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Plant Health Care- you confuse management greed with incentive

By Tom Winnifrith | Friday 14 July 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

In theory share options are there to incentivise management. There is of course scant evidence that directors who are often grossly overpaid will actually work even harder/be less lazy because they get to have a one way bet on the share price. It may encourage actions that drive short term share spikes but is there a proven link between options and value creation? Er... no. What we we do know is that options are not cost free.

If shares tank they cost the company and shareholders nothing. All too often a board will simply re-price anyway. But if shares zoom then the upside for investors who have risked their capital by actually buying shares is diluted as the one way bets, that is to say share options, are exercised.

This week we saw one announcement on this matter from Plant Health Care (PHC):

The Company announces that on 10 July 2017, options over a total of 925,789 ordinary shares of 1p each were granted to Dr Richard Webb, Executive Director of the Company. These awards were made in accordance with the terms of a share option agreement approved by the Company's Remuneration Committee, under which the options have an exercise price of £0.2512, have a 10 year life and are subject to performance conditions.


We are not told what the performance conditions are but given that the current share price is 27.25p the options are already in profit without Dr Webb lifting a finger. If the share price merely matches the average annual historic stockmarket gain over the next decade, then thanks to the power of compounding the stock will trade at 54.5p!
Bonza. What is not to9 like for Dr Webb? A handsome £271,996.81 absolutely zero risk gain for the good Dr Webb for merely matching average stockmarket performance. How on earth can that be justified?

Of course there are "performance conditions" which need to be met. But what? Surely in announcing potential dilution of this nature, shareholders have a right to be told? I note that in 2016 Webb earned $107,000 down from $122,000 the prior year. But in 2015 he also had a bit of an options windfall treated as a payroll benefit of $512,000. Poor guy.

Meanwhile, I note that Plant has a number of share option schemes in place including one launched in July 2013 "The Value Creation Scheme". This company listed in 2004 at 52p. Thirteen years later its shares have fallen by almost 50% which is pretty dire underperformance. In 2016 sales fell from $7.51 million to $6.3 million while net losses soared from $7.72 million to $11.217 million. The accumulated losses since inception are $66.885 million. Now that's what I call value creation. Not!

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