Nil cost options can be used egregiously, but the incentive plan here seems rather reasonable:
- The max awards represent c.£1m, i.e less than 0.4% of yearly revenue.
- Max awards are also max. 150% of base salary, which for c-suite compensation is typical
- They vest over 3 years, so the two previous points feel even more acceptable
- The 2-year holding period post vesting also avoids making this a cash payment in disguise and creates further management incentives for long, or rather medium, term shareholder value
- The EPS goal for max awards is an EPS of 33.2p per share, which wasn't highly ambitious when the plan was set up during the previous fiscal year - as it was below FY2021 and FY2022 EPS - but after macro changes in the past months it has become a high watermark.
What were your thoughts on those options? Is there anything that bothered you specifically?
Hi, Some of the cash is customer advance deposit held by SCS for orders. If customer decide to cancel the order then the cash should be returned back. So the actual numbers could be misleading.
I did comment on this a couple of times, as noted below. Reading through my post again I think I should have insisted on it more, and I included it late into my analysis.
Yet, a large amount of sudden cancellations would seem odd, especially after no specific spike in cancelations was highlighted during the first 6 months in 2022, when inflation started hitting UK consumers hard.
« It is important to note however, that in that cash pile are included £25.5m of customer deposits. Thus, net cash from a valuation standpoint could be valued at a much lower £45m. »
« And remember, if we want to truly be conservative, £25.5m of that net cash pile is from customer deposits. When removing that number from net debt, our model provides only a 32% upside. »
Great analysis, thanks for this write up! What are your thoughts about the use of nil cost options as part incentives for senior mgmt?
Hi! Thank you for your comment!
Nil cost options can be used egregiously, but the incentive plan here seems rather reasonable:
- The max awards represent c.£1m, i.e less than 0.4% of yearly revenue.
- Max awards are also max. 150% of base salary, which for c-suite compensation is typical
- They vest over 3 years, so the two previous points feel even more acceptable
- The 2-year holding period post vesting also avoids making this a cash payment in disguise and creates further management incentives for long, or rather medium, term shareholder value
- The EPS goal for max awards is an EPS of 33.2p per share, which wasn't highly ambitious when the plan was set up during the previous fiscal year - as it was below FY2021 and FY2022 EPS - but after macro changes in the past months it has become a high watermark.
What were your thoughts on those options? Is there anything that bothered you specifically?
Thanks again for reading!
Hi, Some of the cash is customer advance deposit held by SCS for orders. If customer decide to cancel the order then the cash should be returned back. So the actual numbers could be misleading.
Hi! Thanks for your comment!
I did comment on this a couple of times, as noted below. Reading through my post again I think I should have insisted on it more, and I included it late into my analysis.
Yet, a large amount of sudden cancellations would seem odd, especially after no specific spike in cancelations was highlighted during the first 6 months in 2022, when inflation started hitting UK consumers hard.
« It is important to note however, that in that cash pile are included £25.5m of customer deposits. Thus, net cash from a valuation standpoint could be valued at a much lower £45m. »
« And remember, if we want to truly be conservative, £25.5m of that net cash pile is from customer deposits. When removing that number from net debt, our model provides only a 32% upside. »