After the high-profile Iceland MBO, Malcolm Walker was silent as DBC collapsed, confounding rumours he would ride to the rescue
Last month Malcolm Walker was the toast of the town. He had deftly pulled off a £1.45bn MBO of Iceland, backed to the tune of £860m by a bank consortium.
Walker was high profile throughout the process, updating the press about his bid to win back a higher stake - even speaking to The Grocer from Mount Everest to quash rumours. The contrast with the collapse of DBC Foodservice could not be sharper.
Walker, Tarsem Dhaliwal and Andrew Pritchard bought DBC outright for £1 in 2009 through WPD Holdings and each held one third. They took on its net liabilities of £5.5m and while they remained committed to their Iceland day jobs, made their presence felt. Dhaliwal was chairman of DBC until he resigned this month.
“Malcolm, Andy and I have worked together for over 20 years and between us we have more than 80 years of experience of entrepreneurship and professional management in the UK food industry,” Dhaliwal said at the time. “We believe we can add value by providing advice, direction and support to DBC’s management. We shall also be looking for opportunities to exploit our knowledge, experience and buying power to extend capabilities and improve its performance.”
How did it all go so horribly wrong? When DBC entered administration this week, it completed a sad downward spiral that left customers with incomplete orders and suppliers out of pocket. DBC owes trade creditors around £40m and the banks £25m. It had lost £4.95m in the year to March 2011 and was on course to lose the same in the year to March 2012.
” With all respect why should Malcolm, Tarsem or anyone else put their hand in their pocket when that business has not been run in a way that would make it profitable?”
Andrew Ramsden, DBC chief executive
But it hadn’t always been this way. Andrew Ramsden, brought in to turn DBC around, led it to the best results in its 110-year history in 2009, before quitting in 2010. When he was asked by the shareholders to return earlier this month, “you couldn’t print my reaction,” Ramsden says. “The situation was pretty dire and it got quickly worse because of continuing noise in the marketplace. Various suppliers then required paying the full amount of debt and would only serve on a pro forma basis.
“The demand on cash got particularly bad, particularly quickly, which meant the cost to save the company as a going concern became prohibitive.”
Baker Tilly were drafted in to advise on a sale last week. One week later they were appointed as administrators.
Clearly DBC’s troubles ran deeper than cashflow. “There was significant growth but with that goes an increase in the overhead cost base. It’s fair to say they didn’t get the growth they geared up to,” says joint administrator Russell Cash. “A £10m aggregate loss translates into cashflow pressure. Suppliers got nervous and started imposing reduced payment terms.”
A senior foodservice industry source adds: “They grew sales from £273m to £302m in the year they made a £4.95m loss. The essence of it is they’ve been winning business at prices that simply don’t cover their costs.”
Ramsden thinks DBC took a wrong turn when it moved further into fresh and frozen and won contracts that proved unsustainable. “DBC goes back to 1902. It’s always operated in the cost sector, generally in ambient, on wafer-thin margins and a cost base stripped to the bare minimum. There’s a phrase in Yorkshire - stick to your knitting. We got a little bit carried away that we could do something we weren’t capable of. DBC has traditionally made a modest profit but has always known its place in the market.”
But where were Walker or Dhaliwal? Some staff had assumed the duo who borrowed £860m to increase their Iceland stake would lend to keep another of their companies going. “I heard that a lot when I got back,” says Ramsden. “I think it’s a total admonishment of responsibility of the management. With all respect why should Malcolm, Tarsem or anyone else put their hand in their pocket when that business has not been run in a way that would make it profitable?”
It wasn’t just DBC’s staff who had hoped for a wealthy benefactor. One supplier said DBC’s FD Leo Weston called in January when its credit cover was cut. “He said Walker and the other directors would not walk away from his responsibilities, and please rest assured that all of your invoices will be settled,” the director claims.
Based on Weston’s assurances the supplier traded with DBC for a number of days after trade credit insurance was withdrawn. The supplier was owed £50,000 by DBC when it entered administration, he claims. Although some 80% of that may be retrieved from insurers, “margins are tight in food. It’s money we can’t reinvest. There are many suppliers who are spitting feathers,” he adds.
Weston says he gave assurances that shareholders supported DBC at that time, but denies guarnateeing invoices. He says it is unlikely he would have named Walker.
A spokesman for Dhaliwal and Walker says Walker has never spoken to suppliers on behalf of DBC. “Tarsem wrote to customers and suppliers on behalf of shareholders earlier this year. He did express their support for the company and directors, but it certainly did not contain any commitment to ‘ensure all invoices were settled’. Malcolm Walker was not mentioned by name” he says.
Picking over the remains
Meanwhile administrators have been busy dealing with approaches from around 30 parties interested in parts of the business. This week it struck a deal with Brakes that will see it take on most of DBC’s large customers. The contracts are worth around £100m-£120m per year and accounted for 30%-40% of DBC’s volumes. “We’ve had teams working on preparing contingency plans in the background for several months,” says Brakes COO Ian Goldsmith.
The £70m-per-year contract to supply the MoD has been bought by Vestey Foods Group, already one of three MoD suppliers in the Purple Foodservice consortium. Vestey will run operations at DBC Petersfield and Dundonald, saving 245 jobs.
That leaves about 40% of DBC’s business, mainly smaller customers, up for grabs. Also left for the administrators to sell off are nine depots, of which DBC holds the freehold to four. A total of 287 staff have been made redundant from a range of depots. The remaining 450 are still employed by DBC while discussions continue.
As wholesalers jostle for what’s left, credit insurers are likely to cast a particularly close eye over their books, too.