Tue, 4th May 2021 12:28
Targets in respect of the second performance period of the 2019 Delivering Value Incentive
Following publication of the Directors' Remuneration Report and Policy in the 2020/21 Annual Report & Accounts, Kingfisher plc (the 'Company') is today announcing details of the targets for the second performance period of the 2019 Delivering Value Incentive (DVI).
The Directors' Remuneration Report, including these targets and vesting schedule, will be voted on by shareholders at the 2021 AGM. This disclosure has been provided separately via RNS to allow time for consultation with shareholders on the proposed targets following the final results announcement on 22 March 2021.
Recap of structure of 2019 Delivering Value Incentive (DVI) award
The DVI was introduced in 2019 as part of the Remuneration Policy that was approved by shareholders at the 2019 AGM. It is a one-off five-year long-term incentive award, where only one award can be made during the three-year policy period.
The DVI award was granted to the Executive Directors (CEO and CFO) in October 2019, soon after they joined the Company, while the Group Executive received their award earlier in 2019 (or on joining the Group Executive if later). The CEO and CFO were granted a target award of 190% and 162.5% of base salary, respectively. As the maximum award is 4x the target, and a single award is made for the three-year policy period, this meant that the maximum annualised DVI award (for comparison with a traditional LTIP structure) is 253% of salary for the CEO (4 times 190%, spread over three years) and 217% for the CFO. As the award is a one-off plan, no further awards have been made since the initial grant nor will they be made in 2021.
Vesting under the DVI award is dependent on performance over a five-year period (of 1 February 2019 to 31 January 2024) against the following measures:
· One-third adjusted earnings per share (EPS);
· One-third return on capital employed (ROCE); and
· One-third relative total shareholder return (TSR).
The five-year performance period is split into two overlapping periods of (i) 1 February 2019 to 31 January 2022 and (ii) 1 February 2021 to 31 January 2024. As a result, 50% of the total DVI award is dependent on performance during the first period of 1 February 2019 to 31 January 2022 with the remaining 50% dependent on performance during the second period of 1 February 2021 to 31 January 2024. This approach, of two overlapping periods, was taken to better align with the evolution of the Company's strategy since 2019. No vesting occurs under the plan until July 2024.
The EPS, ROCE and relative TSR targets for the first DVI performance period are disclosed in the 2019/20 Annual Report & Accounts on page 89. The targets for the second DVI performance period are detailed below.
Targets for the second DVI performance period
Details of the targets for the period from 1 February 2021 to 31 January 2024, applying to 50% of the total award, are set out below. Payouts occur on a straight-line basis between each of the performance points.
Delivering Value Incentive Multiple
EPS Growth (p.a.)(One-third weighting)
2023/24 ROCE(One-third weighting)
TSR percentile vs. relative TSR peer group
In determining the appropriate targets for the second performance period of the DVI, the Remuneration Committee took into account the following principles:
· Financial performance targets should align with the Company's challenging internal business plan developed to keep strategic momentum in the business.
· Threshold and full vesting should be at least as stretching as the targets under the first half of the DVI.
· The vesting schedule should recognise the breadth of possible EPS and ROCE outcomes within the context of the external pressures.
· There is an appropriate balance between retaining a new management team through the build up of reasonable levels of equity with a powerful incentive to drive performance.
· Full vesting reflects truly exceptional performance in the eyes of all stakeholders.
Adjustment to base year (2020/21) EPSThroughout the COVID pandemic, the Company has taken swift and effective measures to ensure we continue to serve our customers' essential needs as effectively as possible, to look after our colleagues, to provide support to the communities in which we operate in as well as protect the business for the long term. Measures included temporary store closures in March and April 2020 to protect our colleagues.
In order to limit the impact of temporary store closures and trading restrictions on our financial flexibility and profitability, the Company implemented multiple actions to reduce costs and preserve cash, especially during H1 2020/21, including the benefit from several government support measures (many of which were subsequently repaid). As disclosed in the 2020/21 Annual Report, many of the cost reductions achieved were temporary or one-off in nature. Total reported non-recurring cost savings in FY 2020/21, net of one-off COVID related costs, were £85m. As a result of this, the EPS growth measure will be calculated from a re-based 2020/21 adjusted EPS figure of 25.6p to reflect these non-recurring cost savings of £85m (vs. reported adjusted EPS of 28.7p). In line with the approach for the first DVI performance period, ROCE is measured as the ROCE in the final year of the plan and therefore is not impacted by these non-recurring cost savings.
TSR will continue to be measured against the same peer group companies used in the first DVI performance period (amended to reflect any M&A activity). The peer group used was the STOXX 600 retailers, as well as the leading home improvement retailers in the US, Home Depot and Lowe's.
The Committee strongly believes that the targets set out in this RNS represent a high level of stretch, whilst remaining motivational to executives, and are therefore strongly aligned with the long-term interests of our shareholders. Full vesting would result in EPS of 40.0p, ROCE of 15.0% and an upper quintile relative TSR performance, which is representative of exceptional Company performance and justifies full payout under the plan.
In line with the Remuneration Policy, the Committee will also assess the outcomes of both performance periods for the DVI at the end of the five-year period to ensure that they are appropriate within the context of the wider performance and shareholder experience. The Committee has discretion to adjust if the formulaic outcome is not felt to produce an appropriate result given the overall underlying Company performance. The discretion in place is in line with provisions in the Corporate Governance Code.
Chair of the Remuneration Committee
For further information, please contact:
Paul Moore, Group Company Secretary
Tel: +44 (0)207 644 1041
3 Sheldon Square, London W2 6PX