avatar OERLIKON NEOMET LIMITED Transportation, Communications, Electric, Gas, And Sanitary Services
  • Location: CHESHIRE 
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    Oerlikon฀Annual฀Report฀2008 Annual฀฀ Report฀2008 CHANGE INNOVATE

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    Oerlikon฀business฀units฀in฀brief฀ Oerlikon฀business฀units฀in฀brief฀ Oerlikon฀Textile Oerlikon฀Textile Oerlikon฀Coating Oerlikon฀Coating Oerlikon฀Solar Oerlikon฀Solar Oerlikon฀Vacuum Oerlikon฀Vacuum Oerlikon฀Drive฀Systems Oerlikon฀Drive฀Systems Oerlikon฀Advanced฀Technologies Oerlikon฀Advanced฀Technologies Key฀figures Key฀figures 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 1฀364฀ 1฀364฀ 509฀ 509฀ 566฀ 566฀ 460฀ 460฀ 1฀171฀ 1฀171฀ 250฀ 250฀ 443฀ 443฀ –฀ –฀ 429฀ 429฀ 68฀ 68฀ 183฀ 183฀ 194฀ 194฀ 1฀690 1฀690 509 509 598 598 465 465 1฀204 1฀204 284 284 –281 –281 7878 107 107 4949 6565 –66 –66 7฀008 7฀008 2฀892 2฀892 868 868 1฀583 1฀583 5฀080 5฀080 805 805 Oerlikon฀stands฀for฀innovation฀in฀฀ machinery฀and฀plant฀engineering.฀฀ With฀high-tech฀components฀and฀฀ engineered฀solutions฀we฀are฀leaders฀฀ in฀global฀growth฀markets.฀ With฀technology฀tailored฀to฀their฀needs฀ we฀enable฀our฀customers฀to฀achieve฀ sustainable฀competitive฀advantages.฀ Applications฀and฀products Applications฀and฀products „„ „„ „„ „ „ „„ „„ „ „ „ „ „ „ „ „ „„ „„ „„ „„ „ „ „ „ „ „ „ „ „ „ „ „ „„ „„ „ „ „ „ „„ „ „ „ „ „ „ „ „ „„ „ „ „ „ „ „ „„ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „ „„ „ „ „ „ „ „ „„ „„ „ „ „„ „ „ „ „ „„ „ „ „ „ „ „ Enabling฀High฀Technology. „„ Clients฀and฀partners฀(selection) Clients฀and฀partners฀(selection) Competitors Competitors 2008฀sales฀by฀region 2008฀sales฀by฀region 4% 4% 26% 26% 24% 24% 21% 21% 13% 13% 21% 21% 1% 1% 16% 16% 20% 20% 80% 80% 23% 23% 28% 28% 3% 3% 29% 29% 53% 53% 40% 40% 18% 18% 34% 34% 60% 60% 43% 43% 57% 57% 75% 75% 11% 11% 77% 77% 33% 33% 20% 20% 17% 17% 67% 67% 21% 21% 37% 37% 61% 61% 53% 53% 19% 19% 56% 56% 27% 27% 5% 5% 9% 9% 0% 0% 39% 39% 80% 80% 80% 80% Selected฀market฀share,฀growth฀and฀position฀in฀2008 Selected฀market฀share,฀growth฀and฀position฀in฀2008 >40% >40% >68% >68% >35% >35% ฀>50% ฀>50% 11 >25% >25% 40% 40% 45% 45% 18% 18% 40% 40% 9% 9% 50% 50% 15% 15% 14% 14% 48% 48% 11 11 11 11 22 11 33 11 11 11 11 11 11 –25%฀ –25%฀ –30%฀ –30%฀ –25%฀ –25%฀ –50%฀ –50%฀ –50%฀ –50%฀ +4%฀ +4%฀ >100%฀ >100%฀ +4%฀ +4%฀ +10%฀ +10%฀ +1%฀ +1%฀ +/–0%฀ +/–0%฀ +85%฀ +85%฀ –3%฀ –3%฀ +8%฀ +8%฀

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    1 Key฀figures฀2008฀1 (in CHF) Year-on-year 4.8฀ billion฀ sales฀2฀฀ –12.1% 4.3฀ billion฀ orders฀received฀2฀฀ –25.7% 281฀ million฀ operating฀result฀2,3฀ –40.3% –37฀ million฀ EBIT฀2฀฀ 411฀ million฀ operating฀cash฀flow฀4฀฀ –39.4% Key฀figures฀Oerlikon฀Group฀1,2 January฀1฀to฀ January 1 to December฀31 December 31 in CHF million 2008 2007 restated Orders received 2 4 319 5 811 Orders on hand 2 1 318 1 821 Sales 2 4 750 5 404 EBITDA 2 495 688 – as % of sales 10% 13% EBIT 2, 3 –37 467 – as % of sales –1% 9% Net result –422 319 – as % of sales –9% 6% – as % of equity attributable to shareholders of the parent –39% 17% Cash flow from operating activities 4 411 678 Capital expenditure for fixed and intangible assets 2 335 325 Total assets 5 476 6 290 Equity attributable to shareholders of the parent 1 093 1 858 – as % of total assets 20% 30% Net liquidity 5 –1 586 –794 Net assets 6 2 919 3 266 EBIT as % of net assets (RONA) –1% 14% Number of employees 2 18 385 18 711 Personnel expenses 2 1 323 1 355 Research and development expenses 2, 7 247 245 1 A five-year summary of key figures may be found on page 132. 2 2008 continued operations, 2007 restated. 3 For 2008, continued operations of Oerlikon Group report an EBIT of CHF 281 million (before restructuring and impairment of goodwill). The Group EBIT including discontinued operations amounted to CHF 203 million (before restructuring and impairment of goodwill). 4 Before changes in net current assets. 5 Net liquidity includes marketable securities, treasury shares at market value as per December 31 as well as short term and long term debt. 6 Net assets include current and non-current operating assets excluding cash, financial assets, current tax receivables and assets classified as held for sale less operating liablities excluding financial liabilities, tax provisions and liablitities classified as held for sale. 7 Research and development expenses include expenses recognized as intangible assets in the amount of CHF 31 million (previous year: CHF 34 million). Key฀share-related฀figures฀8 January฀1฀to฀ January 1 to December฀31 December 31 in CHF 2008 2007 restated Share price High 472 795 Low 67 337 Year-end 69 473 Total shares outstanding 14 142 437 14 142 437 Market capitalization in millions 976 6 693 EBIT –2.90 35.64 Net result for the period –33.13 24.00 Net cash flow 32.06 51.78 Shareholders’ equity 85.25 142.01 Dividend 9 0.00 0.00 8 Average number of shares with voting and dividend rights. 9 Dividend 2008: proposal of the Board of Directors.

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    2 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Group structure Group฀structure O ฀ erlikon฀ ฀ erlikon฀ O ฀ erlikon฀ O O ฀ erlikon฀ O ฀ erlikon฀ O ฀ erlikon฀ Textile Coating Solar Vacuum Drive฀Systems Advanced฀ Technologies 1 1 1 Discontinued operations.

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    3 Contents Operational฀Review Financial฀Report ฀ ฀ Editorial Key฀figures Statement of the Chairman and the CEO 4 Key figures for the Group 83 ฀ Key figures by segment 84 ฀ ฀ ฀ Operational฀Review Group Group Operational Review for 2008 6 Consolidated income statement 85 Oerlikon Textile 12 Consolidated balance sheet as of December 31 86 Oerlikon Coating 18 Consolidated cash flow statement 87 Oerlikon Solar 22 Consolidated statement of changes in equity 88 Oerlikon Vacuum 26 ฀ ฀ Oerlikon Drive Systems 30 Notes Oerlikon Advanced Technologies 34 Significant accounting principles 89 Senior Leadership Team 38 Notes to the consolidated financial statements 96 Segment information 2008–2007 126 Employees 40 Companies by country 128 Research and Development 44 Report of the Statutory Auditor 131 ฀ Five-year summary of key figures 132 ฀ ฀ Information฀for฀Investors 48 OC฀฀Oerlikon฀฀Corporation฀AG,฀Pfäffikon ฀ ฀ Income statement of OC Oerlikon Corporation AG, Pfäffikon 134 ฀ Balance sheet as of December 31, of Corporate฀Social฀Responsibility 52 OC Oerlikon Corporation AG, Pfäffikon 135 ฀ Notes to the financial statements of ฀ OC Oerlikon Corporation AG, Pfäffikon 136 ฀ Proposal of the Board of Directors 139 Corporate฀Governance 56 Report of the Statutory Auditor 140 ฀ Legal structure 141 ฀ Agenda, Contact 143

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    4 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Statement Chairman/CEO “We remain convinced that Oerlikon has considerable medium- and long-term growth and earnings potential.” Dear Shareholders, Customers from Oerlikon Solar began industrial production of micromorph® tandem solar modules; Oerlikon Fairfield ramped For Oerlikon, 2008 was one of the most challenging years in up its wind turbine gear components manufacturing; Oerlikon the company’s recent history. We had to face two challenges, Coating successfully put the new, clean PPDTM coating into which aggravated each other: first, a strong decline in the textile operation in Asia; Oerlikon Vacuum continued its product offen- and semiconductor market over the whole year; second, the sive with two new pump generations. global financial crisis which induced a recession in most major markets as of the fourth quarter 2008. The resilience of our “Innovate and change” is the guiding principle for the current core businesses – particularly in Oerlikon Coating, Solar, and business year. Given the current high level of volatility in the Vacuum – softened the blow from the dramatic downturns. As markets, concrete forecasts seem to lack sustainability. Over- a result of market trends, restructuring costs and goodwill write- all, we cannot exclude the possibility that ongoing market weak- offs adversely affected profits. With sales of CHF 4.8 billion nesses will lead to a further decline in sales in 2009. All business (–12.1 percent) and an EBIT of CHF –37 million (2007: CHF 467 units have taken preventive steps to adapt to deteriorating million), the Group’s results are disappointing. In general, we did market conditions and to concentrate on profitability and cash not succeed in realizing our corporate objectives in 2008. flow. In these challenging times it is of utmost importance to ensure that Oerlikon’s financial basis remains solid and sound. Oerlikon businesses still in leading market positions The company’s actions in 2008 have reflected this priority and However, these results primarily reflect the general business we are committed to preserving financial stability in 2009. environment and not the leading and competitive position of the Oerlikon business units. The innovative product portfolio and We remain convinced that Oerlikon has considerable medium- the broad international footprint provided risk mitigation and sta- and long-term growth and earnings potential. We are posi- bilized the operating performance. Hence, the operating result tioning ourselves in the current phase to fully leverage this (before impairment and restructuring costs) amounted to CHF potential when the markets begin to recover. To enhance and 281 million (prior year: CHF 471 million). develop this potential, the Group is facing a fundamental reposi- tioning and restructuring, encompassing both portfolio structure Developments in 2008 prompted us to first step up efforts to and operational set-up. We will not hesitate to embark on all reposition Oerlikon group around its core business of interface necessary measures – timely and consequently – in order to and surface technologies. Progress was made in this area with first rebuild and then sustain shareholder value. With a comple- the sale of Oerlikon Optics as well as the Etch, Blu-ray Line and mented and highly dedicated Executive Board, an experienced magnetic media business of Oerlikon Systems. These divest- Board of Directors as well as a committed strategic sharehol- ments were a result of the refocusing of this business unit on der, we face the future with cautious optimism. future growth markets for advanced nanotechnology. Decision was also reached at the end of 2008 to seek divestment of the Thanks to employees, investors and partners business unit Oerlikon Esec, the sale of which was signed in At this point we would like to express our thanks to our emplo- January 2009. yees for their commitment and their hard work, especially in this difficult market environment. We would also like to thank all our Second, ongoing restructuring and cost-cutting programs were business partners for their loyalty and cooperation. You can be expanded promptly and implemented rigorously, particularly reassured that we will do everything in our power to lay new at Oerlikon Textile. Overall, Oerlikon has taken precautionary foundations for the future prosperity of Oerlikon, sustaining the measures to protect its financial position. The positive effects of long-lasting tradition as a leading high-tech group. these measures total approximately CHF 100 million, fully effec- tive from 2010 onwards. In addition, our focus is on net working capital reduction and cash flow optimization. Third, we have accelerated our efforts to enhance our market position with innovative products and solutions and bolstered the company’s innovative power with long-term R&D projects. Vladimir฀Kuznetsov฀ Dr.฀Uwe฀Krüger Clean technologies are taking on an important role in this field. Chairman of the Board of Directors Chief Executive Officer

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    Vladimir฀Kuznetsov฀Chairman of the Board of Directors Dr.฀Uwe฀Krüger฀Chief Executive Officer

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    6 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon group Core business of Oerlikon proves resilient in 2008. Focus in 2009 on further streamlining portfolio, innovation and cost management. Repositioning฀to฀tackle฀฀ market฀challenges. As a result of external market influences, the Group was unable ments. This will enable the company to identify and seize the to continue the strong growth of recent years and reported a opportunities that present themselves in this difficult economic loss for the year due to restructuring expenses and goodwill situation and to enter the next upswing in a stronger position. write-offs. Sales fell by 12.1 percent from CHF 5.4 billion to CHF 4.8 billion; EBIT was CHF –37 million (previous year: CHF Deteriorating market conditions 467 million) and the net loss amounted to CHF –422 million. The primary reasons for the Group’s difficulties are the unpre- cedented historic decline in the global textile machinery market The Group’s operating activities in 2008 nevertheless remained and the persistent weakness in the market for semiconduc- positive overall as a result of its robust core business, albeit tors. Following a record year in 2007, the key textile markets at a lower level than in the previous year. Adjusted for one-off of China, India and Turkey found themselves in a downturn restructuring costs (CHF –66 million) and goodwill write-offs of exceptional magnitude from the beginning of the year. The (CHF –252 million), the Group’s operating result amounted to German Engineering and Machinery Association (VDMA) puts CHF 281 million (previous year: CHF 471 million). The posi- the decline in order intake for textile machinery at more than tion of the business areas as technology and market leaders 60 percent in 2008. Even in this cyclical market, the scale of in their respective industries was maintained in 2008 and even volatility was previously unheard-of and has taken all market expanded in some areas. players by surprise. The combined losses experienced by those Oerlikon business units affected, namely Textile, Esec and Sys- The diversified Group structure with a broad portfolio compri- tems, amounted to lower sales of CHF 1 105 million and a drop sing various high-tech and environmental technology (clean in EBIT of CHF 563 million. technologies) areas mitigated the impact of the overall market decline. The slowdown in textiles and semiconductors was The global financial crisis aggravated the situation greatly as of partially compensated by the other business areas, in particular the fourth quarter of 2008. Within just a few weeks, the collapse by the strong growth in Oerlikon Solar. Despite the need to of the global financial system impacted the real economy and sharpen its focus and restructure operations, the Group has the triggered a dramatic downturn in the global economy towards strength to pursue its forward-looking key projects and invest- year-end. The largest economies, the US, Japan and Germany, Key฀figures฀Oerlikon฀group฀2008฀1 in CHF million 2008 2007 (%) Orders received 4฀319 5 811 –25.7 Orders on hand 1฀318 1 821 –27.6 Sales 4฀750 5 404 –12.1 EBIT –37 467 1 2008 continued operations, 2007 restated.

