boohoo group plc (LON:BOO) remuneration committee has announced the intention to implement a new Management Incentive Plan as it positions the Group and its management team for the next phase of growth.
The Group’s Remuneration Committee is committed to ensuring that the Group’s leadership team is motivated to deliver long-term sustainable growth for its shareholders, as the Group targets a continuation of the exceptional levels of performance that it has delivered since IPO. The Plan will be focused on members of the Group’s management who are most able to impact the Group’s shareholder returns. Participation in the Plan by any member of the Group’s management team will be supervised by the Remuneration Committee.
The primary objective of the Plan is to motivate key members of the management team to continue to achieve exceptional levels of performance across the Group and deliver further returns for its shareholders.
The Remuneration Committee has carefully considered the structure of the Plan and looked to ensure it not only retains and incentivises management, but that it is also acting in the best interest of all shareholders.
Structure of the Plan
The Plan will be share price focussed to align interests of management with existing and potential shareholders and will be a 3-year scheme measured on 17 June 2023. The single share price growth measure is well aligned to the Group’s strategy of delivering substantial and sustained returns to shareholders by the ongoing successful execution of the Group’s vision to lead the fashion e-commerce market globally through its scalable multi-brand platform.
The Plan will pay out in full and to its maximum level of £150 million (across all participants) if the market capitalisation rises by 66 per cent. to £7.55 billion over the 3 year-performance scheme period, which equates to a compound average growth rate (“CAGR”) of at least 18 per cent. The starting market capitalisation of the scheme is £4.54bn, based on the average share price of the Group for a period of 30 trading days ending on 16 June 2020. At the maximum pay-out threshold, the beneficiaries of the Plan would receive a maximum of just under 5 per cent. of the shareholder value created over that period. Under the Plan, CAGR of less than 11 per cent. over this period yields nil value to all participants.
The following table shows the key targets for the scheme and value created:
|Target share price (p)||500||550||600|
|Market Cap (£bn)||6.295||6.924||7.554|
|Value created (£bn)||1.752||2.381||3.011|
|CAGR over 3 years||11%||15%||18%|
|% pay out||33.33%||66.66%||100%|
|Pay out (£m)||50||100||150|
|Pay out (% of value created)||2.85%||4.20%||4.98%|
|Pay out (% of total market cap)||0.79%||1.44%||1.99%|
Participants in the Plan will subscribe for B shares in boohoo holdings limited, an intermediary holding company of the Group, and the Group will have the option to pay participants in boohoo shares or cash at its discretion when the Plan crystallises. Provisions will be made to the Plan to make the adjustments for increases in market capitalisation arising from corporate events such as issuing shares for acquisitions so that the benefits derived from the Plan only arise from organic growth. The Plan also provides clawback provisions which allow repayment in defined circumstances.
Shares under option and impact of the Plan
boohoo group currently has approximately 3.77 per cent. of its issued share capital held currently under various incentive plans that have been previously disclosed to shareholders.
Under the proposed Plan announced today, if the Plan achieves a maximum pay out of £150m and pays all participants within the Plan in boohoo shares, on the basis of a 600p share price, this would create a further 1.99 per cent. dilution to existing shareholders, taking the total potential dilution to 5.77 per cent. under all current and proposed employee share plans.
Executive Directors participating in the Plan
It is intended that the following Executive Directors will participate in the Plan and will hold approximately the following proportions;
|Director||Percentage of the Plan|
|Mahmud Kamani, Group Executive Chairman||33.33%|
|Carol Kane, Group Co-Founder and Executive Director||33.33%|
|Neil Catto, CFO||6.67%|
The Co- founders of boohoo, Mahmud Kamani and Carol Kane, have been the architects of the Group’s strategy and instrumental to the Group’s success to date. Since the Group’s IPO in March 2014, it has achieved exceptional levels of revenue and EBITDA growth, achieving in its most recent financial year ended on 29 February 2020 revenue of £1.235 billion and an adjusted EBITDA of £126.5 million, compared with £109.8 million and £12.2 million respectively at IPO. The Group has seen its market capitalisation increase from £560 million on IPO to today’s levels.
