Friday, 26 June 2020

New Boohoo management incentive plan reflects booming confidence



Boohoo Group announced its new management incentive plan on Friday and the extent of the potential rewards on offer to the top team underlines just how confident the company is in its ability to expand and to grow its overall value.

As of Friday morning, Boohoo’s share price means the firm has a market capitalization of £5.16 billion. A year ago it was a little over half of that figure and five years ago it wasn’t even worth 10% of the current amount.

But the new plan, which sees it “positioning for the next phase of growth”, is looking at a potential market cap of £7.55 billion within three years.

CEO John Lyttle isn’t part of the new plan, although he is being well rewarded under a previous plan. He was reportedly the target of a shareholder revolt earlier this month as a third of those who took part in a ballot voted against its remuneration report. This included a £50 million bonus for Lyttle if the company is worth £6 billion by March 2024, a value it could easily reach even earlier if its shares continue to rise as they have been doing.

As to the new plan, the company said its 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”.

And the details? The incentive plan "will pay out in full and to its maximum level of £150 million (across all participants) if the market capitalization rises by 66% to £7.55 billion over the three-year performance scheme period, which equates to a compound average growth rate (CAGR) of at least 18%.

At the top payout threshold, the beneficiaries of the plan would receive a maximum of just under 5% of the shareholder value created over that period. But CAGR of less than 11% over this period yields nil value them.

Those participating include an executive chairman and co-founder Mahmud Kamani, executive director, and co-founder Carol Kane and CFO Neil Catto.

Also included is Mahmud Kamani’s son Samir Kamani, CEO of the firm’s fast-growing menswear brand BoohooMan. 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”. It’s currently the fastest growing brand within the group and a “key pillar” of future growth. He’s also been “identified by the CEO to take on a wider role across other brands and as a key figure in the future leadership team of the wider group”.

Participants in the plan will subscribe for B shares in Boohoo Holdings Limited, an intermediary holding company of the group, and the business will have the option to pay them in shares or cash at its discretion when the plan crystallizes. 

The firm currently has around 3.77% of its issued share capital held currently under various incentive plans. Under the new terms, if the maximum is paid out, on the basis of a 600p share price, this would create a further 1.99% dilution to existing shareholders.

The company added that 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 focused and incentivized to continue to create premium growth and returns.

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