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    7 have been in recession since the fourth quarter of 2008; growth determined by the respective market conditions and in consi- in the emerging BRIC countries of China, India, Russia and Bra- deration of all stakeholder interests. zil has slowed down considerably. Even though almost every industry sector is affected, it is the automotive and its supplier Considerable progress was made in 2008: industries that have hardest been hit. In addition, the apprecia- „ In February, the Blu-ray Line business of Oerlikon Systems tion of the Swiss Franc against other currencies and increases was sold to the German company Singulus. in raw material prices had a negative effect, putting pressure „ In June, the American company Intevac bought the hard on sales and earnings mainly during the first half of the year. disk product group (magnetic media equipment) of Oerlikon However, this effect leveled out considerably by year-end. Systems. „ The key elements of the Oerlikon Optics business were sold This overarching development has two implications for off in October and November; discussions are ongoing for the Oerlikon. First, the downward trend in the textile machinery and Optics site in Shanghai. semiconductor markets, which were already in severe decline at the beginning of the year, has further worsened. Cautious The rationale for the partial divestment of Oerlikon Systems spending among end consumers has resulted in low capacity was a fundamental strategic reorientation of this business unit. utilization among Oerlikon Textile customers, as well as in the It will focus on new applications in nanotechnology and clean semiconductor business. Any continued willingness to invest technologies in the years ahead in addition to semiconductors was further curbed by difficulties in obtaining credit and by and optical disc metallizer, assuring its position to develop the deteriorating borrowing terms. markets of the future. As a consequence, the wafer etch busi- ness at the St. Petersburg location, Florida (US) was sold to the Second, growth in the core businesses, Oerlikon Coating, Solar management in January 2009. and Vacuum, which were expanding and were stable up to this point, came to a standstill at the end of the year. The same was Negotiations were initiated at the end of 2008 for the sale of the true for Oerlikon Drive Systems. Due to difficult project financing Oerlikon Esec business unit, which experienced a sharp decline Oerlikon Solar experienced a slowdown in orders received in in sales due to a weak semiconductor market and reported an the second half of 2008. operating loss. The sale to the Dutch BE Semiconductor Indus- tries was signed at the end of January 2009 and the transac- In line with this development, the Group’s orders received fell tion is expected to be completed in April 2009. Oerlikon Esec is by 25.7 percent from CHF 5.8 billion to CHF 4.3 billion. The or- accounted as “discontinued operations”. ders on hand at the end of the year were CHF 1.3 billion, minus 27.6 percent compared to the previous year. The progress achieved in the portfolio composition has neces- sitated changes to the Group structure. Since Oerlikon Balzers Consistent implementation of corporate program passed the threshold of CHF 500 million in sales for the first Oerlikon responded both quickly and rigorously to the change time, it has been given the status of a segment in its own in market conditions that occurred over the course of the right. The Oerlikon Systems business unit has been realigned year. Overall, the three components of the corporate program as an “innovation incubator” and was moved to the Oerlikon “Portfolio”, “Performance” and “People” were implemented at Advanced Technologies segment (previously: Oerlikon Com- an accelerated pace in 2008. ponents), which now comprises Oerlikon Space and Systems. The role of Oerlikon Balzers’ coating business as the sole busi- Portfolio: The Oerlikon portfolio with its core competence ness unit in the segment is much more clearly defined and its in coating and surface/interface technologies can be broken performance can be more directly assessed in the future. down into three groups. At the center are Oerlikon Balzers, Oerlikon Solar, Oerlikon Systems and Oerlikon Vacuum. The Performance: In line with the different developments in each products and services of Balzers, Systems and Solar are based market, the core business areas focused on growth manage- directly on these technologies, while Vacuum represents a key ment while those business units experiencing a downturn were enabling technology. Closest to this core business are Oerlikon dominated by rigorous restructuring and capacity adjustments. Drive Systems and Oerlikon Space, both business units with a At the end of the year, the units that had previously continued wide range of technological synergies; third in line is Oerlikon to expand also started gearing up themselves for stagnating Textile. Synergies can be found in administrative, purchasing, business or even a downturn. competence and site areas. Overall, 2008 was marked by: With this positioning as a starting point, it is Oerlikon’s goal to „A highly profitable growth spurt at Oerlikon Solar. The new sharpen the focus of its portfolio further and strengthen its core segment was able to more than double its sales by 124.8 business. The implementation of the portfolio strategy was percent to CHF 598 million (including intercompany sales the

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    8 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon group segments volume amounted CHF 628 million) and posted an „ Across-the-board cost optimization: To further reduce the EBIT of CHF 107 million (corresponding to an EBIT margin variable costs throughout the entire Group, the global, cross- of 18 percent). The strategy of expansion was successfully segment sourcing team was realigned. A second set of mea- put into practice with the enlargement of the Truebbach site, sures in the centrally coordinated supply chain management the opening of the pilot line and a strategic partnership with project brought cost savings of nearly CHF 70 million. Key Flextronics. Oerlikon Solar is the only supplier in the market measures here were tighter integration with suppliers, consoli- with customers who produce thin-film silicon panels on an dation of purchasing volumes and increased sourcing from industrial scale. More than 700 000 panels were produced low-cost countries, which had the additional positive effect with Oerlikon equipment by the end of the year. The installed of containing the negative consequences of exchange rate capacity of Oerlikon Solar customers, who are either in full fluctuations (“natural hedging”). The percentage of shipments production or in the ramp-up phase, totals approximately from low-cost countries was increased from 16 percent in 350 MWp. 2007 to 18 percent in 2008. The streamlining of Group head- quarters also contributed to cost optimization with savings of „ Strong growth for Oerlikon Coating, Vacuum, Drive Systems more than CHF 30 million. These efforts will continue in 2009. and Space: Up until the fourth quarter of 2008, the mar- kets for these businesses were intact with strong demand. People: In 2008, Oerlikon introduced fundamental changes Through regional expansion like the opening of five new and implemented far-reaching measures in its management coating centers in Asia and innovative products, such as structures and HR development. the market launch of new pump generations like TRIVAC NT, these areas were able to achieve growth of up to 6.8 „ Leaner and more efficient management structures: The percent. High prices for energy and raw materials put pres- realignment of Group headquarters was accompanied by the sure on earnings during the first half of the year, particularly for introduction of a decentralized management philosophy with Vacuum and Drive Systems. a clear division of responsibilities between the segments and headquarters. This initiative, which was launched in 2007, „ Tough restructuring at Oerlikon Textile, Esec and Systems: As was completed in 2008. Operational functions were shifted early as the end of 2007, Oerlikon Textile began preparing for from headquarters to the business units and are today per- a slowdown with its “Simplify Oerlikon Textile” restructuring formed by the Segment CEOs with group-wide responsibility. program. This program was expanded and accelerated several Headquarters concentrates on strategic tasks and manage- times during 2008. “Simplify Oerlikon Textile” aims to lower ment of the Group, while the responsibility for profit and loss the break-even point by CHF 300 million and to reduce fixed lies 100 percent with the Segments. The specialized areas costs by more than 20 percent by 2010 (compared to 2007). have thus been brought closer to the operational processes To achieve these goals, half of the production sites will be they support, ensuring a higher level of efficiency and more consolidated by 2010, the product range will be streamlined relevance in actual day-to-day business. This affects IT, and the workforce was reduced by over 1 000 employees. sourcing, trade control and quality management in particular. Most of these measures – primarily the staff reductions – were implemented in 2008, with CHF 66 million of restructuring „ New and expanded Board of Directors: A change in the costs. The ongoing restructuring program at Oerlikon Textile Group’s major investor triggered the expansion of the also comprises targeted investments in research and develop- Oerlikon Board of Directors and reelection of its members. ment and expansion of the Chinese site in Suzhou. Since May 8, 2008, Vladimir Kuznetsov has presided over Sales฀2008฀by฀region฀1 in CHF million Sales฀2008฀by฀segment฀1 in CHF million Coating (509) Vacuum (465) Asia (1 599) Others (123) 10.7% 9.8% 33.7% 2.6% Solar (598) 12.6% Drive Systems (1 204) 25.3% Advanced North America (979) Technologies (284) 20.6% 6.0% Europe (2 049) 43.1% Textile (1 690) 35.6% 1 1 Continued operations. Continued operations.

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    9 the Board of Directors as Chairman; he had been a board Cash flow from operating activities (before change in net current member for one year prior to his appointment. Newly elected assets) in 2008 totaled CHF 411 million (previous year: CHF members of the Board of Directors are Kurt J. Hausheer, 678 million). This drop can primarily be attributed to the slump Hans Ziegler, Carl Stadelhofer and Dr. Urs Andreas Meyer. in operating performance of the textile machinery and semi- These additions gave the supreme governing body in the conductor businesses. Working capital declined by 5.2 percent company an infusion of competence, experience and inde- to CHF 1 099 million in 2008. Nevertheless, due to decreased pendence. A Strategy Committee was formed by the new sales months of stocks on hand rose, mainly driven by Oerlikon Board of Directors to further improve and guide the overall Solar. For 2009, a set of measures has been defined to reduce planning processes of the Group. working capital significantly. „ Expansion of the Executive Board: Thomas Babacan, with The Group’s net debt rose from CHF 1 298 million to CHF Oerlikon for more than ten years, was appointed Chief Opera- 1 681 million in 2008. With a ratio of net debt to adjusted, nor- ting Officer (COO). Jürg Fedier, with a wealth of international malized EBITDA below 3, the obligations of the syndicated loan experience, joined Oerlikon from the chemical group Ciba at of CHF 2.5 billion were satisfied. the beginning of 2009 as new corporate CFO. Economic success based on innovation „ Ongoing investments in training: In 2008, special attention Against this backdrop, investments primarily in research and was once again focused on fostering talents. The trainee development continued and were even increased despite program was continued. The training facilities at the Balzers/ restructuring and streamlining measures. Investments in R&D Truebbach site were grouped together to form a modern totaled CHF 247 million in 2008. The share of research as training center. Also the apprentice program remained stable a percentage of sales rose from 4.5 percent to 5.2 percent, with nearly 100 new participants. confirming Oerlikon as a research-intensive company. Future- oriented projects were identified and initiated with the support „ Capacity adjustments: Despite the increase in growing busi- of the newly formed Scientific Advisory Board (SAB), made up nesses, the necessary restructurings have caused the work- of five internationally renowned top researchers who advise force of the Group to decline from 18 711 to 18 385 (based Oerlikon. The focus here is on basic research in advanced on continued operations). Including discontinued operations nanotechnology and clean technologies with a special focus the workforce fall from 19 896 (2007) to 19 142 (2008). on energy storage, conversion and transport. These projects, which are geared towards the long-term, contribute to safe- Financial situation of the Group guarding Oerlikon group’s innovative power for the future. Business developments in 2008 strained the financial situation of the Group. Total equity in Oerlikon group was CHF 1.1 billion The ability to consistently develop new innovative technologies (previous year: CHF 1.9 billion), which represents 20.4 percent – the DNA of the company – is demonstrated in a number of of total assets. new products with which the company was able to reinforce and expand its leading position in its respective markets in 2008. The equity of 2008 was impacted by the impairment of goodwill in the amout of CHF 345 million, thereof CHF 252 million relate At the forefront is Oerlikon Solar. In 2007, the company was the to continued operations. first supplier to launch the micromorph® tandem technology. This breakthrough technology has an efficiency of roughly 50 Sales฀2008฀by฀region฀and฀segment฀1 North฀ in CHF million 2008 Europe Asia America Others Textile 1 690 411 893 277 109 Coating 509 298 106 102 3 Solar 598 260 334 4 0 Vacuum 465 263 126 73 3 Drive Systems 1 204 679 73 450 2 Advanced Technologies 284 138 67 73 6 Total 4฀750 2฀049 1฀599 979 123 1 Continued operations.

