Long-term earn­ings get bet­ter

The group is in a strong cash po­si­tion and its man­age­ment’s work in the past could en­sure fu­ture an­nual bonuses

Financial Mail - - MONEY&INVESTING - Ann Crotty crottya@ti­soblack­star.co.za

With­out a sig­nif­i­cant and sus­tained hike in the Pick n Pay share price in the next few days group CEO Richard Brasher can wave good­bye to 1-mil­lion of his share op­tions.

The five-year term of the op­tions, which were granted to Brasher when he was ap­pointed CEO in 2012, were ex­tended for 12 months when they failed to meet the vest­ing con­di­tion in Novem­ber 2017.

The con­di­tion was that the weighted av­er­age share price for the 20 days to Novem­ber 14 2017 had to be at least R68.03.

Re­mu­ner­a­tion com­mit­tee chair Hugh Her­man says the com­mit­tee made the de­ci­sion to grant a 12-month ex­ten­sion at a spe­cial meet­ing in Septem­ber 2017.

In his 2018 re­port, Her­man says Brasher has suc­cess­fully im­ple­mented the strate­gic ac­tion needed to “re­set the long-term earn­ings tra­jec­tory of the group”.

But the pre­vail­ing po­lit­i­cal and eco­nomic cli­mate hit sen­ti­ment in the lo­cal eq­ui­ties mar­ket, says Her­man. He also be­lieves the share price has been hit by the im­pact of the R200m cost of the vol­un­tary sev­er­ance pro­gramme in the first half of 2018.

All in all, Her­man and his com­mit­tee say they were jus­ti­fied in push­ing out the vest­ing date by 12 months.

They pre­sum­ably as­sumed once the earn­ings tra­jec­tory was back on an up­ward track, mar­ket sen­ti­ment would lift the


share to at least the re­quired vest­ing level.

What they ev­i­dently hadn’t planned for was a fun­da­men­tal rerat­ing of the lo­cal eq­uity mar­ket as for­eign in­vestors sought shel­ter from emerg­ing mar­kets.

So when Brasher an­nounced an ex­cel­lent set of in­terim re­sults early in Oc­to­ber the mar­ket con­sid­ered that this did lit­tle more than jus­tify the high rat­ing the share al­ready en­joyed.

The re­sults may have halted the pace of de­cline of the pre­vi­ous six months, but with just days to go it’s dif­fi­cult to see what would bump the price up to the lev­els needed for the op­tions to vest.

Her­man told share­hold­ers at the group’s AGM in July that the ex­ten­sion was a good bal­ance be­tween the in­ter­ests of the ex­ec­u­tive and those of the share­hold­ers.

“But I give you my as­sur­ance we won’t do it again … while I’m chair of the re­mu­ner­a­tion com­mit­tee,” said Her­man, who af­ter 42 years is still de­scribed as an in­de­pen­dent di­rec­tor.

For­tu­nately for Brasher, the 1-mil­lion share op­tions are only part of his share re­wards. He has an­other 1-mil­lion op­tions with no con­di­tions at­tached. In ad­di­tion, the per­for­mance con­di­tions at­tached to the gen­er­ous for­feitable share awards have been com­fort­ably at­tained.

And though there was no short-term bonus paid for 2018, the re­mu­ner­a­tion com­mit­tee used its dis­cre­tion to make a few gen­er­ous cash awards.

The past ef­forts of Brasher and his man­age­ment team should bring about the re­sump­tion of an­nual bonuses from here on.

With the long-term earn­ings tra­jec­tory back on course, the ma­jor threat to ex­ec­u­tive re­mu­ner­a­tion and the share price at this now cash-rich re­tailer would be an ill-con­sid­ered ac­qui­si­tion.

Brasher’s com­ments on the group’s strong cash po­si­tion at the re­cent an­a­lysts’ pre­sen­ta­tion prompted in­evitable ques­tions about pos­si­ble ac­qui­si­tions. “If things come along that we like the look of and they’re ap­pro­pri­ately priced and com­ple­ment our busi­ness, at least we can give it se­ri­ous con­sid­er­a­tion,” said Brasher to a col­lec­tion of an­a­lysts who have re­cently spent a lot of time trawl­ing through the multi­bil­lion-rand losses suf­fered by Wool­worths’ ill-con­sid­ered in­ter­na­tional ac­qui­si­tions.

Even Sho­prite’s African deals are tak­ing some strain.

Given the not-too-dis­tant mem­ory of Pick n Pay’s own ill-fated Aus­tralian ven­ture, share­hold­ers will have taken com­fort from Brasher’s as­sur­ance that the cash is not burn­ing a hole in the com­pany’s pocket. “We don’t have to spend it,” he says.

Bloomberg/waldo Swiegers

Pick n Pay: Pre­sented ex­cel­lent in­terim re­sults in Oc­to­ber

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