Speaking to FoodManufacture.co.uk following last week’s boardroom restructuring, one corporate finance source said: “I just don’t think that Premier is a sustainable business as it stands without some radical surgery.
“The share price is on its knees, the business is going absolutely nowhere and sooner or later something has to happen. There has been some good news on brands such as Loyd Grossman,Sharwoods and Hartley’s, but Premier is just trading, not marketing, its brands.”
He added: “Basically in my view they should never have done the RHM deal. They were on the rebound after not buying United Biscuits and Robert went on a buying spree and amassed an absurd amount of debt.
“I don’t know why but they have stuck with him when a lot of other plcs would have parted company with him by now."
Operational achievement
Investec Securities analyst Martin Deboo said Schofield’s credibility was “pretty low”, although he had been a victim of circumstances to a certain extent, completing his buying spree just as the economy started to nosedive.
He added: “To give him his due, he did oversee a huge manufacturing rationalisation programme [consolidating production into fewer, better-invested sites following the acquisition of Campbell’s UK and RHM], and implement SAP in a very short space of time without too much disruption.
“There is also a lot more urgency now on asset disposals and Premier is doing all the rights things now as regards its balance sheet.
“But Hovis is a huge challenge – there are structural problems in the bread industry – and overall trading at Premier is just very weak. Q4 will be crucial as that’s when they make 50% of their annual profits, and Q1-3 was very disappointing.”
He added: “In my view, Premier ought to be able to generate modest growth – it has a decent portfolio - but it has become far too promotionally driven. Quorn was generating good growth, but that has been extinguished under Premier’s ownership.”
Money was cheap
Another City analyst said: “I am very surprised that there has not been more pressure from shareholders for Robert to go. I know it’s easy to say with hindsight that he overstretched the business, but I think he just got caught up in the moment.
“It was very much the ‘what private equity can do, I can do better’ mentality but he bought too many things, too quickly, when money was cheap and now he is paying the price.”
He added: “To be fair, Premier is dealing with these problems now, but its debt structure was not well managed - I’m thinking particularly of the interest rate swap portfolio, which it has had to buy its way out of."
As for acquisitions, he said, “the Campbell’s deal made sense to me because it involved relatively niche brands that were not going to be caught up in the front line of supermarket price wars, but RHM - which they overpaid for - brought them into bread and cakes, which are extremely price and promotionally-led. And that was a big risk.”
Hovis: marketing investment
While Premier could sell Hovis, private equity players were unlikely to want it, he predicted. “Ultimately, some kind of deal needs to be struck between Allied Bakeries [which is owned by Associated British Foods] and Hovis, but I can’t see this happening without a full-blown merger and then you’d hit all the competition issues.
“It’s had a lot of marketing investment and they have done a good job with that, but the factories are underinvested, more money is needed and the combination of rising prices and overcapacity in the sector just makes it very hard to make money.”
Despite its marketing successes, returns in Premier's bakery division remained low, while competition from Warburtons and Allied Bakeries remained intense, he added.
New blood
It is too early to say whether new chairman Ronnie Bell has injected new urgency into the firm, although one source said he was installed in an office three doors down from Robert Schofield and was already proving to be a “real presence” in the business.
Tim Kelly’s promotion to the newly created role of chief operating officer has prompted a mixed response, with some observers praising his abilities and others arguing that grocery boss Will Carter - who is stepping down from the business – was a more worthy number two.
One source said: “Tim has a confrontational style. He has a reputation for delivering, but at a cost. You either like him or you don’t. It’s pretty black and white.”
One analyst added: “The implication of the promotion [of Kelly] is that he is being groomed for the top, but he has not had as much exposure to the City as Robert so only time will tell whether he is any good.”