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    10 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon group percent higher than the previous amorphous technology as a tion fields as the most pressing environmental challenges can result of the two-layer coating – a milestone towards reaching only be solved through clean technologies. Major new markets grid parity, where the production costs of solar power equal will emerge in these areas in the future. those of conventional power production. At the end of 2008, two customers – the German company Inventux, and Auria So- The percentage of Oerlikon’s sales accounted for by clean lar of Taiwan – are starting production of micromorph® tandem technology products – i.e. products that have a direct environ- solar modules. At the same time, Oerlikon Solar has further de- mental benefit – rose from 8 percent in 2007 to 18 percent in veloped the basic technology with Amorph High Performance, 2008. These include, in addition to production facilities for thin and in doing so increased production capacity by 50 percent film silicon solar modules, transmissions for electric vehicles and the efficiency of the modules by 16 percent. The economic and wind power systems and vacuum pumps for the solar mar- success of Oerlikon Solar would not be possible without these ket. If the products that indirectly benefit the environment are innovative and practicable processes and the technological also included – for example, those that lower energy consump- edge they give the company. tion by thin film coating or energy-efficient applications – the percentage of sales accounted for by clean/efficient products The same applies to Oerlikon Coating. The segment introduced would be even higher. P3eTM, a revolutionary coating technology. P3eTM was the first technology to enable extremely hard layers to be deposited Renova as a strategic investor using a physical process at relatively low temperatures of up Renova, the Group’s major investor, stands behind this invest- to 600 degrees Celsius, with unprecedented scope for new ment and innovation strategy and actively supports it. In the design options. The economic success of Oerlikon Coating in forefront of the Annual General Meeting of Shareholders on 2008 and the resilience of the segment in the current economic May 8, 2008, Renova increased its investment and today holds conditions are largely based on this new technology – primarily more than 40 percent of Oerlikon shares. This far-reaching on record sales of the related INNOVA equipment. commitment, particularly in light of the current market situation, gives Oerlikon the stability it needs to pursue its long-term stra- Each business unit of Oerlikon group can provide similar tegy of becoming a world leader in interface/surface technolo- examples: In 2007, Oerlikon Barmag presented WINGS, a gies, nanotechnology and clean technologies. totally new winding technology for the production of chemical fibers – in the meantime, more than 1 600 units have been sold, Renova Group also represents an important link to the Eastern primarily in India; Oerlikon Space was awarded the contract to European market for Oerlikon. With sales in this region ac- develop and build a new Interstage Adapter for the Atlas V 400 counting for 2 percent, there is further potential for Oerlikon to launcher, which connects the main and the upper stage, built grow. Besides expanding the existing business – this year a by United Launch Alliance (ULA); Oerlikon Esec introduced the first coating center will be opened near Moscow – the company new Die Bonder platform 2100 xP last year and was subse- shows additional linking factors in new technology, particularly quently awarded the highly regarded Swiss Technology Award in nanotechnology. The Russian government has launched 2008. a state-funded program totaling up to EUR 5.6 billion to put Russian nanotechnology research and industry among the Clean technology increases share of sales global leaders within the next few years. Oerlikon has signed a Clean technologies are playing an increasing role in Oerlikon’s cooperation agreement with the Russian agency Rusnano and innovations. Oerlikon is developing a number of these applica- has already launched the first projects. To coordinate market R&D฀expenses฀1,฀2 in CHF million Equity฀1 in CHF million Operating฀cash฀flow฀1 in CHF million 2008 247 2008 1 093 2008 411 2 2007 245 2007 1 858 2007 678 3 2006 260 2006 1 488 2006 372 1 1 1 Research and development expenses (continued Attributable to shareholders of the parent. Before changes in net current assets. 2 operations) include expenses recognized as Restated. intangible assets in the amount of CHF 31 million (2007: CHF 34 million, 2006: CHF 49 million). 2 Continued operations. 3 Aggregated figures for Saurer and Oerlikon for full-year.

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    11 development in Russia and Eastern Europe, Oerlikon opened research and development and major product innovations thus its first office in Moscow in mid-2008. remain at a high level. With this realignment, Oerlikon group is facing a fundamental restructuring and repositioning scheduled In general, Oerlikon continues to demonstrate its strategy in to last for two to three years. regional expansion as one of the Group’s central growth en- gines. The expansion of business in Asia – both as a market for With both – increases in efficiency and productivity as well as Oerlikon products and as a production site – has a key role to continued innovation – Oerlikon is taking steps to ensure it can play in this strategy. master the current challenges and emerge from the crisis in a stronger position. Outlook for 2009 At the end of 2008, the overall business environment declined even further than anticipated. The key industrial countries are currently in the midst of a full-fledged recession; the most important emerging countries that were an engine for growth in the global economy are losing momentum on a large scale. Despite its leading products and market positions, the Group cannot escape this environment. The current economic situation is characterized by high vola- tility, which makes it difficult to give a reliable outlook. As a result, Oerlikon is refraining for the time being from making any forecasts with specific figures for the current business year and beyond. In the current situation, the company will limit itself to statements on current trends and will only return to its usual practice of providing specific estimates when confidence and predictability have returned to the markets. Oerlikon does not expect the textile machinery market to recover before 2010. The possibility that it will decline further cannot be ruled out. The recently approved support measures such as those of the Chinese government have not yet had any visible effect, but are expected to support Oerlikon Textile in the medium-term. For Oerlikon Coating, Vacuum and Drive Systems, which until now have experienced solid growth, we expect markets to be flat or in decline. Even Oerlikon Solar is preparing itself for a temporary halt in growth. Oerlikon Space will continue to grow in its heavily regulated market. Overall, Oerlikon group will face a difficult and challenging 2009. All business units have adjusted to these scenarios and have introduced or planned respective recovery and sustaining mea- sures. The focus in all areas is on cost and cash flow manage- ment, improving operating efficiency to sustain profitability. With extended vacation, short-time work, capacity adjustments, a hiring and salary freeze, etc., the business areas had already adjusted to the changed conditions by year-end. However, Oerlikon group is not only undertaking responsive measures to overcome the challenges of this phase. With strong pressure, work is being done to further align the portfolio around the core competencies of surface/interface technol- ogy and to develop the markets of the future with applications in nanotechnology and clean technologies. Investments in

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    12 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Textile Oerlikon฀Textile Since late 2007, the market for textile machinery has been experiencing a downturn of unprecedented proportions. Even before this steep decline, Oerlikon Textile moved to implement an extensive restructuring program. Segment sales fell to CHF 1 690 million (–37.8 percent) with an EBIT of CHF –281 million. This includes non-curring charges of CHF 255 million (goodwill impairment and restructu- ring costs). The volume of new orders fell by 48.6 percent to CHF 1 364 million. An upturn in the textile machinery market is currently not expected before 2010. Key figures Oerlikon Textile in CHF million 2008 2007 (%) Orders received 1 364 2 655 –48.6 Orders on hand 443 821 –46.0 Sales 1 690 2 719 –37.8 EBIT –281 208

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    “With฀our฀Simplify฀฀Oerlikon฀฀Textile฀restructuring฀ program,฀we฀have฀geared฀ourselves฀up฀rigorously฀for฀ the฀future.฀When฀the฀next฀upswing฀comes,฀we฀will฀be฀ ready฀to฀consolidate฀and฀further฀expand฀our฀market฀ leadership฀in฀all฀technological฀areas.” ฀ Dr.฀Carsten฀Voigtländer,฀CEO฀฀Oerlikon฀฀Textile

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    14 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Textile Overview Business development After more than two years of continuous growth and record 2008 witnessed a sharp contraction in the international market sales in 2007, demand slumped in early 2008. A historically for chemical fibers and chemical fiber plants, machinery and unprecedented downtrend emerged in the space of just a few components. The extremely high prices of raw materials and months. The German Engineering and Machinery Associa- the prevailing overcapacity were just two reasons why business tion (VDMA) reported that the volume of new orders for textile volume in certain product lines declined by up to 60 percent. machinery dropped by over 60 percent in 2008. Factors driving Virtually all technological areas saw customer orders being this trend included the accumulation of overcapacities in the postponed on a daily basis, brought on by the dearth of credit chemical and staple fiber market, the high level of raw materials being granted in the lending markets. and energy prices, the expiry of and changes in subsidy pro- grams in China and India and unfavorable currency exchange Yet, the business unit still proved capable of asserting itself on rates. By year-end, the sharp drop in demand had made itself the market, in particular with its new concept for the chemi- felt in all areas of Oerlikon Textile, dramatically aggravated by cal fiber spinning system WINGS (Winder INtegrated Godet the worldwide financial crisis. Despite all this, Oerlikon Textile Solution). This product, presented for the first time at the end of succeeded in maintaining its position as market and technology 2007, increases efficiency by more than 30 percent thanks to leader, even expanding its standing in some areas. its innovative thread guidance mechanism. WINGS is an excel- lent example of how innovative products strengthen market Anticipating a cyclical economic downturn, management was positions during market downswings. More than 1 600 WINGS early in initiating a thorough and comprehensive restructuring spinning units were sold in 2008, of which 1 400 alone went to project named “Simplify Oerlikon Textile” at the end of 2007, India. and budgeted some CHF 20 million in restructuring costs for 2008. Then, owing to worsening developments in 2008, the Thanks to continual product innovation with the focus on program was substantially broadened and its implementation energy savings (e-save) and consistent strategy orientation accelerated with the aim of reducing the break-even level by towards key products, the business unit was able to further more than CHF 300 million and lowering fixed costs by over improve its margin. 20 percent by 2010 (compared to 2007 levels). To achieve these goals, the following key actions were launched: Key topics „ Halve the number of production locations worldwide by 2010; nine sites have already been consolidated or closed since Greater฀market฀penetration฀with฀WINGS: The market 2007. and application potential of the new WINGS concept first intro- „ Focus the product portfolio on textile machines that ensure duced at the International Exhibition of Textile Machinery (ITMA) long-term profitability. in Munich in 2007 is far from exhausted. WINGS will continue to „ Further optimization of business processes and stronger revolutionize worldwide chemical fiber fabrication in 2009. utilization of the synergies of the textile technologies within the segment. Simplify฀฀Oerlikon฀฀Barmag:฀The project “Barmag Kompakt” „ Headcount reduction in Europe by more than 1 000; these has already succeeded in redesigning virtually all relevant busi- cuts have already been completed in 2008. ness processes at company headquarters in Remscheid. The „ Introduce targeted investments in research and development company invested in a modern and flexible winder production that will expand our technological leadership. 2008 saw about line, which will contribute towards lowering the break-even CHF 100 million injected into efforts to develop new products threshold from 2009 onwards. and further advance existing ones. „ Modernize production facilities. This constitutes the most extensive restructuring program un- dertaken at Oerlikon Textile in the enterprise’s recent history. Outlook Oerlikon Textile does not foresee a market recovery until 2010 at the earliest. The course set by our Simplify Oerlikon Textile The financial and banking crisis will presumably continue to initiative will be consistently pursued throughout 2009. Currently dampen the ability of customers in the chemical fiber market to a further decline in the textile machinery business cannot be invest until 2010. One recent positive side effect, however, is ruled out. Oerlikon Textile will react to market developments in that the prices of raw materials have fallen back to 2007 levels, a highly flexible, thorough and consistent manner. allowing customers of Oerlikon Barmag to return to profitability.

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    15 ฀ Despite its difficult business environment, Oerlikon Neumag Oerlikon Saurer, producer of twisting and embroidery ma- almost succeeded in maintaining its order volume for nonwoven chinery, experienced a difficult business year in 2008. Further plants. At mid-year, the spunbond laboratory facility at Neu- weakening of demand led to a contraction in market volume muenster was expanded by adding two extra spinning beams. of up to 35 percent, to which the business unit reacted by Orders included a major contract with the German company swiftly implementing headcount cuts in the second half of 2008. Concert for a new product line to be erected at a company Despite these trying conditions, Oerlikon Saurer succeeded in location in Germany. This new equipment configuration enables winning additional market share of up to 5 percent with its in- fulfillment of virtually all development requirements for hygiene novative products and attractive services. applications. Moreover, a number of innovations in the details of spunbond machine design have markedly improved perfor- In its twisting machinery business, the tire cord and industrial mance parameters. yarn product segments recorded a positive development thanks to growing demand in Asia and Eastern Europe. De- As for carpet yarn plants, although business figures did not mand for twisting machines for staple fiber yarns has dropped quite match last year’s levels, actual orders and sales clearly dramatically due to the financial crisis in the United States and exceeded expected levels, a development mainly attributable to sharp declines in the main markets of China, India and Turkey. the American and European markets. Original parts business weakened in the final quarter of the year, in line with the general trend. The market for polyester staple fibers, a sector characterized in the two previous fiscal years by overcapacity and consoli- Demand in the embroidery machine business had already dations in China showed the first signs of a slight recovery in been very low, and dropped off even further in 2008. Thanks 2008. Nevertheless, the continuing restraint in capital invest- to strongly improved product performance, Oerlikon Saurer ment has had a significantly negative impact on financial was able to win prestigious new key customers from its market perfomance. competitors. The first embroidery machine employing a swivel- type soutache and sequins system completed successful field testing. ฀ Further฀extension฀of฀nonwovens฀specialities:฀In 2008, Concentrating฀on฀core฀business:฀Oerlikon Saurer stream- Oerlikon Neumag successfully concluded projects at virtually all lined its product portfolio in 2008 with an eye on profiting from of the world’s ten major producers of carded nonwovens. Thus, the coming market upswing by offering innovative, market- Oerlikon Neumag became firmly established among the “Top 3” driven products and services in its core business area. For providers of total solutions. Contrary to the falling market de- example, the company’s WINPRO (long staple spinning and mand, more follow-up orders had been concluded by year-end. twisting system) technology was discontinued in 2008. Carpet฀yarns฀achieve฀greater฀market฀penetration:฀ Developing฀sustainable฀solutions: The e-save strategy In 2008, Oerlikon Neumag brought to market its new genera- strongly pushed by Oerlikon Textile with the aim of reducing tion of bulked continuous filament (BCF) machines for carpet the electric power consumption of its products – or alternatively yarn plants (SYTEC ONE). The first production plant has suc- increasing productivity without increasing power demands – cessfully begun operation. In 2008, the business unit sold over has met with positive feedback from the market. Customers 100 units of this new generation of machines. Further rollout is are readily willing to invest in these new technologies and apply a priority for 2009. their processes. Oerlikon Saurer is working intensively to de- velop such sustainable energy-saving solutions. ฀ In 2009, business volume for nonwoven plants is expected to The market for twisting and embroidery machinery is not ex- remain on par with 2008. There will be a tendency towards pected to experience any significant recovery in 2009. Orders better margins. Innovations in the carding lines introduced to will not increase until general consumer sentiment has im- the market last year will contribute to the positive development proved, which is not envisaged before 2010. In 2009 additional of this business unit. Demand for carpet yarn is expected to de- restructuring measures are likely to be implemented. cline in 2009 to a more average level. The markets for synthetic staple fibers are expected to continue their recovery.

