International Power faces drop as chief's pay package tumbles

International Power looked certain to be demoted from the FTSE 100 index last night after a profits warning sent its shares tumbling by another 13 per cent and eroded still further the pay of its chief executive, Peter Giller.

The fresh slide in the share price reduced International Power's market value to £1.26bn, making it almost certain that it will be ejected from the blue-chip index when it is re-calculated next week.

The collapse in the price has also made Mr Giller the worst-paid chief executive in the FTSE 100. He agreed to be paid entirely in shares when he took on the job two years ago.

His three-year package is now worth just £754,000, compared with £5m when the original award of 677,564 shares took place in October, 2000. The shares were worth £2m and he was also entitled to a further £3m in bonus shares but to receive these, International Power's share price has to rise to at least £4.50 by next October from a closing price of 112.75p last night. When the company, formerly part of the old National Power, was demerged from Innogy two years ago, it was valued at 300p a share.

"Don't worry about how I feed myself and my wife, I go to the supermarket after nine o'clock in the evening and buy chickens at half price," he quipped. "It is kind of fun to live a little on the edge." Mr Giller also has a £1,100-a-week housing allowance to help him get by but since he lives in a luxury apartment in London's St Katherine's Dock, the rent takes care of most of that.

International Power said it was taking a "cautious approach" to profits for next year and was now assuming earnings per share of 11p-13p compared with an expected 16p this year.

The company blamed weak wholesale electricity prices in Texas, New England and the UK, brought about largely by over-capacity.

Mr Giller said he was baffled by the renewed slide in the share price, arguing that International Power was one of the best-financed and best-performing companies in the sector. In the first-half of the year, pre-tax profits before exceptional charges rose 51 per cent to £229m while earnings per share increased by 74 per cent and free cash flow by more than 100 per cent to £221m.

"We are a totally undervalued company. There is no way I am selling my shares, that's for sure," Mr Giller said. "We are part of an industry which is out of favour but at least we trade at a significant premium over our peer group."

The collapse in wholesale prices in the UK has forced International Power to mothball half the capacity of its Deeside power station in North Wales and write down the value of the plant by £45m.

The assumption of earnings next year of 11p-13p is based on International Power acquiring no new stations. But Mr Giller made it clear that it had plenty of fire power to buy assets. "With our robust balance sheet and strong cash flow we remain well-positioned to take advantage of the increasingly favourable acquisition environment," said the company.

Mr Giller said that share prices across the international electricity generation sector had already begun to bounce back and he expected power prices to do likewise in 2004 as demand and supply came into much better balance.