Revolting shareholders claim another scalp at Darty

By John Harrington

Date: Friday 14 Sep 2012

The shareholder spring turned to the investor autumn on Thursday for Thierry Falque-Pierrotin, the Chief Executive Officer (CEO) of consumer electronics retailer Darty, as he quit by mutual consent ahead of a shareholder revolt over directors' pay.

Darty, which used to be known as Kesa Electricals prior to its disposal of the Comet chain, said Falque-Pierrotin will leave the company on completion of the review of the group, its markets and operations in December 2012.

That decision was announced before a vote on directors' pay at the firm's annual general meeting but the blood-letting did not prevent 58.04% of shareholders voting against approving the directors' remuneration report.

The vote represented the seventh time this year a majority of shareholders had voted against a remuneration report, and although companies are not obliged to actually do anything about executive pay no matter how overwhelming the vote against, they usually get the message and in many cases, such as the departure of CEO Andew Moss at insurance giant Aviva, heads roll as a consequence.

Darty's shareholders had every right to be cheesed off, as the company had messed up in mistakenly informing them that Falque-Pierrotin's "golden hello" - the payment a company makes to persuade a top executive to move from one fabulously well-paid job to another - had performance conditions attached to it, when in fact it was a signing-on fee with no strings attached.

On joining the company, Falque-Pierrotin voluntarily forfeited option and stock entitlements linked to his previous employment worth, at that point, at least €775,000.

The Darty remuneration committee, as part of his recruitment package, agreed at that time to compensate Falque-Pierrotin through a one-off conditional award of Darty shares, with the only condition to vesting being his continued employment with the company for three years, a milestone achieved in January of this year.

The 2009 Annual Report and Accounts erroneously stated that a "total share reward" performance condition also applied; this was not the case. On Falque-Pierrotin's watch, shares in Darty fell from 89.25p to 66.65p in that period; given the generally incompetent/generous/matey (delete as applicable) nature of board room incentive plans in the UK, it would be unwise to discount the possibility that reducing the value of the company by a quarter would have been considered as good enough to trigger a reward, but in any case, the Darty boss trousered 772,681 shares, worth just over half a million quid on the three-year anniversary of his appointment, a few days before the company sold its Comet chain for a nominal two quid.

Alan Parker, no stranger to getting shot of chief executives, having defenestrated Ben Gordon within four months of taking over as Chairman of baby-wear retailer Mothercare last year, will be in charge of the search for a new CEO.

Parker, the former CEO of Costa Coffee and Premier Inn owner Whitbread, has only been Chairman of Darty since September 13th, so he holds no responsibility for the terrible decision-making process which characterised the previous CEO appointment. He nevertheless apologised for the error over the share award, stressing there was nothing he could do about it, or the fact that the exiting CEO will leave with a pay-off equivalent to 12-months' pay. Last year, Falque-Pierrotin received close to €1.5m in base salary and pension top-ups.

The departure of Falque-Pierrotin overshadowed a trading update from Darty which broker Investec described as "mixed".

In the three months from the beginning of July, revenue in euro terms rose 1.0% year-on-year, while LFL sales in local currencies were flat. Investec had forecast a 4.8% decline.

The gross margin (GM) was down 1.4 percentage points, or 140 basis points (bps), "reflecting competitive pressures and product mix across the group".

"The core profit earner, Darty, saw its LFL decline by just 2.5%, compared with our forecast of an 8% decline and consensus of around a 6% decline, with GM down 80bps," Investec noted.

"Other Established [stores] delivered LFL growth of 7.1%, compared with our forecast of 3% and consensus of 4%, and GM down 200bps. The Developing division was also positive at 2.1%, against our forecast for +1.0% and consensus view of a marginally negative outturn, and GM down over 200bps," the broker continued.

Investec has its "hold" rating for the stock under review. "We continue to see an absence of positive factors in terms of fundamental trading at this stage, especially with ongoing weakness in the French electricals market and uncertainty on prospects for French consumer confidence and spending," it said.

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