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    16 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Textile Business development ฀ In 2008, the staple fiber yarn market was hit by an unprece- At Oerlikon Textile Components the sharp decline in the ma- dented downswing that clearly exceeded all cyclical downturns chinery business, particularly in the second half of the year, in to date in speed and scope. Demand worldwide plummeted by all technological areas of chemical fiber, staple fiber yarn and more than 50 percent depending on the given technology. nonwoven fabric production, led to a severe market downswing Initially, Oerlikon Schlafhorst was able to cushion the downturn towards the end of the year. somewhat compared to the general market trend through its three technology fields of rotor spinning, ring spinning and Nevertheless, the measures initiated by the Simplify project in winding machines. The package winding business recorded 2008 helped the business unit to achieve a positive financial solid orders well into the year, however, with a decline to- result. This was accomplished primarily by cutting the number wards year-end. The demand for rotorspinning machines was of sales agents, consolidating sales units and reducing the on a low level. Ringspinning machines were under high price number of production sites. pressure. A significant event in 2008 was the fire at the Singapore Facing this advancing downswing, Oerlikon Schlafhorst set production facility. Thanks to excellent cooperation from all about implementing an extensive restructuring campaign on employees and sites, the business unit was able to make up for fast-track. Substantial adjustments to production capacity the resulting production losses within only a few weeks of the and headcount were already undertaken in the first half-year, incident. particularly in Germany. All told, the company laid off 400 employees. In the second half of the year, the business unit announced it would be consolidating its three production sites in Germany. This will lead to further job cuts in 2009, reducing the workforce by more than 15 percent. Once implemented, the effects of this restructuring will start to kick in the latest in 2010, helping to lower the break-even threshold by 20 percent (compared to 2007). Key topics ฀ Expanding฀the฀company’s฀Asian฀locations: Preparation Achieving฀even฀greater฀flexibility:฀The business unit is of the new production site in the Indian city of Halol was com- optimizing its business processes to react faster and more pleted in 2008, so that production can begin in 2009. Measures effectively to future market fluctuations. Central processes were likewise initiated in 2008 to transfer the production of simultaneously ensure maximum utilization of synergies within manual and semi-automatic rotor spinning machines from the Oerlikon Textile Components, e.g. between production, pur- Czech Republic to Suzhou, China, where this product line will chasing, controlling and product management. be delivered starting in 2009. Modernizing฀production฀processes: The business unit Further฀strengthening฀our฀market฀position:฀With its will improve cost-effectiveness even further by modernizing its new AUTOCONER 5 and AUTOCONER 5S winding machines, production sites, such as the facility in Muenster, Germany. Re- as well as the ZINSER 360 ring spinning machine, Oerlikon definition of the production processes applied by the Accotex Schlafhorst will win further share of the high-end and mid-range and Daytex product lines harbors great potential for improving markets as well as in niche applications for dye packages. product quality while simultaneously optimizing production sequences. Outlook ฀ Oerlikon Schlafhorst anticipates a further decline in sales in By decommissioning numerous machines and plants, custo- 2009. The implemented restructuring measures will lead to mers can fall back on an adequate supply of most spare parts fewer company locations with greater centralization of pro- from their own machines. In 2009, the business unit expects cesses and considerably lower costs. It will also be vital to win new investments in premium components from Oerlikon Textile additional market share in all technology areas, particularly in Components to be lower than in 2008. the mid-range segment of ring spinning machines. Further- more, additional efforts will be made to lower the break-even threshold by reducing the manufacturing costs of all products.

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    17 Customer reference A top player in India As one of the leading producers of air textured yarn (ATY) and draw textured yarn (DTY), Wellknown Polyester re- ceived the first pre-oriented yarn (POY) production plant equipped with 12 new WINGS machine units from Oerlikon Barmag. The Indian manufacturer of- fers a uniquely broad range of specialty yarns, and focuses on innovation and top quality. The company’s machinery is equipped with the latest technology. Of this machinery, virtually all of its equip- ment for POY and fully drawn yarn (FDY) production was supplied by Oerlikon Barmag, as was a poly-condensation plant currently being erected. Wellknown Polyester has also declared its trust and confidence in the ability of Oerlikon Barmag as a longstanding business partner to support Wellknown’s pur- suit of ambitious growth plans. As Anil Gupta, Managing Director of Wellknown Polyesters, says: “In the coming years, we want to become one of India’s three top players in our market segment. To achieve this goal, we need pioneering machine concepts like WINGS.” “Our฀vision฀lives฀through฀innova- Trendsetter WINGS saves space and time tion,฀quality฀and฀differentiation.฀ The acronym WINGS stands for Wind- To฀this฀end,฀we฀need฀international฀ ing INtegrated Godet Solution. As a complete winding machine for fabricat- partners฀like฀฀Oerlikon฀฀Barmag.” ing POY yarns, this innovative solution integrates the godets and winding unit Anil Gupta, Managing Director of Wellknown Polyesters Limited, India into one system for the first time. Its user-friendly design, ingenious thread guidance system and simplified setup procedures not only save space and time, but also permit faster production of extremely uniform quality yarn. “The machine is truly a trendsetter and makes our POY production even more efficient”, emphasizes Anil Gupta. Thanks to the high POY quality, the DTY texturizing process that follows downstream of the POY spinning process can run at higher process speeds. At the same time there are fewer process interruptions. “We thus have a trump card in a challenging market where margins pose ever greater challenges,” says Mr. Gupta.

  • Page 20

    18 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Coating ฀Oerlikon฀฀Coating To further increase transparency, starting in 2008 Oerlikon Balzers is the only business unit reporting in the segment Oerlikon Coating. Oerlikon Systems, which was part of Oerlikon Coating, is now reported in the Oerlikon Advanced Technologies segment (formerly Oerlikon Components). Oerlikon Coating reports excellent results for 2008. The business unit Balzers surpassed the CHF 500 million threshold for the first time. Sales grew by 2.4 percent to CHF 509 million. Before restructuring costs and impairment of tangible assets of CHF 6 million EBIT grew to CHF 84 million, marking the best result ever achieved by Oerlikon Balzers. The profit margin slightly decreased before restructuring costs and impairment of tangible assets to 16.5 percent in 2008, compared to 16.7 percent in 2007. Key figures Oerlikon Coating in CHF million 2008 2007 1 (%) Orders received 509 497 2.4 Orders on hand – – Sales 509 497 2.4 EBIT 78 83 –6.0 1 Pro forma.

  • Page 21

    “Our฀ability฀to฀continuously฀set฀new฀industrial฀stand- ards฀in฀advanced฀surface฀technology฀is฀a฀key฀driver฀ for฀our฀sustainable฀and฀profitable฀growth.”฀ ฀ Dr.฀Hans฀Brändle,฀CEO฀฀Oerlikon฀฀Coating

  • Page 22

    20 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Coating Business development For the first time Oerlikon Balzers surpassed the CHF 500 even larger on the next 25 coating centers, which improved by million mark in sales – a milestone in its 30 years history of about 9 percentage points in the same time period. sustainable growth. Overall, the business grew in 2008 by 2 percent at current exchange rates and by 8 percent in local The integration of former VST Keller into Oerlikon Balzers was currencies. 2008 was characterized by a strong upswing of successfully completed. From the beginning, the leader in 12 percent for the first six months compared to the same plasma treatments for large dies achieved a comparably high period in 2007, a reduced growth rate of 6 percent in the third profitability level, as did the rest of Oerlikon Balzers. The expan- quarter, followed by a distinct slowdown of –16 percent in the sion of the global footprint was continued. With the acquisition fourth quarter due to the automotive crisis. Without exchange of Suomen Plasmapinta Oy (SPP) Oerlikon Balzers stepped into rate impact the growth was 19 percent in the first half-year, Finland with one coating center. Five other new centers were 10 percent in the third quarter and –12 percent in the fourth opened in the fast growing Asian market. quarter. Both coating services, representing about 90 percent of the Oerlikon Balzers sales, and coating equipment sales 2008 was a record year for coating equipment sales to the tool- to the tooling industry, contributed to the growth in 2008 at ing industry. In particular, the INNOVA coating system, based stable exchange rates. on the innovative P3e™ technology, was a frontrunner. A driver for profitability was an operational excellence program: Due to the looming slowdown in the second half of 2008, a newly developed business warehouse allowing increased management decided to reduce the number of temporary staff. transparency and consistent benchmarking of almost 90 coa- In the fourth quarter a further headcount reduction was initiated. ting centers. One major result was improved asset utilization The guideline for all of these actions was maintaining profita- achieved by moving a substantial number of coating equipment bility at a high level while keeping the necessary resources for units to other sites. Due to this operational excellence program the next upswing. The restructuring cost and the impairment of the gross profit margin of the top 50 centers improved by more tangible assets for 2008 amounted to CHF 6 million. than 3 percentage points in the last two years. The impact was Key topics Expansion:฀The expansion of Oerlikon Balzers in Asia is a Innovation:฀High power pulse technology becomes the strategic focus and continues at a fast pace. In 2008, three ad- basis for pushing the envelope in technology more and more. ditional coating centers took up production in China, one more Oerlikon Balzers sets new industrial standards with PPD™ followed at the beginning of 2009. In total, Oerlikon Balzers now and P3e™. Pulsed Plasma Diffusion (PPD™) will replace the operates seven coating centers in China, which grew in 2008 traditional hard chrome plating for medium and large punch- well in excess of 30 percent. With the joint venture PT Oerlikon ing and forming tools. With this new solution by-products such Balzers Artoda Indonesia in Jakarta, Indonesia, Oerlikon Balz- as hexavalent chromium, which is harmful to health and the ers is the first mover into this emerging market. With additional environment, will be eliminated. coating centers opened in 2008 and at the beginning of 2009 The Pulse Enhanced Electron Emission (P3e™) technology is in Asia, Oerlikon Balzers now operates four coating centers in a breakthrough within the thin film processes. Installed on the Korea, five in Japan and India, respectively. On the other hand, latest coating equipment INNOVA, P3e™ enables the deposi- the change in demand required the consolidation of two coa- tion of advanced oxide-based coatings and therefore offers a ting centers in the northern part of the US and one in Brazil. At completely new range of possibilities in the design and perfor- the beginning of March 2009 Oerlikon Balzers was operating a mance of cutting tools. All global leaders in tool manufacturing total of 87 coating centers in 31 countries. have opted for this innovative coating system. Outlook In light of an expected two-digit drop in sales, managing profi- Shaping the organization for continued substantial growth is tability by executing appropriate contingency plans will be a top the second priority for 2009. This will put Oerlikon Balzers in a priority for 2009. position to profit overproportionally from the next upswing and will be a prerequisite for continued profitable and sustainable Additionally, innovation, business excellence and the expan- growth above market average. sion into untapped geographical markets will continue. A first coating center will be established in Elektrostal, Russia, in mid- 2009 to supply the steadily increasing demand for advanced coatings in Russia. Including Russia, Oerlikon Balzers will be present in 32 countries.

