A “semblance of normality” is returning to retail-land, said Mike Ashley’s Frasers Group, seeming to encourage the same judgment about the company itself.
This year’s annual results were delivered without last year’s background explosions from auditors and Belgian tax authorities. The 18% fall in pre-tax profits to £117m was a better outcome than the City had feared. Ashley’s own eruptions were largely confined to demands for lower rents and business rates, standard retailing rhetoric these days. The shares improved 13%, boosted by a prediction that this year’s underlying profits will improve by 10%-30%.
Jolly good, but don’t make the mistake of thinking Sports Direct has transformed into a normal public company with its change of name. Ashley has proclaimed his “elevation” strategy to be a success but it remains as hard as ever to spot the evidence.
One elevating success is supposed to be the “premium lifestyle” division, a mish-mash that spans House of Fraser, Flannels, Jack Wills and sofa.com. It made a small “underlying” contribution but the operating loss was £33.2m, hardly an advertisement for the transformative benefits of the HoF purchase. The company talks about the department stores as “a work in progress”; others might call the HoF deal a mistake.
Ashley is clearly still keen to scratch his acquisitive itch, so there’s no knowing what excitements will follow. The “valued shareholders”, as the chairman David Daly called minority shareholders, would surely prefer Ashley to make a success of his add-ons before expanding the collection.
A punt on Hugo Boss, incidentally, was largely responsible for a £35.8m “fair value loss on equity derivative financial instruments”. It’s never simple with Ashley.
AO’s incentive scheme deserves credit and scepticism
Managements’ claims about how “all employee” incentive schemes will enrich all ranks are usually self-serving guff. If success happens, the top folk indeed tend to get fabulously rich, but rewards at the bottom generally amount to “a round of drinks”, as John Roberts, founder and chief executive of AO World, puts it.
AO’s “value creation plan” is different, promises Roberts, and he has a point. Or, rather, a nuanced point since, if Bolton-based AO meets its five-year ambition for the share price, he would end up as a paper billionaire thanks to his 23% shareholding in the online retailer of fridges, freezers and TVs.
But a warehouse worker earning £18,000-£20,000 would still collect a year’s salary, he says, or even £30,000 if the very highest hurdle is cleared. Rewards for a small number of executives could still reach a maximum of £20m, so nobody’s pretending everyone’s equal, but the division of the spoils is less grotesquely unbalanced than in most schemes. In a full bonanza scenario, £240m would be shared among employees, who currently number about 3,000.
The difficulty lies in believing the projections will become reality. AO’s shares stand at 200p and 520p has to be passed before the scheme pays anything. The serious money starts at 941p, and the targets go all the way to £12, which would be going some.
Mind you, lockdown conditions have got AO off to a flyer. Year-on-year sales in the past four months improved by 59% in the UK to £401m and by 91% in Germany to €74.3m, the company said on Thursday. It adds weight to Roberts’ pitch that the stars have aligned for AO and that, after ditching the loss-making Dutch venture, the company is fit for action.
He was saying much the same, it should be noted, in 2014, when AO was floated at an overhyped 285p. But, if the analysts are right that AO can make £60m-ish of top-line profits this year, confidence may carry more substance this time.
Either way, shareholders were right to give the controversial share scheme 90% support on Thursday. The design isn’t perfect since Roberts, thanks to his shareholding, will do nicely even if his extra-motivated staff only manage to double the current share price, a result that would deliver no prizes for them.
But one can equally commend AO’s version of “stretch” targets. They put others’ executive-only schemes to shame.
Can Boeing’s rebranding trick the public?
Is this how Boeing deals with its “Max” branding problem – by hoping the name of the grounded aircraft gently fades away? In the first order since two fatal crashes in which 346 people died, the plane was called a “737-8” by Poland’s Enter Air.
To be fair, the announcement later also included mentions of “Max”, but a new linguistic course may have been set: numb the travelling public with numbers. Will it work? It seems unlikely.
