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AIP: ADCOCK INGRAM HOLDINGS LIMITED - Additional disclosure - Remuneration and Implementation Reports and Special Resolution 3 (proposed PBLTIS)
AIP: ADCOCK INGRAM HOLDINGS LIMITED - Additional disclosure - Remuneration and Implementation Reports and Special Resolution 3 (proposed PBLTIS)
Additional disclosure - Remuneration and Implementation Reports and Special Resolution 3 (proposed PBLTIS)
Adcock Ingram Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 2007/016236/06)
Share code: AIP ISIN: ZAE000123436
("Adcock Ingram" or "the Company" or "the Group")
Additional disclosure in relation to Remuneration and Implementation Reports as well as Special Resolution 3
relating to the proposed Performance Based Long-Term Incentive Scheme (PBLTIS)
In response to an engagement with a shareholder ahead of the Company´s Annual General Meeting to be held at 1 New
road, Midrand, Gauteng, on Thursday, 22 November 2018 at 09h00, additional information with regard to the Company´s
Remuneration and Implementation Reports as well as the proposed PBLTIS, specifically in relation to performance hurdles
and vesting conditions of incentives for Executive Directors, is hereby disclosed.
Remuneration and Implementation Reports
1.     Short-Term Incentive (STI)
The STI forms part of the Company´s variable compensation and is used to attract, retain, inspire and reward key talent. The
STI scheme focuses on sustaining or improving organisational performance and supports the overall objectives of instilling a
performance culture within Adcock Ingram. STIs are paid out annually on the achievement of pre-determined financial and
non-financial targets, set at the beginning of the financial year, for that specific year.
i)     Performance metrics for the 2018 financial year
The STI for the Executive Directors for the 2018 financial year was subject to the following performance metrics which were
approved by the Board at the beginning of the financial year:
a)     Achievement of Trading Profit target/stretch target (60% weighting). The target and stretch target reflected growth of
       14% and 17% respectively over the Trading Profit achieved in the 2017 financial year;
b)     Achievement of an internally defined Return on Funds Employed (ROFE) target (30% weighting), subject to the Trading
       Profit target being achieved; and
c)     Additional targets (10% weighting) relating to the achievement of a predetermined headline earnings per share (HEPS)
       target/stretch target for the CEO and CFO and the achievement of transformation targets for the Executive Director:
       Human Capital and Transformation (ED).
The approved STIs were as follows:
 Executive                                 Target incentive                 Stretch incentive
 Director                                        ´000                              ´000
 CEO                                           R3 000                            R3 500
 CFO                                           R2 000                            R2 500
 ED                                            R1 352                            R1 750
ii)       STI payments for the 2018 financial year
Following the achievement of the stretch targets set, the Executive Directors qualified for the following STIs:
                                                CEO                         CFO                          ED
    STI Pay-out (R´000)                       3 500                       2 500                       1 750
    STI Pay-out (% of TGP (1)                   68%                         74%                         57%
(1) Total Guaranteed Pay as at 1 July 2018
iii)      Performance metrics for the 2019 financial year
          The proposed STI for the Executive Directors for the 2019 financial year is subject to the following performance metrics
          which were approved by the Board at the beginning of the financial year:
          a)      Achievement of Trading Profit target/stretch target (65% weighting);
          b)      Achievement of an internally defined Return on Funds Employed (ROFE) target (15% weighting), subject to the
                  Trading Profit target being achieved; and
          c)      Additional non-financial targets, including Transformation and progress on certain other strategic imperatives
                  (20% weighting).
The approved STIs are as follows:
                                              Target incentive                 Stretch incentive
    Executive Director                             ´000                               ´000
    CEO                                          R4 070                             R5 970
    CFO                                          R2 210                             R2 720
    ED                                           R1 370                             R1 920
2.        Proposed Performance Based Long-Term Incentive Scheme (PBLTIS)
The Company currently utilises two LTI schemes to incentivise key employees through the allocation of share options (equity
settled and cash settled). Neither scheme contains performance conditions. Some shareholders have previously expressed
concerns with the fact that Adcock Ingram´s existing LTI schemes are not performance based. The Company´s introduction
of the proposed PBLTIS is intended to address those concerns. Under the PBLTIS, participants will be awarded a conditional
right to receive a share subject to a performance period and applicable performance conditions, to ensure support of the
Group´s strategy. Award levels will be set according to national market remuneration data, industry benchmarks and best
practice.
The objective of the proposed PBLTIS is to attract, retain, motivate and reward selected employees who are able to contribute
to and influence the performance of the Group and its strategy in a manner which aligns their interest with those of the
Company´s shareholders. The rationale for the introduction of the proposed PBLTIS is to support the business strategy with
regards to business growth, profitability, sustainability, and to meet shareholders´ expectations and it is aimed at achieving
the following:
-       better aligning the Company´s Remuneration Policy with shareholders´ expectations;
-       incentivising and retaining Executive Directors and key senior executives; and
-       increasing management equity participation, thereby better aligning management´s behaviour with shareholders´
        interests.
Executive Directors and key senior executives will be eligible to be granted awards. Awards will be granted after the Board
has determined those who are eligible and the performance conditions. The following indicative performance metrics, targets,
weighting and performance periods will be applicable to the awards to be granted during the 2020 financial year and are to
be measured over a continuous three-year period commencing on 1 July 2019.
                                                          Minimum
                                                          threshold                   Target
                                                          (30% vesting of             (60% vesting of            Stretch
    Performance metrics               Weighting           award)                      award)                     100% (vesting of award)
    Three-year compound
    HEPS growth                           50%             Inflation growth            3% real growth             5% real growth
    Three-year average
    ROFE (2)                              25%             30%                         31%                        32%
                                                          Level 4, as                 Level 3, as
                                                          certified at the end        certified at the end       Level 3, with a minimum of 91
                                                          of the three-year           of the three-year          points, as certified at the end of
    B-BBEE Level                          25%             period                      period                     the three-year period
(2) Return on Funds Employed (ROFE) calculated as Trading profit adjusted for amortisation, for the financial year, as a percentage of average (opening
and closing) Funds Employed. Funds Employed is calculated as assets (excluding goodwill, other intangibles, other financial assets, investment in joint
ventures and associate, deferred tax asset, cash and cash equivalents, taxation receivable) less liabilities (excluding deferred tax liability, taxation
payable, long-and-short term borrowings, bank overdraft, share-based expense accruals, tax accrual included in other payables).
75% of the awards, subject to the achievement of the abovementioned performance metrics, will vest after the three-year
period while the remaining 25% will vest one year later. The awards will be equity settled. The proposed PBLTIS regulates
the maximum number of shares that can be allocated to an individual during each financial year. The proposed PBLTIS rules
can be accessed at: http://www.adcock.co.za/Content/pdf/Performance_Based_Long-Term_Incentive_Scheme.pdf
Johannesburg
13 November 2018
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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