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    21 Customer reference 25 percent higher productivity The plant of the Korean automotive manufacturer, Hyundai/Kia, located in the Slovakian city of Zilina, is a record breaker in every respect. The best example: it only takes 18 hours to manufacture a vehicle – from forming the metal all the way to the test drive. Some car manufacturers need more than twice as long. When In-Kyu Bae, President and CEO of Kia Motors Slovakia, pre- sented production figures like these to his management colleagues in Korea they were excited. The Eastern European plant is currently the benchmark within the Group. One key factor in its outstanding performance is called “Pulsed Plasma Diffusion” (PPD™). Oerlikon Balzers applied this technology to treat the forming tools for Kia Motors Slovakia, thereby replacing conventional hard chromium plating. According to Kia Mo- tors Slovakia President Bae, the surface treatment solution from Oerlikon Balzers has four major advantages: first, PPD™ is completely environmentally friendly – unlike toxic hard chromium plating, it is a “clean technology” par excellence. Second, PPD™ treatments for the tools “We฀make฀the฀technology฀of฀฀ of Kia Motors Slovakia last a complete ฀Oerlikon฀฀Balzers฀the฀standard฀฀ car model life. Tools with hard chrome plating have to be recoated every six in฀the฀Kia฀Motors฀Group.” months. Third, the PPD™ technology eliminates the problem of tiny particles In-Kyu Bae, President and CEO of Kia Motors Slovakia, Slovakia embedded in hard chrome coatings, leading to surface defects on the pro- duced parts. “In the past we had spent a lot of time maintaining the forming tools”, says Mr. Bae. With PPD™ treated tools the high maintenance costs are avoided. And fourth, the most important reason of all: “We manufactured 400 parts per hour using hard-chrome-plated forming tools – with PPD™ treated tools, it is 500.” Productivity is 25 percent higher. “Thanks to the high quality of the surface treatment used for our forming tools, we are able to produce the best quality vehicles”, says Mr. Bae. These reasons make it easy for Kia Mo- tors Slovakia President Bae to present a convincing case. PPD™ will be intro- duced throughout the entire Hyundai/Kia Group over the coming months. “PPD™ from Oerlikon Balzers is now,” according to Mr. Bae, “our new global standard.”

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    22 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Solar ฀Oerlikon฀฀Solar In 2008, the new Solar segment demonstrated the ability to leverage its technological competencies to achieve strong, profitable growth. However, new solar projects in the second half of 2008 were postponed as a result of the global financial crisis. These delays led to lower sales than targeted and a reduction in orders received. Orders received amounted to CHF 566 million (–12.9 percent), sales increased by 124.8 percent to CHF 598 million. Including intercompany sales the segment’s turnover amounted to CHF 628 million. EBIT reached CHF 107 million (+69.8 percent). Key figures Oerlikon Solar in CHF million 2008 2007 1 (%) Orders received 566 650 –12.9 Orders on hand 429 460 –6.7 Sales 598 266 124.8 EBIT 107 63 69.8 1 Pro forma.

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    “Today,฀฀Oerlikon฀฀Solar฀is฀the฀established฀market฀ leader฀providing฀the฀fastest฀time฀to฀market฀for฀฀ manufacturers฀of฀thin฀film฀silicon฀PV฀modules.” Jeannine฀Sargent,฀CEO฀฀Oerlikon฀฀Solar

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    24 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Solar Business development In 2008, Oerlikon Solar clearly demonstrated the competitive- launched Amorph High Performance, which enables a 50 per- ness of its equipment and end-to-end solutions. Five new cent increase in capacity, 16 percent increase in panel power customers were contracted in the course of the year under re- output and a stabilized efficiency of 7 percent. This product view: Tianwei and Chint (China), HelioSpera (Greece), PRAMAC now serves as a low-cost entry point for mass producers that (Switzerland) and Gadir Solar (Spain). can be subsequently upgraded to micromorph®. All projects were delivered on schedule and all performance In late 2008, TÜV Rhineland announced that Oerlikon Solar had and output guarantees were met. Record time-to-revenue (less passed all tests required for the IEC certification of its Amorph than nine months from contract signing to volume production) and Amorph High Performance thin film silicon panels, having and the stability of its mass manufacturing solutions set new satisfied all panel performance and panel safety criteria. Issued standards in the industry. The company actually overperformed as a master certificate, this allows Oerlikon Solar to offer all in the first half-year, but the financial crisis impacted orders re- end-to-end production line customers reduced time-to-market ceived in the second half. Due to a requested shipment delay of with guaranteed performance and lifetime. a follow-up order by an Asian customer at the end of 2008, the annual sales target of CHF 700 million was not achieved. The In December, the first micromorph® production started at customer expects this project to be realized in 2009. Inventux, Germany and Auria Solar, Taiwan. Additional custo- In 2008, Oerlikon Solar implemented a comprehensive growth mers are ramping up in the first half of 2009. strategy. Manufacturing capacity was significantly expanded both by internal site expansion and by a strategic manufactur- In 2008, more than 700 000 panels were manufactured us- ing outsourcing partnership with the global EMS company ing Oerlikon Solar’s thin film silicon solutions while a growing Flextronics. Doubling the capacity of Oerlikon Solar’s R&D number of new customer sites were in the ramp-up process. center in Neuchâtel, Switzerland is also underway. In August, a In early 2009, Oerlikon Solar took a major step to strengthen its pilot line was officially opened in Truebbach and the company market presence in parts of Asia and Oceania by establishing a announced with CMC Sunwell, Taiwan, its first Asian cus- long term cooperation agreement with Tokyo Electron (TEL) of tomer entering mass production. In November, Oerlikon Solar Japan. Key topics Road฀map฀to฀grid฀parity: Oerlikon Solar has made solid pected to spur on the market in the medium- to long-term, with progress on an ambitious road map to grid parity. Amorph slower growth expected in 2009 due to the global economic High Performance has already shown the company’s ability to situation. Oerlikon Solar is aligning its sales and customer sup- effectively drive down the panel cost. At the same time a new port organization to these market shifts. zinc oxide TCO technology was proven in mass production resulting in new records for panel efficiencies. In general, grid Record฀cell฀efficiencies:฀Oerlikon Solar’s extensive R&D parity should be achieved by the end of 2010 with costs down led to further edge product improvements. In autumn 2008, to USD 0.70/Wp. Oerlikon Solar presented internationally recognized record cell efficiencies on amorphous silicon. These breakthroughs Further฀market฀penetration:฀As the global market expands are already in the process of transformation to mass produc- and photovoltaics (PV) increasingly gain acceptance, we are tion. Additional advances in both amorphous and micromorph witnessing a clear shift in regional focus from Europe to Asia silicon are planned in 2009. and North America. Asia, in particular China and Taiwan, is developing rapidly, with the US expected to follow by 2010. Renewable energy initiatives in both China and the US are ex- Outlook In 2009, the global economic crunch will cause overall de- and focused to secure leading market share in Oerlikon Solar’s mand in the PV market and the thin film sector to remain flat or market sector. At the same time, non-essential capital pro- slightly down compared to 2008. As a result, Oerlikon Solar’s grams and growth plans will be suspended or delayed. Over all, orders received is expected to be on the same level as 2008. we are convinced that we will come out ahead of the current Since the fundamentals underpinning the long-term growth market situation as we are strengthening and expanding our prospects have not changed, the company expects a return to position. double-digit market growth by early 2010. Oerlikon Solar will use the interim period to accelerate investment in R&D, improve solution performance and align the organization to regional market shifts. Marketing and sales efforts will be intensified

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    25 Customer reference More than 1 000 panels per day To see one of Europe’s largest produc- tion facilities for thin film silicon solar panels, you have to visit the city of Erfurt. ersol Thin Film, a subsidiary of the Bosch Group, operates a 40-megawatt- capacity production line there. ersol and Oerlikon Solar began the production ramp-up about a year ago and the plant is now operating at full speed. Ap- proximately 1 000 panels leave the fac- tory every day and more than 250 000 panels have been manufactured since production started. This is the second thin film silicon plant in the world that manufactures panels using Oerlikon Solar equipment. “The fact that we were able to ramp-up production so quickly and today are producing at such a high level of efficiency and stability is a great achievement by ersol and Oerlikon Solar” says Peter Schneidewind, Executive Board member of ersol Solar Energy AG responsible for the thin film business. ersol uses Oerlikon Solar’s KAI coating systems and laser scribing technology. An amorphous silicon coating is applied to the panes of glass. The panels attain a stabilised output of more than 80 watts per panel. The Nova®-T panels from ersol have been technically certified by “The฀quick฀ramp-up฀of฀our฀pro- TÜV Rheinland since July 2008. duction฀was฀a฀joint฀achievement฀ Effective Oerlikon Solar systems have by฀ersol฀and฀฀Oerlikon฀฀Solar.” helped ersol to successfully enter the market for thin film technology. And this Peter Schneidewind, Executive Board member ersol Solar Energy AG, Germany is just the beginning. “We want to be one of the world’s leading providers of thin film solar panels,” says Schneidewind. ersol aims to expand its capacity in the years ahead. The plans for constructing another factory are already in the pipe- line. And the decision has already been made to start developing micromorph®- technology with a 50 percent higher efficiency rate.

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    26 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Vacuum ฀Oerlikon฀฀Vacuum Due to an excellent performance in the first nine months of 2008, Oerlikon Vacuum recorded solid results for the full year. The segment achieved an increase of 1.5 percent in sales to CHF 465 million, with orders received of CHF 460 million (–3.6 percent) with an EBIT of CHF 49 milllion (–10.9 precent). Oerlikon Vacuum expects a declining market in 2009. Key figures Oerlikon Vacuum in CHF million 2008 2007 (%) Orders received 460 477 –3.6 Orders on hand 68 78 –12.8 Sales 465 458 1.5 EBIT 49 55 –10.9

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    “We฀have฀a฀solid฀market฀and฀product฀portfolio฀and฀ offer฀innovative฀vacuum฀solutions฀for฀almost฀all฀ technologies.฀However,฀we฀constantly฀strive฀to฀ex- ceed฀our฀performance฀in฀order฀to฀meet฀our฀customer฀ demands฀on฀cost฀of฀ownership.฀We฀will฀react฀faster฀ and฀align฀our฀organization฀to฀adjust฀to฀the฀economic฀ challenges.”฀ ฀ Dr.฀Andreas฀Widl,฀CEO฀฀Oerlikon฀฀Vacuum

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    28 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Vacuum Business development Oerlikon Leybold Vacuum showed a high resistance against the strong machinery, coating and solar industries. Since October, upcoming global recession. In 2008, sales rose by 1.5 percent however, nearly all applications for vacuum technology have to CHF 465 million, orders received decreased by 3.6 percent given way to a recession scenario, with only the renewable to CHF 460 million. Changes in currency exchange rates with energy fields continuing to show some development. adverse effects, especially Euro versus US-Dollar and Yen, lead to a negative EBIT effect of 4 percent (CHF –18 million) Solutions:฀The Solutions business of Oerlikon Leybold compared to 2007. The EBIT reached CHF 49 million (–10.9 Vacuum has seen a year of extraordinary growth. Apart from percent). successes in the coating applications area such as architectural glass, the emerging demand for solar equipment for various Process industries recorded solid development in all regions, manufacturing methods contributed to this success. With a triggered by high capital investments in many industrial sectors view to remaining close to customers around the world, a stra- around the world. The same was true for many coating and tegy for providing the requisite know-how was implemented in display vacuum technologies, as well as for R&D. Growth in Asia and the US and is already producing positive results. analytics showed a certain weakness, which was also in- fluenced by reduced public spending worldwide and highly Services:฀Oerlikon Leybold Vacuum initiated a solar service price-aggressive competition. The figures for energy applica- concept to provide more efficient vacuum services around tions such as solar, wind or even conventional energy sources photovoltaics. In 2008, further investments were made to showed double-digit growth. Once more, structural measures strengthen the maintenance network, for example in India. New aimed at value engineering, streamlining processes and rigo- services like a calibration service for the pharmaceutical industry rous cost control substantially contributed to limiting the impact completed the portfolio. on earnings. From a regional point of view, Asia, and in particular China, continued to be a strong growth driver, but Europe also enjoyed three excellent quarters – especially Germany with its Key topics Product฀rollout:฀2008 saw the market launch of TRIVAC NT, Sales฀push:฀Oerlikon Leybold Vacuum has entered into a TURBOVAC SL and the ATEX certified fore vacuum pumps. cooperation agreement with a customer offering facility man- Introduction of these new pump lines for fore and high vacuum agement for large customers (e.g. CERN), including individual offers new sales opportunities for 2009. Additional new pro- full range vacuum technology service packages. Local telesales ducts to complement the portfolio will be launched in 2009. teams and new sales support structures have been set up for the diffuse markets to further enhance the ability to react and Global฀production฀footprint:฀Production capacities were respond to customer and market demands.฀ increased worldwide to meet market demand, in particular for fore vacuum products such as ROOTS and SOGEVAC for the Customer฀training:฀The LEYBOLD ACADEMY will gain Asian market. Driven by the growth in the solar and process further importance in 2009. Training customers and staff is industries, there was also an associated rise in demand for SO- an essential factor for increasing the benefit of technologically GEVAC and SCREWLINE pump lines. Aligning manufacturing superior components and solutions for customers. capacities to make the best possible use of the global footprint in the declining market will be one of the major tasks in 2009. Outlook For 2009, Oerlikon Leybold Vacuum anticipates a global Due to a stable market portfolio and new product lines with recession and expects the size of the global market to shrink enhanced customer benefits, Oerlikon Leybold Vacuum is well accordingly. Most investment activities throughout the world positioned to master the challenges on the economic horizon have already slowed down. The vacuum market is expected to and intends to achieve its goals for above-market perfomance follow this development, with only the Asian markets showing in 2009. a low growth rate. Prognoses will remain difficult, as economic development may widely dissipate in the various market seg- ments and global regions.

