Oerlikon Drive Systems – Global leader in gear and drive system technology
Marcello Lamberto, CEO Oerlikon GrazianoGary Lehman, CEO Oerlikon Fairfield
Oerlikon Capital Market Days 2008Zurich, September 25-26, 2008
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Drive Systems
Disclaimer
This presentation is based on information currently available tomanagement. The forward-looking statements contained herein could be substantially impacted by risks and influences that are not foreseeable at present, so that actual results may vary materially from those anticipated, expected or projected.
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• Founded in 1919• Lafayette, Indiana USA • North American market leader • Gear and drive solutions for mobile
and industrial machinery• Acquired by Saurer Group in 2006
• Founded in 1951• Torino, Italy • Market leader in Europe• On – highway and off – highway gear
and drive train solutions• Part of the Saurer Group since 1992
Oerlikon Drive Systems
> CHF 1bn sales in 2007> CHF 1bn sales in 2007
Acquired by Oerlikon in January 2007
Long standing history
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USA (Duluth)
USA (Lafayette)
UK (Huntingdon)
Czech Republic (Cerveny Kostelec)
China (Suzhou)
India (Noida & Belgaum)Italy (Torino)
n
n
n
n
n n
n
China (Shanghai)
n
13 manufacturing facilities with over 5,000 employees globally13 manufacturing facilities with over 5,000 employees globally
n
Russia (Moscow)
n Sales & Marketing Officesn Manufacturing Plants
Global footprint - customer proximity
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CHF 112bn global gear / drives market in 2008
§ CAGR 2005 – 2008: ~6%
§ Projected to reach CHF 130bn by 2011
55%
5%
24%
16%
On-HighwayIndustrialNon - SteelAerospace
123 130117112107
0
25
50
75
100
125
150
2007 2008p 2009p 2010p 2011p
(in CHF bn)
Sources: Freedonia Associates Global Gear Market Study 2004 updated 2006, AGMA Gear Market figures 2007
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Target markets: industrial and on–highway
Industrial
Aerospace
On-Highway
Non - Steel
“Growth through technology” market areas
• Low emission & hybrid vehicles • Energy related applications• Automated drive technologies• Demanding / high performance
Ø Areas that value our combined capabilities
Ø Allow for “differentiated” offering
Ø Utilization of our technologies & experience
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Key market segments
Off-Highway SpecialtyIndustrial Energy
Zero-emission &Utility recreational
VehiclesTransportation Automotive
(premium cars)
61% 3% 2.5% 5% 21%7.5%
Sales split 2007
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Leader in market segment capabilities
GearComponents
Off-Highway synchronizers & clutch
packs
Off-Highway driveline products
High-end automotive transmissions
# 1 # 1 # 4 # 2
Okubo, and small regional gear
producers
Competition
Small regional producers
Competition
Dana, ZF, Carraro, Bosch Rexroth,
Bonfiglioli
Competition
Getrag, Magna, ZF, AMM
Competition
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Key business growth drivers
Need for a cleaner
environment
Zero emission and low noise
vehicles
Increased demand for newer, more
efficient machinery
Continued increase in wind farm construction
Continued demand for industrial
machinery
Increased crop demand for bio –fuels as well as
food
Increased demand for energy and
alternative sources
Infrastructure growth in
developing nations
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Global reachKey financials
Asia5%
North America
37%
Europe58%
(in CHF m) FY 07 ∆ YoY 1HY 08 ∆ YoY
Sales 1,113 +17% 626 +13%
EBIT 83 +11% 39 -9%
Backlog 231 +32% 218 n/a
Employees 5,048 +6% 5,239 +8%
Alignment with key customers and new market opportunities drive strong top line
growth
Expanding global reach provides further opportunities
for growth
Drive Systems key figures
(Based on 2007 sales figures)
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Drive Systems initiatives
§ Market Activities Ø Focus on high – growth market sectors with innovative products
and servicesØ Build strategic relationships with key global customers
§ Innovation & TechnologyØ R&D development – clean, more efficient, higher performing drive
systemsØ High performance and high technology “mechatronic” drive-train
solutions
§ Profitability & Growth InitiativesØ Continue business improvement initiatives (low cost sourcing, mfg.)Ø Manufacturing rationalization plan
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Clean technology opportunities Wind Power
§ Forming alliances with major wind energy providers § Become the customer’s wind gear “arm”
Ø Preferred choice for quality and precisionØ Producing gear components Ø Drive systems
§ Foster a “partner” relationship as opposed to competitive relationship
§ Major program with Winergy developed in late 2007, currently starting high – volume production
Zero Emissions
§ Utilize years of direct electric drive technology & know – how and apply to:Ø Specialty automotive opportunities Ø Mass transportation Ø Mobile utility vehicles
§ Do not pursue “ultra – high volume” automotive hybrid business (passenger car, etc.)
