KINGFISHER PLC
Targets in respect of the 2019 Delivering Value Incentive
Following publication of the Directors' Remuneration Report and Policy in the 2018/19 Annual Report & Accounts, Kingfisher plc is today announcing details of the targets and vesting schedule in respect of the 2019 Delivering Value Incentive (DVI). The Directors' Remuneration Report and Policy, including these targets and vesting schedule, will be voted on by shareholders at the 2019 AGM. We have provided this disclosure separately via RNS to allow time for comprehensive consultation with investors on the proposed targets following the final results announcement on 20 March 2019.
Awards under the Plan will be granted to Group Executive members in July 2019, subject to approval of the 2019 Remuneration Policy by shareholders at the AGM on Tuesday, 9 July 2019. Given the recent announcement regarding the launch of the succession process for the position of Group CEO, the current CEO will not participate in the 2019 Delivering Value Incentive. The interim CFO will also not participate. Awards to future Executive Directors will be made on or shortly after appointment.
Recap of Design of Delivering Value Incentive (DVI) plan
The DVI is a one-off five-year long-term incentive award. The DVI will be the second such award Kingfisher has granted, the first being the original Transformation Incentive granted in 2016. The DVI consolidates three standard annual LTIPs into one award and measures performance over a five-year period with two overlapping three-year performance periods to align with our strategy. Only one award will be made during the three-year policy period, and the next award will not be granted until 2022/23.
Target awards under the policy can be made up to the level of 220% for the CEO and 200% for the CFO. As the maximum award is 4x the Target, and a single award is made for the three year policy period, this means that the maximum annualised DVI award (for comparison with a traditional LTIP structure) is 293% of salary for the CEO (4 x 220% spread over three years) and 267% for the CFO.
Proposed Award Levels and Targets
Following discussions with shareholders, the Remuneration Committee have determined to limit the grant size of the 2019 DVI available to any newly recruited Executive Director to a level below that allowed for by the Directors' Remuneration Policy. This decision has been taken following consultation with investors given the fact that performance is now measured over two three-year periods as opposed to a single five-year period, and reflecting recent share price performance.
The DVI target grant size available for the CEO and CFO will be as follows:
− CEO: Single grant of 190% of salary at target over three-year policy period, equivalent to 63% of salary at target (253% at maximum) on an annualised basis; and
− CFO: Single grant of 170% of salary at target over three-year policy period, equivalent to 57% of salary at target (227% at maximum) on an annualised basis.
Together with the annual bonus and Alignment Share awards (each 80% of salary at maximum) total maximum incentives on an annualised basis will be 413% of salary for the CEO and 387% of salary for the CFO, in line with typical FTSE norms.
Awards granted will vest based on performance over five years against the following performance measures:
− One-third relative total shareholder return (TSR);
− One-third adjusted earnings per share (EPS); and
− One-third return on capital employed (ROCE).
The measures have been chosen to balance growth, and returns and ensure sustainable delivery of performance. Threshold vesting is 0% of maximum for the EPS and ROCE elements and 25% of maximum for the relative TSR element.
Performance will be measured within the five-year time horizon of the award over the two periods, each applying to one half of the total award: (i) 1 February 2019 to 31 January 2022 and (ii) 1 February 2021 to 31 January 2024, to better align with the phasing of the business strategy.
The Remuneration Committee, in consultation with our major shareholders, have calibrated targets to balance between:
− Incentivising delivery of stretching targets that will deliver outperformance for shareholders; and
− Recognising the risk and uncertainty of the market environment in which we operate, and the need to recruit and incentivise new senior executives.
Details of the targets for the period from 1 February 2019 to 31 January 2022, 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) |
2021/22 ROCE
(One-third weighting) |
TSR percentile vs. relative TSR peer group (One-third weighting) |
Zero |
4.0% |
10.5% |
n/a |
1x Target |
5.0% |
11.0% |
50th |
2x Target |
8.0% |
11.5% |
60th |
3x Target |
11.5% |
12.5% |
70th |
4x Target |
15.0% |
13.5% |
80th |
The EPS measure uses adjusted EPS and growth is measured relative to a 2018/19 EPS figure of 19.8p. In setting the targets the Committee referred to EPS ranges in the FTSE 100 and EPS consensus estimates for Kingfisher. The proposed target is more challenging than FTSE and retail sector norms, and delivery of maximum performance would deliver growth well above the upper quartile of the market expectations for our European retail peer group.
The Committee will consult with shareholders during 2020/21 on the performance measures and targets to apply on the second half of the award from 1 February 2021 to 31 January 2024.
Details of performance measures
Kingfisher is applying the new IFRS 16 accounting standard from 1 February 2019, which will have an impact on the financial metrics used in our incentives. The impact will be considered by the Remuneration Committee to ensure that performance continues to be measured on a neutral basis. Any adjustments required will be set out in the 2019/20 Annual Report & Accounts.
EPS will be reported on the basis of adjusted earnings per share. This is basic earnings per share for ongoing operations adjusted to exclude the following:
− exceptional items;
− financing fair value remeasurements; and
− related tax items and prior year tax items (including the impact of changes in tax rates on deferred tax).
TSR will be measured against STOXX 600 retailers and leading US retailers, Home Depot and Lowe's, on a common currency basis. To manage the potential for volatility and any unintended consequences of TSR due to Kingfisher's unique exposure to both £ and € currencies, the Remuneration Committee will retain discretion to review and adjust the relative TSR outcome if an extreme movement in the £/€ exchange rate has distorted the outcome positively or negatively.
ROCE is defined as lease adjusted profit after tax divided by capital employed, where:
− Lease adjusted profit after tax is calculated as:
o retail profit less central costs, excluding exceptional items;
o add back: Property lease cost; and
o less tax at Effective Tax Rate (ETR).
− Capital Employed is calculated as:
o total net assets of the business (two-point average at year start and end); and
o add: capitalised property leases at eight times annual property lease cost.
− Excludes:
o historic goodwill and historic acquisition intangibles (goodwill for new acquisitions during the Plan will be included);
o net debt/cash;
o exceptional restructuring provisions; and
o assets/liabilities/investment and capitalised property leases of excluded businesses.
As under the current policy, the Remuneration Committee will apply a quality of earnings test prior to awards vesting and may use this to adjust the formulaic outcome. This test would include considering the overall execution of strategy, balance sheet health, the relative performance of growth versus returns, the level of transformational costs relative to the plan (capex and P&L costs), and the overall GDP growth level in the economy.
Clare Chapman
Chair of the Remuneration Committee
For further information, please contact:
Paul Moore, Group Company Secretary
Tel: +44 (0)207 644 1041
Kingfisher plc
3 Sheldon Square, London W2 6PX