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    29 Customer reference World record with factor 40 000 Oerlikon Leybold Vacuum engineers demonstrated their exceptional enginee- ring expertise at the Institute for Energy and Environmental Technology (IUTA) in Duisburg, Germany. With its new synthetic reactor, IUTA has teamed up with the University of Duisburg-Essen to achieve the next step in the large-scale commercialization of nanotechnology. The reactor includes a vacuum system from Oerlikon Leybold Vacuum that sets a world record in terms of the ratio of pressure to gas flow, using sophisticated measurement and control technology. The characteristic field of the suction capacity control ranges from the lowest pressure (10 mbar) with the largest gas flow (200 nl per minute) to the highest pressure (1 000 mbar) with the smallest gas flow (0.5 nl/min). The dynamic factor is therefore 40 000. This range is necessary because the pressure and gas flow parameters determine the size of the nanoparticles. “Research reactors only provide a few grams of material. Large reactors, on the other hand, cannot be adjusted for further experiments,” says Dr. Hartmut “฀Oerlikon฀฀Leybold฀Vacuum฀฀ Wiggers from the Institute for Combus- tion and Gas Dynamics at the University totally฀convinced฀us฀with฀its฀฀ of Duisburg-Essen. The new reactor at IUTA fills this gap and can be used to engineering฀expertise.” produce the highly prized nanoparticles by the kilo, with great flexibility. Dr. Hartmut Wiggers, University of Duisburg-Essen, Germany Dr.-Ing. Sophie Marie Schnurre, Institute for Energy and Environmental Off-the-shelf vacuum systems cannot ful- Technology Duisburg, Germany fill the special standards that the inside of the synthetic reactor is required to meet. “An enormous amount of engineering expertise was needed to guarantee extreme flexibility in the process design and optimization,” said Dr. Stefan Heap, Managing Director of IUTA. Following an intensive selection process, Oerlikon Leybold Vacuum was the only supplier left in the running. “Only Oerlikon Leybold was able to show us a convincing turn- key system that included the measure- ment and control technology,” recalls Heap. The secret: four different mecha- nisms connected in series ensure that conditions on the inside of the reactor are always right. Thus Oerlikon Leybold Vacuum ranks among the companies who are paving the way for the next generation of nanoparticles.

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    30 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Drive Systems ฀Oerlikon฀฀Drive฀Systems The consistently solid financial performance of Oerlikon Drive Systems reflects a long-standing relationship with key customers and its ability to continually identify new mar- ket opportunities. Despite a challenging global economic environment, sales increased by 8.2 percent in 2008 to a record CHF 1 204 million. Both business units – Oerlikon Fairfield and Oerlikon Graziano – contributed in equal mea- sure to the results. Key figures Oerlikon Drive Systems in CHF million 2008 2007 (%) Orders received 1 171 1 185 –1.2 Orders on hand 183 231 –20.8 Sales 1 204 1 113 8.2 EBIT 65 83 –21.7

  • Page 33

    “We฀are฀coming฀closer฀to฀our฀aim฀of฀being฀recog- nized฀by฀customers฀as฀the฀gear฀solutions฀provider฀of฀ choice.” Dr.฀Marcello฀Lamberto,฀CEO฀฀Oerlikon฀฀Graziano “Our฀know-how,฀technologies,฀global฀footprint฀and฀ customer฀relationships฀will฀allow฀us฀to฀tackle฀the฀ market฀downturn฀and฀ensure฀that฀we฀are฀well฀placed฀ to฀benefit฀from฀the฀next฀positive฀cycle.” Gary฀Lehman,฀CEO฀฀Oerlikon฀฀Fairfield

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    32 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Drive Systems Business development 2008 can best be described as a “downshift” for Oerlikon Drive While Oerlikon Fairfield experienced severe softening in the Systems. While the first half of 2008 was marked by growth construction and aerial platform business sectors, other mar- in many market segments at a faster rate than expected, the kets also showed slight downturns in order activity by the close second half of 2008 saw a slowdown in general industrial of 2008. The agricultural machinery sector in North America markets, particularly in the construction machinery sector. remained active, albeit at a slower pace than the first half-year. Despite the challenging global economic environment, Oerlikon The energy market remained very active, with Oerlikon Fairfield Drive Systems posted a sales increase of 8.2 percent in the winning additional orders in the offshore oil and wind markets, year under review, generating record sales of CHF 1 204 million both for shipment in 2009. The global rail market was extremely for the segment. active throughout 2008, as was large electric wheeled haul truck production. Oerlikon Graziano experienced some slowdown in the specialty automotive segment and at the close of 2008 a softening of its Oerlikon Fairfield developed additional products for the energy agricultural machinery business. Profitability was negatively im- market with new drive developments for larger jacking leg pacted by higher raw material and energy costs. Furthermore, drives for offshore rig platforms, and a new drive for tubing inefficiencies based on the unexpected boost in order volumes injectors used in land-based oil exploration. Both of these pro- and negative currency effects strained the result in the first grams are expected to go into full production in 2009. half-year. Oerlikon Graziano’s efforts to develop a third product line targeted at both hybrid and electric drive line systems progressed well in 2008. Following the production start of the Norwegian manufacturer TH!NK, two additional OEM custo- mers ordered prototypes for a new generation of transfer case products designed by Oerlikon Graziano. Key topics Margin฀strenghtening:฀The business units Oerlikon Graziano Innovation: Aggressive new product development programs and Fairfield are working on a stronger integration with the aim will open up new business opportunities in the economic to raise efficiency and productivity and at the same time lowers slowdown, specifically through new developments in hybrid and working capital. Thus, a production of different components electric drives, innovative CVT transmission technology, as well from Italy (Graziano) have been transferred to US (Fairfield), to as high-efficiency gears and gear products for the wind power supply a customer in North America in order to reduce logistic and agricultural industries. costs and generate tax savings. Global฀network: The production footprint and sales network Combined฀purchasing:฀Another contributor to further cost of Oerlikon Drive Systems have generated business opportuni- reduction is to leverage its combined purchasing power for raw ties in North America, India and China, bringing additional busi- materials through its global supply chain network and the on- ness for 2009 in the agricultural, construction, utility and other going shift to low-cost country sources. off-highway sectors. Outlook For 2009, sales are expected to decline significantly, particularly The softening in the premium car market experienced by in the first half. The impact of lower sales on the profit margin Oerlikon Graziano is expected to be only partially offset by other will be reduced by the ongoing rationalization of production platforms. The agricultural and rail segments of the off-highway facilities and their realignment to market demand, as well as market are expected to remain flat. The energy market is the globalization of the segment’s footprint. Further localiza- expected to remain buoyant through 2009. Oerlikon Drive Sys- tion of products and facilities in China and India will help to tems has a number of initiatives planned and some are already sustain margin and add new customers and applications to the in place to capitalize on these opportunities in other geographic portfolio. regions.

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    33 Customer reference A great future with zero emissions If you didn’t know there was an electric motor under the bonnet, you would think this was just another normal mid-size car. That is not a surprise. The TH!NK is currently the only vehicle in its class that was designed and developed from the outset to be a mass-produced, battery- driven electric car. With a vehicle body that withstands industry crash tests, a radius per charge cycle of up to 180 kilometers, a maximum speed of more than 110 km/h and a special transmis- sion from Oerlikon Graziano, the electric car has come of age. Alongside the battery, the electric motor and the safety frame, the transmission plays a key role. The power transmission system must waste no energy and run as quietly as possible. This component is a completely new development. “We opted for Oerlikon Graziano because of its superior technical expertise as a de- velopment partner and system supplier,” said Richard Canny, CEO of TH!NK. Despite its modest beginnings, the future of the electric car is bright. If electricity can be produced without CO2 – as is “It฀was฀฀Oerlikon฀฀Graziano’s฀฀ the case in Norway or Switzerland – the emissions that would impact climate competence฀as฀a฀development฀ change would be zero. An electric motor offers much more efficient net energy partner฀and฀systems฀supplier฀฀ consumption and is much quieter. And, at the cost of EUR 2 per recharging, the that฀really฀won฀us฀over.”฀ operating costs are virtually negligible. Richard Canny, CEO TH!NK Global AS, Norway The long-term opportunities for this forward-looking market are also promis- ing. “We will expand production to more than 10 000 units by 2010,” says CEO Richard Canny. These efforts will be sup- ported by Kleiner Perkins and Rockport, two clean technology investors from California – another clear sign that the industrialization of this new, clean class of vehicle is in full swing.

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    34 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Advanced Technologies Oerlikon฀฀ Advanced฀Technologies The segment Oerlikon Components was renamed Oerlikon Advanced Technologies in the course of streamlining the portfolio. This segment contains Oerlikon Space and Oerlikon Systems as active business units and Oerlikon Esec and Oerlikon Optics as discontinued operations. In 2008, sales of Oerlikon Advanced Technologies were at CHF 284 million (–18.4 percent), orders received reached CHF 250 million (–27.1 percent) and EBIT amounted to CHF –66 million (2007: CHF 5 million) due to one time charges related to the reorientation of Oerlikon Systems. Key figures Oerlikon Advanced Technologies 1 in CHF million 2008 2007 2 (%) Orders received 250 343 –27.1 Orders on hand 194 230 –15.7 Sales 284 348 –18.4 EBIT –66 5 1 2008 continued operations, 2007 continued operations, restated. 2 Pro forma.

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    35 Business development ฀ Oerlikon Space significantly increased sales and earnings in Oerlikon Systems offers production equipment with PVD, 2008. The business unit, which is the largest aerospace com- PECVD and etch processes for the semiconductor industry, as pany in Switzerland, benefited from continued strong demand well as metallizers for the optical media storage industry (Blu-ray). for commercial rocket launches. Oerlikon Space supplies the world leader Arianespace with payload fairings for the Ariane 5 In 2008, the contraction of the semiconductor market was far and Vega launch vehicles. In fall 2008, Oerlikon Space conclu- more severe than anticipated. Sales declined due to the market ded a framework agreement with Arianespace for the supply of down-turn in the range of 30 percent. In the year under review, another 35 payload fairings, thus securing its market position in both the Blu-ray optical disc line business and the hard disk this segment until the middle of the next decade. activities (magnetic media equipment) were divested. The same was true for the wafer etch business in St. Petersburg, Florida Oerlikon Space also strengthened its position in the institutional (US) with closing in January 2009. The Business Unit result European aerospace market. The first successful flight of the was, therefore, impacted by asset adjustments from portfolio unmanned European ATV (Automated Transfer Vehicle) space changes (CHF 21 million) and an overall goodwill impairment of transporter paved the way for at least four other ATV missions CHF 52 million. with a significant contribution from Oerlikon. In 2008, Oerlikon Space also successfully acquired a series of new contracts for The emerging business unit strategy focuses on advanced satellite structures and mechanisms, including for the ExoMars nanotechnology, semiconductors and optical disc metallizers. and BepiColombo (Mercury) planet missions as well as for the Nanotechnology is considered a key enabling manufacturing European environment and security program known as GMES. technology that will make products lighter, stronger, cleaner, In addition, Oerlikon Space strengthened its partnership with less expensive and more precise. Realigning our semiconduc- Carl Zeiss SMT. Oerlikon supplies Zeiss with mechanisms for tor and data storage know-how will help us to better generate lithography systems used in microchip production. Carl Zeiss a pipeline of innovative, cost-saving nanotechnology solutions. SMT named Oerlikon Space its best supplier with the 2007 Our superior thin film processes are now also being adapted Supplier Award. to clean technologies that enhance energy conversion and ef- ficiency management. Key topics ฀ Market฀share฀gains฀outside฀Europe:฀The commercial Nanotechnology:฀In 2008, an innovative PVD thin film aerospace markets outside of Europe offer opportunities for or- deposition tool was developed with optimized throughput and ganic growth. Commissioned by United Launch Alliance (ULA), versatile processing capabilities for the crystalline solar cell/ the leading US manufacturer of rocket launch systems, Oerlikon energy storage markets. This tool will be launched in the course Space is currently developing a new interstage adapter for the of 2009. Atlas V 400 rockets. Commercialization฀of฀laser฀communication:฀Over the Leveraging฀thin฀film฀know-how:฀Oerlikon Systems has last few years, Oerlikon Space has undertaken enormous ef- maintained and even gained strength in core market segments forts to develop laser communication to the point where it is (advanced packaging, solid state lighting and microsystems) by ready for use in space. The first terminals are scheduled to be consistently delivering effective thin film applications. launched into space in 2009. More opportunities to develop this technology within the framework of institutional programs are offered by the future Sentinel environment satellites of the ESA as well as the European Data Relay Satellite System (EDRS). Outlook ฀ The global aerospace market is expected to continue to grow Oerlikon Systems expects to see further contraction in the in the coming years. Driving this growth will be, in part, the per- semiconductor market in 2009. Trends in our core markets sistent high demand for communications satellites, the develop- promise less volatility and an earlier return on investments than ment of new applications for navigation and earth observation in the general semiconductor markets. As a recognized “inno- and ambitious programs for space research and exploration. vation hub” for thin film applications across all markets, Oerlikon All of these factors will create opportunities for Oerlikon Space Systems will draw on its considerable technology know-how to to grow both in the institutional European market as well as in emerge stronger from the current downward cycle. The recent commercial markets inside and outside Western Europe. realignment has set the business unit free to focus on emerging nanotechnologies and clean-tech applications.