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Off-Highway Equipment
Agriculture
Construction
Lift Equipment
Specialty Industrial
Industrial Cooling
Utility Water Treatment
ShreddingMixing
Axles
CVT Transmissions
Synchronizers
Clutch packs
Torque – Hub Planetary
Drives
Electric Drives
Cooling tower fan drives
Gear products for pumps and
water treatment
High horsepower drives for
shredding and mixing
Construction Machinery Market
Softening however large machinery is
strong
Development activities for hybrid technology
on the rise
Agricultural Machinery MarketOutlook very good
through 2010
Market solutions
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Market solutions
Transportation
Rail
Mass Transit & Bus
Premium Automotive
Luxury andSports Cars
Motorcycles
Specialty Passenger Cars
Locomotive traction gears
and assemblies
Inverted Portal Axles for ultra-low
floor buses
Mass-transit drive gearboxes
Gear and shaft components for
hybrid buses
Manual / automated manual transmission
& dual clutch transmission
Power take-off units Front/rear
differentials for all wheel drive cars
Angle drives for motorcycles
Transportation Market
Currently very active due to penetration
into developing countries
Trend toward more mass transportation
due to fuel and energy costs
Premium Automotive Market
Essentially unaffected by
traditional passenger car marketVery slight
movements up / or down
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Energy
Wind
Oil & Gas
Mining
Market solutions Zero-emission and
Utility & recreational vehicles
Zero-emission vehicles
Recreational vehicles
Utilityvehicles
New market areas
Large gear components
for wind turbines
Large planetary gearboxes
for oil platforms
Single and two speed
gear assemblies for mining
Energy marketsegment growing
at +20% p.a.
Wind gear demand exceeds
supply
Oil / Mining extremely active
Gearboxes for zero emission
and hybrid vehicles
Torque – Hub®planetary drive
systems
Drive axles for utility & recreational
vehicles
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Strong customer relationships spanning 50 years
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Drive System initiatives
§ Market / Product Activities Ø Focus on high – growth market sectors with innovative products
and servicesØ Build strategic relationships with key global customers
§ Innovation & TechnologyØ R&D development – clean, more efficient, higher performing drive
systemsØ High performance and high technology “mechatronic” drive-train
solutions
§ Profitability & Growth InitiativesØ Continue business improvement initiatives (low cost sourcing, mfg.)Ø Manufacturing rationalization plan
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Dual clutch transmission technology with electronic control unit
DCT Technology in Premium Cars• High efficiency of manual
transmission – comfort of automatic• Gear changes ranging – from “comfort” to “racing”• Better fuel economy than automatics
Hybrid Drive Technology
High-tech modules for new generation transmission
Power-Split Gear Assemblies • Deliver greater efficiency than conventional torque
converter and power-shift gearboxes
Field test completion 2009 – Planned production 2010 with the leading manufacturer of loaders
Field test completion 2008 – Production target 2009 Developed with the leader in off – highway machinery
Field test completion 2009 – target 2010 Production with premier automotive producer
R&D development: meeting the technology challenge Hybrid Electric Drive Systems• For industrial machinery• Higher efficiency• Lower noise and fuel consumption
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The Solution:
High speed crawler drive gear assembly capable of:• Input speeds reaching 3,000 rpm• High horsepower capabilities – over 100 HP• Low reduction / High efficiency two – stage
planetary• Test units delivered in 6 weeks
Example: solution for high performanceKey global manufacturer developing market’s first “high – speed” dozer
capable of speeds over 20 mph
The Challenge:
• High horsepower to final drive assembly• High heat to drive system• Test units required in 8 weeks
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The Solution:Manual & Automated Manual (AMT) mid-engine transaxle for high performance 4WD applications.
• Fully integrated rear & center differentials
• Flexibility design in to meet future highperformance in other applications
Example: solution for high technology drive train
AUDI R8
The Challenge: Major premium car maker entering mid – engine sports car market
• Needed complex high performance 6 – speed transmission
• Extremely quick “time to market” requirement
• High “in house” development costs
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Drive System initiatives
§ Market / Product Activities Ø Focus on high – growth market sectors with innovative products
and servicesØ Build strategic relationships with key global customers
§ Innovation & TechnologyØ R&D development – clean, more efficient, higher performing drive
systemsØ High performance and high technology “mechatronic” drive-train
solutions
§ Profitability & Growth InitiativesØ Continue business improvement initiatives (low cost sourcing, mfg.)Ø Manufacturing rationalization plan
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Commodity Increase
Mitigation
RecoveryActivities
All major customers under long term agreement (LTA) with quarterly adjustments in prices to cover material and energy surcharges
2008 pricing actions in place and underway to cover all material and energy cost increases with average increase range of 6% - 9%
Significant changes in base commoditiesPig Iron ~174% Increase from 2007Scrap ~ 182% Increase from 2007
Strong movement in oilUS dollar loss of strength
Long term contracts protecting currency, material evaluations, reductionsStrong movement in LCC of castings/forgings
46% of all castings now in LCC30% of all forgings now in LCC
Indirect cost reviewed for further long term contracts / rebates
Raw material impacts and developments
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Ø Shifting % of spend from EU / US to low cost countries
Ø Currently developing additional suppliers in China / Eastern Europe
35%25%18%15%
2009p2008p20072006
Percent Spend in Low Cost Countries
Active global sourcing initiative in place
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Manufacturing rationalization underway
§ 2007: Moved large Torque – Hub®compact drives production to Graziano Czech facility – continues in 2008
§ 2008: Moving Graziano agricultural gear components for North American market to Fairfield USA
§ 2008: Transitioned Fairfield 2 – speed transmission for EU haul truck production to Graziano – Italy
§ 2008: Rationalized 2 India production facilities under single production management system
§ 2009: Install Torque – Hub® planetary compact wheel drives assembly line in China facility
Ø Cost savings (logistics, labor, duties & tariffs, etc.)
Ø Improved service to customers (localization)
Ø Ramp up to market and business demands faster(reduced shipping time, etc.)
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§ Excellent brand reputation throughout industries served
§ Globally recognized technology and solutions leader
§ Well positioned in key growth markets
§ Sound business strategy in place
Summary
Our VisionThe global leader and preferred choice in the design, manufacture, and supply of gear
and drive solutions for OEM’s in the on / off – highway and specialty industrial machinery markets.