Premier shake-up shows drive for stability

Premier shake-up shows drive for stability

The news that Premier Foods CFO Mark Moran will leave the company has again thrown into the spotlight the financial pressure that the Hovis maker is under. However, in former Dairy Crest executive Alastair Murray the company has found what looks like a safe pair of hands and, significantly, the move emphasises Premier's commitment to building a stable management team in the long term.

Premier Foods plc announced today (24 September) CFO Mark Moran will stand down from his role at the end of this month. Change at the top is rarely welcomed by the market - and there is little that gives investors the jitters as much as uncertainty.

As Investec analyst Martin Deboo wrote in an investor note this morning, "the impression of lack of continuity" is "unhelpful" as the UK food group works to rebuild investor hopes on the back of a strong first-half performance.

"We see the news as unhelpful to Premier Foods' efforts to rehabilitate itself in the eyes of the market," Deboo observed.

According to Panmure Gordon analyst Graham Jones, Moran's exit focuses attention on the significant financial challenges that lie ahead for Premier as the group works to right its balance sheet and return its debt to EBITDA levels to a more sustainable footing.

Panmure Gordon estimates Premier's full-year 2013 net debt is forecast to be 4.8 times EBITDA. Moreover, the majority of cash will need to be funnelled to address the group's still large pension deficit over the next three years.

"This means, in our view, that banking covenants tighten more quickly that gearing falls, as such necessitating a further rights issue, ideally accompanied by a corporate bond issuance to lengthen the group's debt maturity profile and diversify funding away from the banking syndicate," Jones said.

At midday Premier shares were relatively flat, having dipped in the morning and then rebounded. So, why has the investor response been muted?

The surprise exit has clear parallels with the news earlier this year that chief executive Michael Clarke had quit the group.

Interestingly, both Clarke and Murray seemed to have similar reasons for leaving. Clarke was abruptly pushed out after signalling in discussions with Premier chairman David Beever that he was potentially considering moving on. Murray left after refusing to provide Premier's current CEO, Gavin Darby, with assurances that he would remain at the group for three years.

Rather than signalling instability, perhaps the shake-up should be viewed as part of a drive to deliver the opposite. Premier's board seems determined to build a management team in it for the long haul - one prepared to grapple with the major financial obstacles that remain.

The financial troubles at Premier have been well documented. Under first Clarke and now Darby, the company has made strides in addressing its balance sheet issues. It has divested a number of non-core businesses, secured new financing agreements and is now focused on attempting to strip complexity (and costs) out of its remaining units.

Darby is driving a bid to make Premier a leaner machine - and one that will see profits return to a strong growth trajectory. The group has made moves to consolidate its supply base, rationalise SKUs and strip complexity out of its manufacturing network.

Premier was keen to emphasise Moran's replacement, Alastair Murray, is well-suited to face Premier's financial issues head on.

The former Dairy Crest finance chief was instrumental in the UK dairy's recent drive to restructure and simplify the business. Murray has experience of large-scale disposals - having sold-off Dairy Crest's St Hubert spreads business - and capital raising. Perhaps most significantly, Premier stressed that Murray "creatively" addressed Dairy Crest's pension deficit.

"Alastair is an excellent addition to the team. His extensive strategic, commercial, financial and consumer branded experience will be invaluable as we continue our journey to transform the company and drive further growth. I'm confident he will hit the ground running," Darby said.

So, with a strong - and presumably committed - replacement waiting in the wings, it would seem Premier will deliver this latest change at the top without skipping a beat.