On the move: Challenges await new Premier Foods CEO
Michael Clarke will become CEO of Premier Foods
Premier Foods has ended the uncertainty at the top of the company with the appointment of Kraft Foods executive Mike Clarke as its new CEO. The move was welcomed by analysts and investors but they recognise the hard work that lies ahead for the 47-year-old. Petah Marian reports.
The announcement that the former head of Kraft Europe would become the CEO of embattled UK food manufacturer Premier Foods plc was gladly received by investors, with its share price rising almost 20% on the back of the news.
Mike Clarke will be joining a manufacturer that has faced a difficult few years but his appointment alone will not be the panacea to remedy the company's long list of problems.
Clarke is largely an unknown quantity among industry watchers, with Panmure Gordon analyst Graham Jones echoing others in confessing to not knowing the future Premier CEO but adding that his experience working for high-profile brands like Kraft Foods and Coke holds him in good stead.
"We are familiar with Kraft and Coke, and clearly to be promoted to running a US$13bn business for Kraft, and all of north-west Europe for Coke, people close to him during his career must have formed a reasonably positive view of his ability to manage brands," said Jones.
Clarke replaces Robert Schofield, who has had a mixed tenure in his time leading Premier, building it in to the UK's largest food manufacturer, while also facing criticism over the spiralling debt incurred through the acquisitions made to create the company.
"Bob's had a tough time. He's created a business that has quite significant scale, but he's never really made the profits and it's always had too much debt. So that is, as it were, the downside to creating Premier, which was all about buying well-known, but not particularly growth brands," said Mirabaud analyst Julian Lakin.
In April this year, the company announced that Schofield would retire before April 2012, following the appointment of his replacement.
However, after the profit warning was announced on 1 July, Investec analyst Martin Deboo wondered whether Schofield's continued presence is "becoming a liability amongst investors, suppliers and customers".
Following the warning, reports emerged that investors were calling for Schofield to step down sooner than expected.
Clarke's appointment may allay that particular concern, with Schofield set to leave after what the company described as a "short handover". But, he will be saddled with a business that, in the short term, is struggling with commodity cost rises, a weak economic environment and a loss-making Brookes Avana own-label division.
In the longer term, Clarke will face concerns over refinancing, managing a number of mature and somewhat staid brands while also looking to deliver on some of those synergies promised by the company's aggressive acquisition strategy in recent years.
Jones notes that Premier failed to launch a bond in the first half of this year, which would have allowed it to refinance bank debt, due to uncertain conditions in the bond market. He said that continuing uncertainty means the issue will not come to market until the 2012 financial year.
"We would view the on-going uncertainty of this as negative for sentiment, but note that the refinancing will only make a significant difference to Premier's earnings from FY2013 onwards, due to the swaps that the company entered into in late 2010," said Jones.
Nevertheless, Lakin thinks that it's good that Premier has gone for a "fresh face from the right industry". He expects that one of the first things that Clarke will need to do is review the portfolio and "assess that what the company has is fit for purpose".
"I wouldn't be at all surprised if Premier ended up being somewhat smaller under the new chief executive, but with a lot less debt," said Lakin.
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