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    36 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Oerlikon Advanced Technologies In 2008, the semiconductor industry was severely affected Oerlikon group followed up on its commitment to sell Oerlikon by the developments of the global economy. The worldwide Optics, as announced at the 2008 Annual Media and Analyst financial crisis had a significant impact on capital spending. Conference. The divestment is proceeding in line with expecta- As a consequence, activity in the semiconductor assembly & tions, with all but one business sold off within the 2008 financial packaging equipment market in 2008 dropped to its lowest year. level in the last five years, leading to an overall market decline of more than 25 percent compared to 2007. Oerlikon Optics is a leading global provider of custom optical components and subassemblies. In view of its size and focus Oerlikon Esec experienced a sharp downturn in business in the on niche markets, the optical coating business in Balzers, second half of 2008 following the anticipated slowdown in the Liechtenstein, and Golden, Colorado (US), no longer fit the first half-year. The decline in demand has spread to geographi- Oerlikon business strategy. cal regions such as South Korea and Taiwan, which showed active demand throughout the first half of 2008. In October 2008, the Optics business unit at Balzers was sold in a management buyout, supported by local private inves- On the positive side, Oerlikon Esec strengthened its position in tors. The optical coating business, including relevant technical the die bonder market despite a difficult market environment plant and equipment, customer and supplier relationships, by successfully launching its new Die Bonder 2100 xP in May was transferred to the new company. The newly constituted 2008. An innovative concept was developed for the new die business posts annual sales in the region of CHF 35 million and attach platform, Die Bonder 2100 xP, to overcome the typical has a workforce of some 160, all of whom were transferred to conflict between speed (productivity) and accuracy (process the new company. Since January 1, 2009, it has been trading capability). The new pick & place was hailed as a pioneering under the new name Optics Balzers AG. innovation in robotics and in November 2008 was presented with the Swiss Technology Award. Even in a challenging market The optical coating business based in Golden, including environment Oerlikon Esec was able to succeed in the wire relevant technical plant and equipment, customer and supplier bonder segment. Oerlikon Esec also started to penetrate new relationships, was transferred to Ocean Optics Inc., an affiliated markets and segments such as automotive and medical. company of Halma plc, London. The transaction was closed on November 24, 2008. Consistent with Oerlikon’s strategy of focussing its portfolio, a decision was made end of 2008 to sell Oerlikon Esec. The Discussions concerning the remaining Optics business in backend semiconductor business does not offer any syner- Shanghai, China, are still under way. gies with the Group’s core technological competences in the coating/thin film sector. In January 2009, Oerlikon signed an Since this business is to be divested, Oerlikon has treated the agreement to sell the Esec business unit to BE Semiconductor Oerlikon Optics business unit as a discontinued operation in the Industries NV of the Netherlands (Eurotext: BESI). The clos- 2007 and 2008 financial years. ing of this transaction with BESI is scheduled for April 2009. Since this business is to be divested, Oerlikon has treated the Esec business unit as a discontinued operation in the financial year. Esec’s result for the year was affected by non-recurring charges of CHF 126 million (restructuring costs and goodwill imparement). This is reflected in the result for discontinued operations and the net result of the Group.

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    37 Customer reference Maintenance-free Carl Zeiss SMT supports the global chip industry with a wide range of products and solutions. Key products are the lithography optics for wafer steppers and scanners from ASML. Similar to an oversized slide projector, the wafer stepper delicately images the patterns, which will later become semiconductor components onto the resist-coated wa- fer – where a decrease in size to a scale 1:4 takes place. The heart of the wafer stepper contains the optical systems for lighting and projection. Carl Zeiss SMT’s “Starlith” systems are the world’s lead- ing wafer steppers and scanner optics products. The mechatronic components of Oerlikon Space used in Zeiss optics enable the extremely fine structures to be exposed on the wafers with optimum sharpness. Therefore, the components must meet very special requirements due to the usage in clean rooms as well as the specific requirements of the litho- graphic process of the chip production, which is especially minted by precision in nanometer range. With the know-how in space technology, these requirements were solved by the Oerlikon engineers by developing components which are com- “The฀high-precision฀technology฀฀ pletely maintenance- and emission-free. of฀Oerlikon฀Space฀significantly฀ This constitutes an essential competitive advantage for the optics of Carl Zeiss. supports฀innovation฀leadership.” Since the beginning of the cooperation in Peter Schlindwein, Head of Supply Chain Management, Carl Zeiss SMT, Germany 2003, Oerlikon Space has produced sev- eral hundreds of these mechanisms for Carl Zeiss SMT. In 2008, Oerlikon Space was named Supplier of the Year 2007 by the German optics group, receiving the Carl Zeiss SMT Supplier Award.

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    38 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Senior Leadership Team Management฀organization฀realigned To enhance customer focus and streamline internal workflows, management structures were redefined. Group headquarters defines the overall strategy, while the segments carry full responsibility for the operational business. 1 2 3 4 5 6 7 8 9 10 1 Dr.฀Andreas฀Widl 5 Thomas฀Babacan 8 Björn฀Bajan CEO Oerlikon Vacuum Chief Operating Officer General Counsel and ฀ ฀ Corporate Secretary 2 Hansjörg฀Jaussi 6 Jeff฀Herriman ฀ Head of Human Resources Head of Corporate 9 Dr.฀Uwe฀Krüger ฀ Development Chief Executive Officer 3 Jürg฀Fedier Executive Vice President ฀ Chief Financial Officer 10 Daniel฀Lippuner 7 Jeannine฀Sargent Head of Corporate Controlling 4 Gary฀Lehman CEO Oerlikon Solar Executive Vice President CEO Oerlikon Fairfield ฀

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    39 Senior Leadership Team (SLT) Executive Board and top management form the Senior Leadership Team. Working together closely, they discuss and decide on key issues of the Oerlikon group. This ensures that the decisions by Group headquarters reflects the concerns of the business units. 11 12 13 14 15 11 Peter฀Tinner 13 Dr.฀Hans฀Brändle Head of Global Sales & Marketing CEO Oerlikon Coating Executive Vice President ฀ ฀ 14 Dr.฀Marcello฀Lamberto 12 Kurt฀Trippacher CEO Oerlikon Graziano CEO Components (until 31.12.2008) 15 Dr.฀Carsten฀Voigtländer CEO Oerlikon Textile

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    40 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Employees Employees The battle for talent goes on. Oerlikon puts great effort into attracting new talents and developing its people. Innovation฀results฀from฀ dedicated฀employees. Oerlikon’s ability to create successful technological innovations sustained technological leadership position, and is strongly and sustain its technological leadership position results from supported by the Executive Board and the Senior Leadership the creativity and dedication of its employees. Their contribution Team. In 2008, the Chief Executive Officer (CEO), Dr. Krüger, to the development and delivery of products and solutions are initiated a program where each segment CEO sponsors market- key to our customers’ success, and hence to the success of ing events at designated universities. The initial results include Oerlikon. At the end of 2008, Oerlikon employed over 18 000 programs launched by the CEO of Oerlikon Textile, Dr. Carsten people at 180 locations in 37 countries worldwide. Voigtländer, at the RWTH Aachen (Germany) and by the CEO of Oerlikon Vacuum Leybold, Dr. Andreas Widl, at Fudan Univer- Working across different businesses in many locations is sity, China and the Hefei University of Technology, China. enabled by the core values of innovation, teamwork, excellence and integrity. They form the cultural framework, which allows The efforts in promoting the Oerlikon Employer Brand were re- Oerlikon to discover new frontiers, enter new markets and warded with the Swiss Employer Branding Award 2008 for the continuously reinvent itself. These values are reflected not only “Best image change” category, presented by the “trendence” in the way Oerlikon attracts fresh minds, promotes its Employer Institute. Based on a survey of over 5 000 Swiss students, Brand, develops its talents, manages performance and pays, Oerlikon advanced 14 places in the ranking in only one year, communicates and socializes, but also in the way the company demonstrating the significant improvement in the awareness tackles difficult restructuring projects. and image of Oerlikon as an employer of choice. Attracting fresh minds Global Trainee Program Despite current economic conditions, the “battle for talent” Every year talented university graduates are selected for the goes on, especially in the engineering sector. To safeguard the Global Trainee Program. Lasting 15 months, the program Group’s technological edge, the company continues to inte- aims to place engineers and economists in one of the seg- grate students and graduates. To attract talented graduates, ments where they can grow to occupy a key function. Trainees we attend job fairs and career guidance events, advertise, and typically complete four assignments in different segments work with student organizations. In 2008, Oerlikon cooper- and countries, where they learn about Oerlikon’s technolo- ated with universities in Germany, Switzerland, China and the gies, products and markets while actively contributing to their US. To identify and attract fresh minds even before gradua- assigned teams. Trainee contributions in 2008 include patents tion, internships were offered as an integral component of our registered by two trainees for technologies they developed at recruitment strategy. Oerlikon Space has been most successful Oerlikon Solar and Oerlikon Textile, respectively. An alumni at implementing this strategy. Every year some 35 students network enables former trainees to share knowledge and pro- complete an internship at Space to gain practical experience vide support for the third-generation trainees who entered the while providing valuable support to the core technology teams. program in October 2008. More than a third of the current employees at Oerlikon Space started out as interns. More recently, Oerlikon Textile has launched a trainee program for textile engineering graduates in China. Following a competi- In 2008, Oerlikon was represented at more than 20 career fairs tive selection process, with an assessment center as a last in Europe and Asia. Besides the long-lasting relationships with step, four Chinese university graduates were hired for the pro- regional universities and institutes in Switzerland, the com- gram. During the course of the program the trainees support pany has extended its network to include leading institutes in various teams across Oerlikon Textile business units and aim China. Fostering young talent is a major success factor for the to find the best match for a job following the completion of the

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    41 program. The trainees are accompanied by the local manage- Employees ment team through a mentoring program in order to guarantee a smooth integration at Oerlikon. 2008 18 385 1 19 142 2 Developing talents 2007 18 711 1 19 896 2 Oerlikon’s apprenticeship programs continue to represent a ma- 2006 18 735 1 19 267 2 jor investment in meeting the demand for skilled employees. In 2008, Oerlikon once more trained over 450 apprentices in 20 dif- ferent professions at 18 locations throughout the world. At Balz- ers/Truebbach, 15 percent of the workforce graduated from the local apprenticeship program. The enduring quality of Oerlikon’s Employees฀2008฀by฀segment฀1 apprenticeship programs was again recognized in 2008, when for the fourth consecutive time, an apprentice from Oerlikon Esec was awarded the best final grade in the canton of Zug. Advanced Technologies 4% Vacuum 9% At Oerlikon, Talent Management is a systematic process for Solar 5% identifying and assessing internal and external talent to fill Textile 37% key positions at all levels of the organization. To promote the Coating 16% development of internal talents, we started to systematically set up talent pools within and across segments as well as across Other 1% organizational levels. New and existing development programs are directly linked to the various talent pools, creating greater Drive Systems 28% transparency in terms of our talents and enabling more targeted career and development programs. Noteworthy examples are the leadership challenge and management development programs. Employees฀2008฀by฀region฀1 Leadership Challenge Program The Leadership Challenge Program focuses on first line and Other 1% middle management and comprises a comprehensive curricu- North America 11% lum ranging from communication to business administration and leadership skills, spread over 21 training days in the course Asia/Pacific 26% of one year. Participants are nominated by their superiors and selected by the segment management team based on their ambition and aptitude for filling a challenging leadership posi- Europe 62% tion. The program is held in Switzerland for employees in Eu- rope, and in China for employees in Asia. Some 80 employees have successfully completed the program over the past two years. One of our Asian participants summarized the program 1 Continued operations. concisely as “opening a door into an exciting new world”. 2 Total Group.

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    42 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Employees Management development To foster potential executives from within our own ranks, seg- ment management follows a process of carefully identifying middle managers with high leadership potential, evaluating their potential in an assessment center, and defining their develop- ment and career plans for the next two years. Segments maintain an international talent platform to bring these individu- als together with a view to exchanging ideas, collaborating on joint projects and contributing to the growth of the respective business. Rewarding performance At Oerlikon we believe that pay must be attractive, motivating and fair. The remuneration systems aims to provide competi- tive base salaries and attractive incentive schemes. They take into account individual and corporate performance, reward excellence, and promote an entrepreneurial attitude of sharing opportunities and risks (see also the remuneration report, page 71). To determine competitive and fair compensation packages, external equity is established by continuously monitoring the relevant markets of Oerlikon. Internal equity is established by following a performance management process. Performance management is a crucial element in setting expectations and aligning targets, and in assessing achievement on the basis of individual and business results. At Oerlikon, compensation, performance, and talent management form the most important leadership tools for successfully developing talents, teams, and business units.

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    43 Coping with restructuring The past year has been characterized by a series of restruc- turing projects, which in many cases resulted in redundancies. Whenever market and/or technological developments requires Oerlikon to relocate, divest, re-size or re-engineer businesses, jobs may be at stake – even if other jobs are created else- where. As an employer Oerlikon has a responsibility to mitigate the effects of restructuring projects. The prior aim is to place employees in other business units where their skills and experi- ence match the requirements of the new job. In some smaller restructuring projects, the company has successfully placed some or all of the affected employees in other business units. If redundancies are unavoidable, the company mitigates the con- sequences with a host of measures such as social plans, hard- ship funds, outplacement or job application support. Although these measures can never be a substitute for employment, they can help employees to find another job and continue their career elsewhere. Talking business One of the challenges facing a global company is to talk busi- ness across different business units and management levels. To reach across real or imagined organizational, hierarchical and cultural boundaries, Dr. Krüger has established a commu- nication platform in the form of a CEO Letter, which is sent to all Oerlikon employees twice a month in several languages and covers topics of current interest or importance. These letters prompt a host of reactions, ranging from suggestions and sup- port to complaints and concerns. This exchange has served as a model to encourage employees on all levels to not only talk about their work, but also to act on their business needs. This, in turn, is a crucial factor in the bid to develop new technolo- gies, new business models and better business processes.

