Gategroup corrects false claims made by RBR about compensation

gategroup corrects false claims made by RBR about compensation

Zürich, April 1, 2016

Dear Shareholders

In its most recent open letter, minority shareholder RBR presented a long list of incorrect claims and assumptions regarding the compensation paid to gategroup's Board of Directors and management. We would like to correct these, starting with the key points:

• CEO compensation did not triple as stated, but is 28% higher because of improved performance
• Overall executive compensation decreased because the organization is leaner. Average total target direct compensation for the Executive Management Board (EMB), excluding the CEO, has not "virtually doubled" as claimed, but increased by approx. 13% due to the increased responsibilities of EMB members.
• gategroup delivered a strong operational, commercial and financial performance in 2015

CEO compensation

RBR's way of calculating annualized CEO compensation is flawed and simply wrong.

In its Compensation Report, gategroup clearly stated that total CEO compensation for 2015 was CHF 4.4m, of which approx. CHF 1.1m is accounted for by the one-off replacement grant paid to the CEO in April 2015 to compensate for lost outstanding LTI from his former employer. Furthermore, CHF 1.6m was an equity award which was made only once in 2015 and was not repeated on a monthly basis.

An annualized figure (i.e. extrapolated from 9 months to 12 months) can therefore only be calculated from the base salary and STI. The resulting indicative CEO pay would be CHF 3.7m. This is 28% higher than the CEO package in 2014, but not "tripled" as RBR writes. The reason for the 28% increase was better performance and a higher share price. Base salary was unchanged.

The comparison with DO&CO is not appropriate because that company is considerably smaller (in terms of revenue); furthermore the CEO of DO&CO is a founder of the company and currently owns a sizeable portion of its shares, which further distorts the compensation comparison.

Compensation of other EMB members

RBR's approach of taking a simple average to calculate the compensation of the other Executive Management Board (EMB) members does not take into account the re-organization of the EMB in 2015, which affected functions with comparably lower total compensation. Furthermore, it does not reflect the impact of performance-driven pay and share-price movements. On a like-for-like basis, the average EMB member's target total direct compensation (excluding CEO) increased from CHF 1.24m to CHF 1.41m, i.e. +13.1%, mainly due to increased responsibilities.

ELTIP 2015

On pages 134 and 135 of the annual report it is clearly stated that the 2015 ELTIP grant is driven by earnings per share (EPS) growth targets and not by the EBITDA margin, as RBR states. If the annual growth of EPS is below 5%, then the ELTIP payout in 2019 will be zero. The maximum amount of 100% of initially granted ELTIP units will only be paid out if the annual growth in EPS during the performance period of 2016 through 2019 is 15% or higher. This clearly aligns management compensation with shareholders' interests.

Performance 2015

gategroup reported a solid performance for 2015 on the basis of significant operational and commercial progress during 2015. The team simplified the business and engaged in turnaround measures to drive growth. These efforts are evident from the milestones reached in 2015 and so far in 2016 under the four pillars of Gateway 2020.

As noted in remarks in gategroup's full year results, the Group achieved organic revenue growth of 4.8% in 2015, ensured greater concentration on profit, with adjusted EBITDA reaching CHF 180.8 million, and set additional focus on cash flow generation. The last quarter of the year showed continued acceleration, with 5.2% revenue growth and a 17.3% increase in EBITDA at constant currency, over prior year.

Foreign exchange losses, refinancing early repayment fees and adjustments combined totaled CHF 104.4 million. Without these, gategroup would have reported a profit attributable to shareholders of CHF 41.0 million.

gategroup simplified the organization and energized its commercial strategy with more than CHF 540 million of annual revenue renewed, including extensions with some of the top 10 customers for the Group, based on strengthened commercial capabilities. The Group launched the most innovative and complete offering in retail on board furthered by the IFS acquisition. Additionally, gategroup expanded in emerging markets by establishing a presence in Kazakhstan.

The team continues to restructure underperforming operations and introduce greater transparency and accountability at all levels of the organization, to include launching the ZBB program and identifying 300 managerial positions toward the targeted headcount reduction, delivering savings in 2015 and into 2016.

In short, gategroup is more efficiently operating the business with a central focus on the customer, while targeting EBITDA margin expansion of 25-50 basis points per annum over the next five years.

The team is truly becoming one gategroup - supported by joint efforts at Board and management levels - aligned in a firm commitment to drive strategy and deliver efficiencies and growth.

Maximum EMB compensation 2017

The chart below shows the indicative maximum aggregate EMB compensation for 2013, 2014 and 2015 (calculated using the the same assumptions) and the maximum aggregate EMB compensation approved by the AGM for 2016.

When comparing actual vs. maximum pay, please note that:

• The reduction in the EMB structure in 2015 affected functions with comparably lower total compensation, and so led to an increase in the average total compensation of the remaining EMB members.
• The total compensation of the EMB in 2015 only refers to the active EMB members at year-end and does not reflect the full year total compensation level.
• For the 2017 budget we have assumed that the new Chief Commercial Officer will already have started in 2016.
• The maximum payout can only be achieved if there a significant outperformance.

With regards to the main components of the aggregate maximum EMB compensation for 2017, please note that the following:

• Base Compensation: For the maximum budget 2017, an increase in base compensation is only allowed if justified by market benchmarking and approved by the Board of Directors. gategroup does not apply any automatic increases in base compensation.
• Bonus Plan: The budget 2017 allows for a maximum of 200% of target bonus. However, any STIP payout is only made if at least 80% of the performance targets are achieved. Note that actual payout of the bonus in 2015 was less than 100% of target.
• Share-Based Plan: In order to define the value of the share-based payment in 2017, a significant share price increase was assumed. Note that this gives the maximum amount of share units that can be allocated, not the actual number paid out. Any actual payout of share units in 2020 will depend on the performance criteria. This could also mean that the final payout value is zero.

We hope this clarifies the facts. You will find more details in our annual report, pages 126-150, which can be found at the following link: http://www.gategroup.com/docs/gategroup_2015_Annua.pdf.

Please do not hesitate to contact us if you need further information.

Yours sincerely

For the Board of Directors

Andreas Schmid	Julie Southern
Chairman	Chair of the Nomination and Compensation Committee

Shareholder letter (PDF)

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