have their own health and safety systems. 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.

In Switzerland the number of illness-related absences per employee amounted to 9.3 days for the reporting year (previous year 9.2 days). Due to a more comprehensive survey method, the figures in this report are not comparable with those from previous annual reports.

Social environment
Burckhardt Compression is well embedded in its social environment and works actively with the local community and authorities in all its locations. The company supports employees who are committed to doing good for the community. This applies inparticular to executives and employees who become involved with politics and industry associations in order to help solve social challenges.

Burckhardt Compression supports community and cultural projects at different locations in order to strengthen local social cohesion. Employees are encouraged to become personally involved in such projects. Personnel in India, for example, are helping to mitigate the impact of the pandemic on poorer sections of the population by making donations of goods and money and taking on voluntary work.

“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, and reduce harmful emissions.” (Code of Conduct)

Product design and 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 Burckhardt Compression’s compressor systems have an average service life of 30 to 50 years. Whenever it makes sense, customers are included early on in the development stage of new products, in order to find joint innovative solutions and verify ideas.

In a pilot project currently underway in India, a life cycle analysis (LCA) is being conducted to determine the environmental impact from raw material extraction to the decommissioning and disposal of a compressor to derive targeted measures to improve the overall impact.

Areas of application
The high functionality of the products made by Burckhardt Compression allows optimal operation of compressor systems in many different processes. In numerous application areas, compressors play a critical role in reducing environmental damage and facilitating sustainable energy provision, for example with renewable fuels.

The following products and solutions developed in recent years promise to bring greater customer benefits while improving the 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 reduces CO2, SOX and NOX emissions by up to 30% when powered by natural gas.
– 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.
– Process gas compressors per API 618: These compressors are used specifically in industrial processes for the desulfurization of fuels.
– 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.

The dual-fuel propulsion system developed for LNG carriers can be powered by environmentally friendly naturalgas instead of marine diesel oil. When the system is powered by natural gas the emissions of CO2, SOX and NOX were reduced by up to 30%.

Procurement
Burckhardt Compression uses its suppliers’ experience to continuously improve its products, because an important part of the value creation is provided by them. They are therefore held to the same high standards as Burckhardt Compression itself by a newly developed Code of Conduct for Business Partners and are they are also integrated into the Burckhardt Compression’s 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. The fundamental improvement program PULL@BCAG facilitates optimization of internal logistics processes and transportation, as well as reducing transport runs by consolidating deliveries and containers. PULL@BCAG does far more than traditional projects because it expresses Burckhardt Compression’s underlying philosophy of work. Procuring equipment locally helps the company keep close to customers – as well as reducing transportation.

Environmental management
In fiscal year 2018, all Burckhardt Compression locations were certified in accordance with ISO 14001, with the exception of the SAMR, Prognost, Arkos, and Shenyang Yuanda subsidiaries, which have their own environmental management systems. 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 concept was also developed; harmful chemicals were substituted by less harmful ones, and their storage was optimized.

The Winterthur site has launched a comprehensive program to reduce greenhouse gas emissions as part of the target agreement with the canton of Zurich.

A multi-year project to save energy in our offices and workshops is underway at the Winterthur site. Associated measures form part of a comprehensive 10-year program under a target agreement made with Canton Zurich to reduce greenhouse gas emissions. Emissions are measured regularly at the site in Winterthur. They were reduced by 44% in the fiscal year 2020, with most of the reduction attributable to the current coronavirus pandemic. Travel restrictions meant that many business trips were replaced with virtual meetings, which had a substantial impact on greenhouse gas emissions. Shenyang Yuanda Compressor’s new factory in Shenyang takes much of the energy it needs from district heating systems. It also has very effective insulation for its exterior walls. Insulated sandwich wall panels reduce the amount of energy required for heating. Employees’ work and safety clothing is washed at a central laundry rather than in separate washing machines for each department. This saves both water and energy. A new sand mixer was installed for Shenyang Yuanda Compressor’s foundry in 2019. The sand that is used for the casting molds can now be reprocessed and reused.

The factory in Pune won the GreenCo Star Performer Award again. GreenCo is a rating system established by the Confederation of Indian Industry (CII), which takes a holistic approach to measuring the results of companies’ environmental initiatives. The prize was awarded because the factory managed to cut its energy consumption by 22% compared with the base year of 2015/16, as well as achieving a 38% year-on-year reduction in fresh water consumption. This latter achievement was made possible in part by a rainwater collection system with an average collection potential of around 80%. Washing rather than disposing of oily cotton cleaning rags used in manufacturing processes saved 660 kg of cotton.

Recycling and disposal
Hazardous goods and chemicals are transported, stored and disposed of in accordance with applicable laws and regulations. Internal collection points help employees sort and dispose of waste correctly and allow recycling of most waste materials. Specialized companies are used to dispose of specific materials (e.g. metals) properly and environmentally.

The waste management concept introduced in collaboration with external consultants in Winterthur was continued and expanded and will lead to even greater separation of waste in the future. The replacement of conventional lighting with LEDs in Winterthur continued. Burckhardt Compression also further optimized its chemicals concept at the Winterthur site. Combustible chemicals were replaced by less combustible ones, and all container labelling was amended. Oil storage tanks were retrofitted with spill containment systems and special transport tanks, which improves chemical safety practices and process efficiency. The substitution of hazardous chemicals further reduced consumption of VOC gases (Volatile Organic Compounds), which are harmful to 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 45001.

During the 2020 fiscal year, Burckhardt Compression carried out a materiality assessment to underpin its commitment tosustainability and take its strategy forward. The aim was to identify the most important sustainability topics for the Burckhardt Compression Group as a whole.

Materiality assessment
The standards set out in the Global Reporting Initiative (GRI) served as a framework for identifying these issues. The first step was to consolidate potentially relevant topics in an expanded list. This list was compiled after analyzing selected sustainability standards, investor assessments (ESG ratings), competitors, customers, and other relevant companies in the industrial sector. The second step was to evaluate these topics from the perspective of stakeholders and from an impact perspective. Burckhardt Compression did this by surveying the assessments and expectations of the various stakeholder groups online and in personal conversations. Impact on the environment, society, and the economy was determined by means of a structured assessment based on OECD due diligence guidance for responsible business conduct.

Results
The analysis resulted in a materiality matrix in which 8 of 29 topics were identified as material to Burckhardt Compression. This materiality matrix helps to guide and focus decisions on the further integration of sustainability into Burckhardt Compression’s business activities. It is reviewed at regular intervals and adjusted if required. Topics identified as material form the strategic core of Burckhardt Compression’s future approach to sustainability. More relevant topics are continuously integrated into operational business activities. The remaining topics are dealt with as part of the normal course of business, taking stakeholder expectations into account. From fiscal year 2021, Burckhardt Compression will gradually integrate key sustainability topics into its business activities and align them more closely with the Sustainable Development Goals. Future reporting will also be updated to include key figures that meaningfully document progress made on sustainability.

Burckhardt Compression materiality matrix

Material topics