FILE PHOTO: Women walk past a branch of Patisserie Valerie in London, Britain, October 10, 2018. REUTERS/Simon Dawson/File Photo
Based on guidance for the year published after the problems emerged, Patisserie Valerie is far less profitable at the operating level than analysts had believed © Reuters

Two directors of troubled café chain Patisserie Valerie, including its suspended finance director Chris Marsh, made multimillion-pound profits from share options pegged to profit figures that may now have to be revised.

Chief executive Paul May and Mr Marsh in February both exercised options granted in 2014 under parent company Patisserie Holdings’ long-term incentive plan (LTIP). They immediately sold the shares they acquired for a total profit of £2.9m, before dealing costs and tax.

The exercise of options under the 2014 scheme, which was permitted from July 2017, was contingent on growth in earnings per share exceeding the retail price index by 18 per cent or more over a three-year period. Patisserie Holding’s reported EPS rose by more than 40 per cent over the period, from 11.1p in the year to September 2014 to 16.3p in 2017.

But the company has said that the recent discovery of accounting irregularities, requiring an emergency fundraising, may lead to the restatement of past results. Based on guidance for the year to September 2019, which was published by the board after the problems emerged, Patisserie Valerie is far less profitable at the operating level than analysts had believed.

If operating profit margins were more in line with peers — Greggs and Costa Coffee, for example, report 8 and 12 per cent respectively — rather than 18 per cent for Patisserie Valerie, it is possible that earnings growth would not have been sufficient to allow the maximum payout. The company declined to comment.

A summary of the LTIP’s terms provided by the company in 2014 makes no mention of a “malus and clawback” provision. These have become increasingly common in executive pay schemes since the financial crisis, and make it easier for companies to reclaim bonuses in the event of any wrongdoing.

However, Deborah Rees-Frost, a director of remuneration consultants Innecto, said it was still possible that the company “could get something back for shareholders” under contract law, depending on the circumstances.

She added that this kind of incentive scheme, with payouts tied to a single metric rather than multiple measures or performance relative to peers, was common in smaller, fast-growing companies. “Using earnings is supposed to ensure that payouts are based on something tangible, not just on a rising share price,” she said.

Luke Johnson, the company’s executive chairman and biggest shareholder, did not participate in the 2014 LTIP but chairs the remuneration committee that set its parameters. He declined to comment. The FT has been unable to reach Mr Marsh and Mr May for any comment.

Shares in Patisserie Holdings remain suspended at 429p, way above the 50p at which last week’s emergency share sale was priced. Both Mr May and Mr Marsh are still substantial holders of the shares.

A shareholder meeting to approve the refinancing is due to take place on November 1.

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