The new CEO of Premier Foods refutes talk of a fire sale as he outlines his immediate priorities in an exclusive interview with Adam Leyland
Six weeks into his new role as CEO of Premier Foods, a second profits warning in three months has forced Michael Clarke to show his hand before he was really ready. And he’s irritated.
“It’s a bit of a bugger. I was hoping for a big reveal [to the City] of our plans in February. But our trading was worse than expected in September, so I’ve had to come out early.”
Clarke refuses to attribute the latest sorry sales figures, down 3.7% to £477m over Q2, entirely on the fallout from its trading dispute with Tesco, not least because Premier also lost a £10m contract with M&S in the ill-fated first quarter. But he admits momentum was lost.
“It takes quite a while to rebuild availability, because retailers put other products on the shelves. You get into the top 20 or top 100 stores, but the quality and depth of distribution suffers.”
Adding to Premier’s woes are unprecedented market conditions. “We’ve thrown a lot of money on trade spend without it delivering the volume lift we needed. When a retailer does a bogof on private label, it’s very hard to compete, and especially hard for A-brands.”
But he also believes Premier’s senior management has not been sufficiently focused in its sales and marketing efforts.
“In my first six weeks I’ve had lots of meetings with banks. Part of the challenge is that people are so focused on the debt it blinds them to the opportunities. We need to behave like an fmcg company. I want to see faster and more decisive execution.
“We’ve got to improve marketing and sales. I see a significant upside. We’re trying to do so many things, we’ve got to prioritise and execute better.”
Clarke has promised to concentrate investment on eight ‘power brands’: Ambrosia; Batchelors; Bisto; Hovis; Loyd Grossman; Mr Kipling; Oxo; and Sharwood’s. He’s convinced it can transform Premier’s trading.
“When I joined Kraft three years ago, it was having a tough time in Europe, so I relentlessly pursued investment in seven or eight brands. It’s not easy. But we have a fabulous portfolio. If we build momentum with consumers through focus, that will help us with customers, too.”
To improve the company’s perilous financial state, Clarke has also put up for sale a number of non-core brands and businesses. Clarke refuses to be drawn on which of the brands he’s looking to offload, but he refutes suggestions he’s conducting a fire sale.
“We’ll never have a future if everything is up for sale. There’s a long tail, but smaller brands help deliver the core, while the lead brands pull the smaller ones through.” As a result of “targeted divestitures”, says Clarke, Premier Foods will become a smaller business, take costs out, improve the cost base, be more efficient and reinforce its focus on our core business.
“We have to eliminate the non-core businesses, because even if the internal team is focused, the customer may still have a problem, and dealing with it contaminates the core, so we’ve got to get the retailers focused on the core as well.”
What value these non-core assets achieve is another matter. Among the brands reportedly for sale, Hartley’s jam and desserts business, Haywards pickles and the dried ambient brand Angel Delight were described by one M&A source as “yesterday’s news”. And Premier’s ailing private label business, Brookes Avana, is “haemorrhaging money”, according to Investec analyst Martin Deboo. With sales declining by a further 13.2% for the three months to 30 September, “there are some pressing fix, close or sell decisions”, he adds.
With the business virtually worthless (as The Grocer went to press, the share price was 4.10p, valuing Premier Foods at £90.7m) industry insiders argue the sale of Hovis, which has retail sales of about £426m, would do much more, structurally, to ease Premier’s debt than some of the marginal brands for sale.
But despite bakery sales falling by more than 6% in value and 13.5% in volume for the three months to the end of September, Hovis is key to the future.
“We’ve underleveraged our bread business. I am looking at things we can do to leverage it as a health and wellness brand. And we’re the only brand out there that’s 100% British. We need to leverage that better, too. Some of those changes will be in the market quite soon.
“That’s the journey, it will take quite a few quarters, but we need to give this business a chance to get back on track.”
And despite rumours, Clarke is not about to throw in the towel, he adds. “I’m not quitting. I’m a sucker for a challenge.
“We’ll look at all our options, but my preference is to get this business back on its feet.”
More disposals loom as second profits warning signals new low for Premier (7 October 2011)
Editor’s Comment: Tesco has run rings round Premier’s flabby conglomerate strategy (2 July 2011)