The surprise news the Premier Foods plc chief executive Michael Clarke has resigned sent shares in the food group down sharply yesterday (28 January). However, the company appears confident that Clarke’s replacement, Gavin Darby, is the right man to lead the next phase of Premier’s turnaround. Katy Askew reports.

Premier shares fell by around 12% yesterday, as investors reacted negatively to the news that Michael Clarke has quit the group and will stand down as CEO this week.

Clarke has been at Premier for just 18 months. During that time he has presided over something of a transformation at the group. Clarke oversaw the disposal of a swathe of non-core assets in a bid to pay down the group’s high debt levels as part agreements to restructure the firm’s loan covenants.

Clarke also set the company on a course to invest behind its eight so-called “power brands” – those that offered greatest growth potential. Those brands include Hovis, Batchelor’s, Lloyd Grossman, Bisto, Ambrosia, Mr Kipling, Oxo and Sharwood’s.

While this strategic shift is significant – and has yielded some early performance improvements – it is hardly a case of “job done” at Premier.

“The remedial work that he undertook to fundamentally allow Premier to survive merits commendation. However, that he is going just as the business needs to press on in a new chapter more dependent upon organic growth,” Shore Capital analysts wrote in a note to investors.

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To many it therefore seems an unusual – if not dangerous – time for the Premier boss to step aside. As Investec analysts observed: “With its financial restructuring complete, we think that consistency and longevity of leadership was going to be critical to its prosperity. We now anticipate a further period of uncertainty.”

And there is little that gives investors the jitters as much as uncertainty.

However, while the news was unexpected to the market, Premier chairman David Beever revealed that he was poised to appoint a successor as Clarke had indicated in private discussions over Christmas that he was mulling moving on.

“He was potentially considering moving on and, given this situation, the board and I thought it prudent to initiate a search for a potential successor,” Beever revealed during a conference call. “Gavin Darby was the stand out candidate.”

In an effort to steady the market’s nerve, Beever was quick to emphasise exactly why Darby is the right man for the job. “We have lost a good chief executive and I hope we have a great one,” he commented.

According to Premier, Darby is “capable of developing turnarounds”, as is demonstrated by his experience at Vodaphone’s B2B unitCable & Wireless. His experience of the FMCG space includes a 15 year stint at Coca Cola, where he held various positions, most recently regional president with responsibility for 30 European countries.

In his role at this Cable & Wireless, Darby emphasised that he has developed strong relationships with the likes of Tesco – Cable & Wireless’s largest customer outside the government. This, Darby argued during the media conference call, stands him in good stead to deliver on one of the most challenging areas for Premier – managing its customer relationships.

An important focus for Premier has been to rebuild its relationships with retailers and regain shelf-space that was lost during 2011, when the firm clashed with customers over pricing issues.

Darby backed the strategic direction laid out by his predecessor and praised Clarke’s work restructuring the group’s balance sheet and selling off non-core units. This, Darby said, has “established a platform for profitable growth”.

“Mike and I come from a similar stable, he did nine years at Coke and I did 15… Here we learnt importance of focus,” Darby suggested. “Do a few things well, spend your money where you’re strong.”

While Darby was quick to emphasise the similarities between himself and Clarke – perhaps in an attempt to ward off market concerns over continuity of leadership – he also suggested that he would be able to drive the next phase of Premier’s turnaround by improving the group’s execution.

“Strategy is important but I believe more in execution… The winners tend to be the ones that really execute well,” Darby insisted. “I am comfortable in broad terms with where the company is going, my aim will be about executing more effectively.”

According to Beever, Premier plans to step-up its efforts to grow branded sales over the coming 12 months. “The brand swill have to be driven harder in 2013 because 2012 was largely about restructuring,” he commented.

This task could prove easier said than done, given the extremely tough trading conditions prevenelt in the UK at the moment. The UK food sector has struggled in the face of downbeat consumer sentiment and declining volumes, which are down by about 1-2% on the year.

Consumers are buying less food and they are buying it more cheaply, meaning that pressure on pricing is at a high. As Premier learnt in 2011, in this environment playing hard ball on price can lead to products being taken off the shelf – regardless of how well known the brand.

Shoppers are also increasingly turning to own label products as they look to cut household expenditure, the country’s retailers have reported.

So, while Premier is certainly in a better place than it was 18 months ago, the company is a long way from being out of the woods. Only time will tell whether the continued focus on power brands, combined with Darby’s aim to drive operational excellence, will yield results.