Throughout this period the Remuneration Committee did not grant awards to the two Co-founders in the Group’s long-term incentive arrangements, preferring to motivate and incentivise those members of the senior team with less significant shareholdings in the Group.
Since John Lyttle joined as Group CEO in March 2019, the enlarged and strengthened Executive team has had substantially enhanced bandwidth to formulate, plan and begin to execute a multi-brand online strategy, adding five brands to the Group’s platform since then. Now that PrettyLittleThing has become a wholly owned subsidiary of the Group, the Remuneration Committee has determined that it is the appropriate time to ensure that interests across the Group’s senior Executive team are aligned, and focussed and incentivised to continue to create premium growth and returns for its shareholders.
The ongoing commitment of the Co-founders, with their expertise, proven track records and excellent working relationships with the Group CEO and other members of the management team, is essential to maximising shareholder value creation. The Remuneration Committee welcomes their combined commitment to a further three years of absolute focus, to make the most of the global opportunities currently facing the Group for the benefit of all shareholders and stakeholders through their first-time participation in the long-term incentive arrangements of the Group.
Neil Catto has been CFO at boohoo since before the IPO and has been a key member of the management team delivering the very substantial shareholder value creation over the period. The Remuneration Committee has decided to allocate 6.67% of the Plan to Neil to incentivise him and retain his services for the Group’s ongoing development, while aligning his remuneration potential with other key members of the management team.
Mahmud Kamani, Carol Kane and Neil Catto are related parties as defined by the AIM Rules for Companies (“the AIM Rules”) given they are Directors of the Company and the grant of shares to each of them under the Plan will therefore be a related-party transaction for the purposes of Rule 13 of the AIM Rules. The independent directors (being the Non-Executive directors) consider, having consulted with Zeus Capital, the Group’s Nominated Adviser, that the terms of the Plan are fair and reasonable in so far as the Group’s shareholders are concerned.
Other Participants in the Plan
Also included in the Plan announced today, is Samir Kamani, CEO of the Group’s fast-growing menswear brand boohooMAN, launched online in 2016. Samir is the son of the Group Executive Chairman, Mahmud Kamani, and the Remuneration Committee has decided to allocate 16.67% of the Plan to Samir, reflecting the growing importance and success achieved to date by boohooMAN. Under Samir’s stewardship, boohooMAN is currently the fastest growing brand within the Group. boohooMAN is a key pillar to the future growth of the Group.
Furthermore, as part of the long-term succession planning of the business, Samir has been identified by the Group CEO to take on a wider Group role across other brands and as a key figure in the future leadership team of the wider Group.
The remaining 10.00% of the Plan is intended to be granted to a number of key individuals across the wider management team, with no individual receiving more than 3%. This management team, together with the Executive Directors, will be instrumental in the future success of the Group as it looks to deliver the next phase of growth that in turn will create long term value for its shareholders.
Corporate Governance considerations
Boohoo has publicly stated that it has adopted the QCA Corporate Governance Code, and that it will take into account the principles of the UK Corporate Governance Code and other best practice as appropriate in its approach to executive remuneration. The QCA Corporate Governance Code requires that shareholders be consulted where performance related remuneration is under consideration, whilst the UK Corporate Governance Code would require proposals such as these to be subject to a shareholder vote.
As stated, the Remuneration Committee has carefully considered the structure of the Plan and looked to ensure it not only retains and incentivises management, but also that the Plan is in the best interest of all shareholders. The Remuneration Committee has undertaken some shareholder consultation and taken on board feedback received. The Remuneration Committee believes that the interests of shareholders will be best served by granting the awards immediately to the recipients without recourse to a shareholder vote, which will ensure that they are immediately incentivised to deliver stretching share price growth for the benefit of all boohoo’s shareholders as the Group executes its multi-brand online strategy. A shareholder vote is not required by either the QCA Corporate Governance Code or by the AIM Rules.