– Compensation report – Special report – medmix spin-off
Special report – medmix spin-off
With the approval of Sulzer’s shareholders obtained at the Extraordinary General Meeting on September 20, 2021, a 100% spin-off of our former Applicator Systems (APS) division from our core business through a 1:1 share split was successfully completed and we created two focused companies, leading in their respective markets. Since September 30, 2021, Sulzer and the former APS division which is now named medmix are both traded separately on the Swiss Stock Exchange.
Why was medmix separated from Sulzer?
Sulzer has a track record of incubating promising ventures and developing them to become market leaders. Over the past five years, Sulzer developed the former Applicator Systems division to become a global market leader in high-precision delivery devices for the healthcare, consumer and industrial segments. The rapid development of the former Applicator Systems division and the anticipated growth of its healthcare platform made 2021 the right time to spin it off as a separate, standalone company. As a focused company on its own, the growth story of the former Applicator Systems division will advance. The former Applicator Systems division was significantly undervalued as part of Sulzer and, by separating the business, Sulzer can renew its focus and accelerate its transformation. This separation created significant value for all stakeholders of Sulzer. The combined market cap of Sulzer and medmix went up by 45%. Each Sulzer shareholder got one medmix share granted in addition to each Sulzer share held and the combined share price of Sulzer and medmix was CHF 135.01.
How was Sulzer affected by the spin-off?
Sulzer took the opportunity of the spin-off to accelerate its transformation and boosted its business results in 2021, achieving strong growth to reach sales of CHF 3’155.3 million, as well as new highs in profitability across all divisions and at Sulzer level (operational profitability reached a record 9.3% with operational profit of CHF 293.3 million, excluding medmix). The renewed focus on our position as a leading company in industrial flow control products and services for water, energy, chemical and industrial infrastructure is also clearly appreciated by our investors. These positive outcomes validate the decision to separate medmix and Sulzer — with the renewed focus, Sulzer is in an even better position to drive the next level of its development.
What remuneration related measures has the NRC taken, and why?
When defining the target values for the variable compensation at the beginning of financial year 2021, these were defined without anticipating the medmix spin-off. Given this, the NRC adjusted the target values and corresponding thresholds and maximum values for the performance objectives to ensure proper, adequate target setting for the financial year 2021.
1. Bonus 2021
Sulzer demerged the Applicator Systems division by way of a symmetrical split on September 20, 2021. The financial figures of the Applicator Systems division for the year until September 20, 2021 are included in Sulzer’s consolidated financial statements for 2021. As the performance objectives set at the beginning of the year during annual target setting included the full year of 2021 for the Applicator Systems division, the target objectives for the Applicator Systems division are adjusted to reflect the phased targets up to September 20, 2021. This ensures that the actual financial figures for the Applicator Systems division are assessed against the corresponding targets for a comparable measurement period. Consistently, Sulzer Group’s achievement is assessed based on the aggregation of the full 2021 annual performance of all continuing businesses and Applicator Systems division for the period until September 20, 2021.
2. Performance Share Plan
The key performance targets for the unvested performance share plans of PSP 2019, PSP 2020 and PSP 2021 had been established without the anticipation of the spin-off of the Applicator Systems division. Therefore, the target performance conditions for the respective PSPs were originally determined with the full inclusion of the financial values of the Applicator Systems division. Given the spin-off of the Applicator Systems division, Sulzer adopted the methodology typically used in a spin-off context to neutralize the consequences from the demerger. The number of originally granted PSUs was recalculated to neutralize the effect of the spin-off on share price to continue a fair incentive. The target values of the Applicator Systems division for PSP 2019, PSP 2020 and PSP 2021, as derived from their respective three-year financial plans, are deducted for Sulzer group. As a result, the target values for Sulzer group comprise only what remains as continuing businesses within the group. Furthermore, for each performance condition (i.e. operational profit growth and operational ROCEA) of PSP 2019, PSP 2020 and PSP 2021, the performance curve depicting the gradient formed from the threshold, target and cap performance level remains unchanged. By adopting such a methodology, Sulzer keeps consistency with the performance-based measurement approach of its PSP and upholds the underlying three-year strategic/financial targets of its continuing businesses.