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    44 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Research and Development Research฀and฀Development With 5.2 percent of its sales spent on research, Oerlikon is one of the most research-intensive industrial groups in its markets. Oerlikon plans to stake out markets of the future with innovation projects in the areas of clean technologies and applied nanotechnology. Leading฀market฀positions฀ thanks฀to฀innovative฀ technologies. Oerlikon’s competitiveness and future rely on research and time call on the Scientific Advisory Board (SAB) formed in development (R&D) and on the innovations it produces. The early 2008. Oerlikon is proud that well-known scientists have Group has thus made this area one of its top priorities. The joined this committee, chaired by Professor Werner Martiens- company stands out in all business areas for leading tech- sen. The SAB makes a vital contribution to linking Oerlikon to nologies and products that offer customers and users added cutting-edge research worldwide. Working with this committee, value in the form of higher efficiency, productivity, and quality. Oerlikon is initiating medium- and long-term innovation projects In many cases, Oerlikon has unique and unrivaled technolo- with a time frame of three to seven years, which, if successful, gies that the competition cannot offer in the same form. For will lead to entirely new product solutions or even new business example, application-ready thin film silicon solar technology, the areas for the company. Playing a key role in this process will be P3eTM coating technology with previously unattained levels of research and development into new types of clean technolo- hardness and flexibility in the coating design, and the TRIVAC gies and, in particular, resource conservation, and the switch to NT, the first practically oil-free vacuum rotary vane pump. renewable energy. An example of the innovation success of Oerlikon is Oerlikon Esec’s Die Bonder 2100xP – a high-precision machine for chip Oerlikon’s endowment of a university chair for an up-and- assembly in the semiconductor industry, which was honoured coming professor of terahertz (THz) photonics at the Goethe with the prestigious Swiss Technology Award for being the University in Frankfurt am Main, advertised in August 2008, most innovative Swiss product in 2008. serves the same purpose. Terahertz photonics could well prove to be a key technology, particularly for surface technology and The goal of our higher-than-average investments on R&D and quality control. Another project that also underscores Oerlikon’s intensive links to cutting-edge research worldwide is to maintain efforts to finance research at universities is the Gaede Founda- and widen our technological and competitive edge. CHF 247 tion, which funds outstanding achievements in vacuum-based million was spent on R&D in 2008 (2007: CHF 245 million). This sciences and technologies, and was generously supported by represents 5.2 percent of total sales (2007: 4.5 percent), which, Oerlikon in 2008. compared to international industrial groups, is an outstanding figure. Around 1 500 scientists and engineers are working on Nanotechnology ready for industry the solutions of tomorrow in Oerlikon group, who registered a Nanotechnology is playing an ever growing role in group-wide total of 2 228 patents in 2008. The R&D resources at Oerlikon R&D, thereby becoming a key technology. The thin film prod- Solar were considerably expanded, the laboratory capacity in ucts and solutions from Oerlikon Balzers, Solar and Systems, Neuchâtel, Switzerland doubled, and a pilot line was put into with coating thicknesses of 1 to 1 000 nanometers, represent operation at the Truebbach site in Switzerland. the first-generation industrial application of this fascinating technology. Oerlikon is thus already a leading supplier and user Realignment of innovation management of nanotechnology. This is also reflected in the partnership In 2008, a new kind of innovation management was introduced between the Russian promotion agency Rusnano and Oerlikon, that expands the horizon of research projects in terms of both reached in November 2008. time invested and focus. Product-specific and application- oriented projects continue to be planned and carried out The next evolutionary phase of nanotechnology (“advanced decentrally in the business units. A new idea is planning and nanotech”) will focus on refining the properties of surfaces and implementing long-term projects that will lay the physical and materials using nanotech structures or nanoparticles and taking technical foundation for the Group’s future areas of growth. mass production to the next level using nano machine and To identify these types of projects, Oerlikon can for the first plant designs. Assuming a leadership role in this right from the

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    45 start is the stated goal of Oerlikon’s realignment of the Oerlikon R&D฀expenses฀1,฀2 Systems business unit. Oerlikon Systems will concentrate on future growth markets, primarily in solar technology, new types of thin film battery systems and thermoelectric generators. 2008 247 2007 245 Energy storage is one area where new approaches to solu- 2006 3 260 tions are particularly promising. Despite considerable progress over the last few years, wet chemical battery systems are only 1 Research and development expenses (continued operations) include suitable for use in vehicles or as storage for solar energy to a expenses recognized as intangible assets in the amount of CHF 31 million (2007: CHF 34 million, 2006: CHF 49 million). limited extent. In contrast, electronic batteries based on thin 2 Continued operations. films – known as supercapacitors – offer clear advantages with 3 Aggregated figures for Saurer and Oerlikon for full-year. their short charging time and long lifespans. However, all efforts so far to develop these kinds of supercaps to the stage where they are ready for commercial use have failed. The most recent R&D฀employees฀1฀ basic research indicates that it will be possible to create these new types of electronic battery systems in the future using ad- vanced nanotech. To this end, Oerlikon has formed a research 2008 1 463 team that is exploring the basic material properties, industrial 2007 1 332 production and potential fields of application. 2006 1 510 It will certainly take a few years until these types of electron 1 Continued operations. batteries are launched commercially, but meanwhile Oerlikon is on the verge of a breakthrough with new production equipe- ment for other nanotechnology applications. One example is a new type of machine used to make nanocoatings. The first prototypes are now available and are being further optimized for mass production. This machine is adjusted for the highest throughput and the most efficient production – welcome to the nanoindustry made by Oerlikon.

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    46 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Research and Development Innovation฀highlights In 2008, the Oerlikon segments introduced several innova- tions to the market and strengthened their market position. Oerlikon Textile Oerlikon Coating Oerlikon Solar WINGS฀ P3eTM฀ Amorph฀&฀micromorph®฀฀ high฀performance Oerlikon Textile triumphed with the P3eTM , the groundbreaking coating Oerlikon Solar has again accomplished launch of its completely new concept technology from Oerlikon Coating, made an industrial milestone in the develop- for a chemical fiber spinning line at the its commercial breakthrough in 2008. ment of thin film silicon PV technologies. International Exhibition of Textile Ma- The most important tool manufacturers chinery (ITMA) at the end of 2007. The around the world have opted for P3eTM Oerlikon’s Transparent Conductive new WINGS (Winding INtegrated Godet and have ordered the equipment IN- Oxide (TCO) technology has been greatly Solution) POY machine saw sales of over NOVA, making a significant contribution improved resulting in increased efficiency 1 600 units in 2008. In a single blow, to record sales in the Coating segment. levels in the mass production of both, WINGS seized a global market share Amorphous and micromorph® cells. The of over 50 percent. WINGS is thus one Until now, thermodynamically stable TCO coating layer determines among of the most successful innovations and metal oxide coatings could only be other things, the light transmission result- product launches ever seen in the history produced at temperatures above 1 000 ing in substantially increased module of Oerlikon Textile. degrees Celsius and were hence in the performance. The Oerlikon record cells domain of chemical vapor deposition have achieved results of over 13 percent. WINGS is truly revolutionizing the pro- (CVD) coatings. Oerlikon Coating has duction of chemical fibers. A particularly made a quantum leap with P3eTM: oxide- These results are only possible because low-stress thread guiding system that based coatings can now be produced of Oerlikon Solar’s proprietary TCO was previously not considered feasible with physical vapor deposition (PVD) technology allowing overall system and the integration of functions in the processes at well below 600 degrees improvements. The plant productivity machine head opens up whole new pos- Celsius. The properties of these coatings is increased by 50 percent by further sibilities in structural design. WINGS re- can now be finetuned to a previously optimizing key process steps in the end- quires up to 35 percent less space than unknown degree. All in all, this will sub- to-end solution. Overall, it was possible traditional spinning lines and reduces the stantially enhance cutting performance to significantly lower the module price, spreading of the yarn by 50 percent. As while significantly increasing productivity. taking another step towards grid parity a “Plug & Play” unit, the start of produc- in lowering the total cost of ownership. tion can be reached much faster. Oerlikon Solar expects to reach grid parity with costs down to 0.70 USD/Wp The first installations this year have in 2010. More than 700 000 thin film already shown that Oerlikon Textile can solar modules have been produced on more than keep its promises. The last Oerlikon Solar equipment in industrial time a plant was put into operation for a manufacturing conditions. customer, it only took 18 days.

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    47 Oerlikon Vacuum Oerlikon Drive Systems Oerlikon Space TRIVAC฀NT฀ Electric฀drives ExoMars฀Rover Oerlikon Vacuum has achieved the Oerlikon Drive Systems is currently As part of its ExoMars scientific mission impossible with TRIVAC NT with the first developing new electric drive units for in 2018, the European Space Agency “practically dry” oil-sealed vacuum rotary off-highway four-wheel drive machin- ESA plans to land an autonomous vane pump in the world. The quantities ery. The initial development programs robot – the ExoMars Rover – on the Red of oil that diffuse in the process cham- include AC electric drive technology for Planet to look for signs of life. Oerlikon ber are so small that they are (almost) lift applications. This new drive system is Space is responsible for developing the negligible. scheduled to be used on both light duty sophisticated locomotion system, which and heavy duty versions in a full range of incorporates a whole range of different The TRIVAC NT series, which was rough terrain construction lifts. This will components. This includes the motors launched to the market in 2008 in three be the first machine of its type to utilize and transmissions as well as the special different sizes, was completely rebuilt AC electric drive technology and the wheels and their suspension along with a smart design to achieve this goal. various benefits will include higher drive with the electronic control system and The pumps are more compact, quieter system efficiencies and longer battery software. To satisfy the requirements in and operate at much lower tempera- life. space and on Mars, the experts have to tures because of intelligent cooling. This fully exploit all of their expertise in engi- considerably lowers the operating costs In addition to the electric lift project, neering, precision technology, materials because oil change intervals are much Oerlikon Drive Systems is also work- and software. longer than before. Well-known cus- ing with a major producer of light and tomers attest to the new TRIVAC NT’s medium duty earthmoving machinery to The first full-scale mock-up of the Mars excellent performance and extremely low develop an electric hybrid drive system. Rover was completed and tested in April oil vapor emission. This machine will also be the first of its 2008. To complete the test, Oerlikon kind to be offered with a high efficiency Space specialists set up a special site to This opens up fields of application for hybrid drive system which will result in simulate the conditions on the surface the new pump generation both in the significant fuel savings and economy of Mars as realistically as possible. The laboratory and in analyses that were without sacrificing performance and reli- first series of tests were very successful. previously closed to Oerlikon rotary vane ability in the field. Oerlikon Space has already received pumps. This pump type is one of the the funding for the next development sales drivers of Oerlikon Vacuum. The The current product development plan phase and is building a second test initial success of the TRIVAC NT leads calls for extensive developmental testing model this year. the group to expect that this generation and subsequent market introduction in will also be a business success globally. late 2011.

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    48 Editorial Operational Review Information for Investors Corporate Social Responsibility Corporate Governance Financial Report Transparent฀and฀continous฀communication In 2008, more than 7 000 new shareholders invested in the company’s stock. Oerlikon will continue to serve these important stakeholders with timely updates on its progress. Increasing฀shareholder฀base. Capital market and share performance in 2008 businesses, which required an adjustment of the guidance for Over the past twelve months, financial markets have experi- 2008. Oerlikon’s share price had declined by almost 9 percent enced turbulence of historic proportions. The global banking that day. The stock regained some ground in the first half and financial crisis caused a major downturn in stock markets of May after Renova became the main shareholder and the around the world. Share prices declined even faster in the se- shareholders present at the Annual General Meeting followed cond half-year in the wake of growing signs of a severe reces- the Board of Directors’ proposal to elect a new and extended sion in most economies. The European Dow Jones STOXX 600 Board. As global stock markets continued to weaken du- Index closed at 196.90 on December 30, 2008, representing a ring the summer months, Oerlikon shares continued to trade total loss of 46 percent compared to the 2007 year-end close. slightly lower. Since neither the half-year results nor the Q3 The turmoil also affected Switzerland. At no time did the Swiss trading update showed any improvements in the ailing textile Leader Index SLI pass its 2007 closing level of 1 296.41, end- and semiconductor markets, but instead pointed to a cooling- ing 2008 at 789.67, a loss of more than 39 percent. off of additional business activities (including those related to Oerlikon’s core businesses), pressure on shares increased Following the publication of strong sales and earnings for 2007, further. Nor was the presentation of a sound mid-term busi- Oerlikon shares recovered around half of the loss experienced ness outlook at Oerlikon’s Capital Market Days able to reverse in the first three months of 2008 to almost close the gap versus this trend. Significantly lower expectations from financial market major indices, which since then had lost about 14 percent. participants due to the massive curtailment of credit financing The Oerlikon Q1 2008 trading update published on April 23 availability as a consequence of the banking crisis coupled with revealed sharp declines in the textile and semiconductor doubts about the financial health of Oerlikon and its anchor Monthly฀trading฀volume฀in฀ 2008฀(SWX฀Europe)฀in฀number฀ Share฀performance฀2008฀ in % of฀shares 120 3.0 Mio. 100 2.5 Mio. 80 2.0 Mio. 60 1.5 Mio. 40 1.0 Mio. 20 0.5 Mio. 0 0 J F M A M J J A S O N D J F M A M J J A S O N D Oerlikon SLI DJ STOXX 600

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