The markets aren’t always right but perhaps it was indicative of the City’s opinion of Premier Foods plc’s chief executive Robert Schofield that shares in the UK’s largest food maker rose when he announced his plans to retire earlier today (28 April).
When Reckitt Benckiser chief Bart Becht and when Tesco’s previous CEO Terry Leahy said they were set to leave their jobs after over a decade in charge, shares in those companies headed south. Premier’s stock was up 3.68% at 31.87p at 14:55 BST this afternoon as investors reacted favourably to the news that Schofield, after almost ten years, was set to leave the business within a year.
The 59-year-old, who had had roles at United Biscuits and Nestle, joined the company in 2001. At that stage, the forerunner to today’s Premier Foods was being created by the private-equity firm Hicks, Muse, Tate & Furst.
In 1999, the buy-out fund had bought Hillsdown Holdings, a set of businesses that included food, poultry and furniture. The owners set about streamling the business and creating a stand-alone grocery unit called Premier International Foods. Schofield became chief executive of the then Premier International Foods in January 2002, acquired Nestle UK’s ambient food business in May that year. In November, the company dropped the name ‘international’ and became Premier Foods.
Two years later, Premier Foods was listed on the London stock exchange. The shares closed on their debut at 221p – far above today’s level.
However, Schofield’s tenure at Premier has, at least in recent years, been marked by a series of events that have left some investors and analysts uneasy with the company’s performance. Questions have been asked about Schofield’s management of Premier, especially since the company’s acquisition of UK own-label food maker RHM in 2006 and, a year later, the purchase of Campbell Soup Co.’s UK and Irish operations.
The deals gave Premier scale but they also landed the group with a manufacturing base that needed major restructuring and put pressure on its balance sheet. The financial pressure from the RHM and Campbell’s deals, combined with the spike in commodity prices in 2008, drove up the company’s debt. In March 2009, Premier was forced to launch a share issue – which led to private-equity firm Warburg Pincus taking a 10% stake in the business – and strike a new agreement with its lenders to give it more breathing space financially.
The consequence of Premier’s financial problems meant its share price nosedived. Schofield set about ensuring Premier put more of its focus on its portfolio of brands, Kraft Foods veteran Ronnie Bell was appointed chairman, assets – including meat-free brand Quorn – were sold off and the chief executive shook up the company’s senior management team, with Tim Bell appointed chief operating officer.
The disposals helped Schofield and CFO Jim Smart improve Premier’s balance sheet and cut its debt and in February, when the company announced its 2010 results, it said it had achieved a credit rating that would allow the company to access bond markets. Speaking to analysts on the day the results were announced, Schofield said Premier could at last look forward with “a greater focus on growth”.
“We have spent the best part of the last four years commercially restructuring the business, we then closed 13 factories and changed the distribution, which took us another 18 months and latterly we have been doing financial restructuring and the disposals that have helped in that regard,” Schofield said. “Those things are largely behind us and we’re now moving to a greater focus on growth.”
However, just this week, some analysts in the City were expressing concern over the company’s performance in the early weeks of 2011 – and its prospects for the rest of the year.
Black labelled Premier’s product portfolio “increasingly uncompetitive”, Graham Jones at Panmure Gordon said the company had had a “weak” start to the year, while analysts at Investec said they “struggled to see” how Premier was going to hit its target of higher trading profits, with the relationship between its input costs and the prices on its products as “strongly negative” for earnings.
A day later, Schofield has announced his retirement by 28 April next year. He said it had been a “privilege” to lead the business and insisted Premier had a “powerful portfolio of iconic brands”. The company, he argued, has “exciting and excellent prospects”.
The verdict from some quarters of the City, however, was very different. One analyst, who preferred to remain unnamed, said Schofield’s departure was “good news” for the company.
The analyst, like others looking back over Schofield’s time in charge, pinpointed the RHM acquisition as a central factor in the company’s recent problems.
Schofield, the analyst said, “paid too much” for RHM and “put too much debt on the balance sheet to do the deal”. RHM, the analyst added, “came with a pension deficit that is going to cost [Premier] a lot of cash for the foreseeable future”. The analyst added that Schofield did not deliver “any of the cost savings from integrating the acquisitions – none of that went to the bottom line”.
Other analysts were equally as critical. Premier, Shore Capital’s Black said, was “just an experiment that went wrong”.
“RHM was always to us a disaster waiting to happen,” Black said. The analyst claimed that “the Campbell’s and other acquisitions just didn’t stack up” and added: “There wasn’t enough value and cash in those businesses to justify the prices paid.”
Over at Investec, Martin Deboo acknowledged that the bank “hadn’t spared [Schofield] the rod since the RHM deal” and said the Premier boss had been “over-acquisitive”.
However, the Investec analyst added: “He’s a little bit of a tragic figure. I never doubted his integrity or his intention to build a great British food company. He will feel it is unfinished business.”
Who could be next to lead Premier? In the hours since the announcement, no names have emerged as potential successors, although an obvious internal candidate could be COO Kelly.
Investec’s Deboo said he was “agnostic” about the prospects of an internal or an external executive becomes Premier CEO, although the unnamed analyst suggested that divisional or category executive at one of the bigger international food makers could be interested in leading the UK’s largest food company.
Chairman Ronnie Bell is leading the recruitment process. He called Schofield “an outstanding chief executive” and said Premier’s board was “very appreciative” of Schofield’s contribution.
“He has created Britain’s largest food producer and in so doing has brought together a diverse collection of food businesses and created a business of true scale, with an enviable portfolio of iconic brands,” Bell said. “I would like to take this opportunity to thank Robert for all that he has done for the group over the last nine years and we will be sorry to see him go.”
Some investors, however, will not agree.