UK retailer will increase number of free shares awarded to Ashley if profit targets are hit in each of next three years
Sports Direct has upped the share bonus payout for its largest shareholder Mike Ashley by 30% as the billionaire looks to catch up with staff who stand to collect bumper payouts thanks to a turnaround in its performance.
Ashley, who is also the owner of Newcastle United, will now receive 8m shares, 2m more than when the four year “super stretch executive bonus scheme” was first announced back in December. It has not altered the terms of a similar share scheme for staff who are already on course to collect payouts of £50,000 split over this year and next. For many shop floor staff the bonus will be the equivalent of two year’s wages.
Ashley has not drawn a salary since the company floated in 2007 even though he is heavily involved in its day-to-day running and says he generates significant free advertising for the retailer through his ownership of Newcastle. The club’s historic home at St James’ Park has been renamed the Sports Direct Arena. However, he owns a 70% stake that is worth nearly £1.2bn and will pocket a substantial payout from his 410m shares if the dividend is reinstated this year.
Shareholder payouts were axed in 2009 after profits collapsed in the wake of the banking crisis but its recent strong performance means the board is considering resuming payments to shareholders.
Ashley is to be granted shares, worth £23.4m at the current share price, after the company cleared the first hurdle of recording profits before financial charges of £225m in the financial year which ends this month. The shares will be released in 2018 if the company meets profit targets that have been reset £30m higher over the life of the three year scheme. The retailer, which owns the Sports World and Lillywhite stores as well as the Slazenger, Lonsdale and Dunlop brands, must now generate profits before financial charges of £270m this year, £290m the year after and £340m in 2014.
The share scheme for employees pays out on lower profit targets, hence the “super-stretch” designation for Ashley’s. The staff plan was introduced in 2009 and is credited with boosting morale.
A spokesman for Sports Direct said the higher share award reflected the imposition of the tougher performance criteria. He added that Ashley would not vote on the remuneration resolution at its agm in September. Analysts said the targets were designed to ensure the group hit its targets “as an extra 8 million shares mean little difference to him (Ashley) personally”.
Sports Direct has had run ins with shareholders in the past over both executive pay and corporate governance and one investor was critical of Ashley’s new bonus scheme describing it as “horrible”. Sarah Wilson, chief executive of shareholder advisory group Manifest, said the company was guilty of not consulting shareholders: “This is the difficulty when you have a dominant shareholder of a quoted company. Minority shareholders are left feeling powerless.”
After a poor start to life as a listed company analysts are bullish about Sport Direct’s prospects — not least because of the summer of sport ahead. Its chief executive Dave Forsey said trade in February and March had exceeded management expectations thanks to booming internet sales in the UK. Total sales were up more than 13% to £267.6m in the nine weeks to 25 March which compared with a third-quarter rise of 9.1%. Profits for the period also ahead by the same amount at just shy of £100m. “We remain positive about the outlook and are excited about the summer ahead with the diamond jubilee, Euro 2012 and the London Olympics,” added Forsey.
Analysts said that Sports Direct was gradually shedding its image as a pile-it-high-sell-it-cheap retailer thanks to the introduction of premium brands and a focus on gaining a foothold in specialist categories such as running. “The predominant driver of Sports Direct’s performance of the last couple years has been its ability to foster a dynamic and emotionally engaged workforce,” said Joseph Robinson, retail analyst at Conlumino, who added that although the Ashley scheme “runs contrary to current corporate sentiment” it required the retailer to hit ambitious targets.
Ashley floated the firm at 300p in 2007 but the shares have never broken through the original float price. They have climbed more than 40% in the last year and closed up more than 2% at 291p yesterday. If they break through 300p, City analysts believe that will spur Ashley to reduce his holding to around 52%.