For the past three years, Premier Foods has been an overindebted, crisis-ridden organisation that couldn't look further than its next refinancing; that was the legacy left by Robert Schofield's debt-fuelled acquisition spree that culminated in the appallingly timed and overpriced purchase of RHM (the Hovis business) for £1.2bn in March 2007. So you can't blame new-broom boss Michael Clarke, a former high flyer at Kraft, for deciding that this hand-to-mouth existence is no way to run a food factory. Mr Kipling needs a break.
The amazing thing is that Clarke seems to have persuaded all parties, including 28 banks and three sets of pension trustees, to give him some room to breathe. The refinancing package is highly complex but, in broad terms, Premier gets about two years of relief before the noose starts to tighten in the form of higher interest rates, repayment demands, tighter lending covenants and a resumption of top-up contributions to the pension fund. Given Premier's weak hand (debts of almost £1bn and falling profits), that's not a bad outcome. Clarke, promising a more aggressive attack on costs than his predecessors, is clearly a more credible figure in the eyes of the lenders.
For all that, the attempt at revival is starting from further back than even gloomy six-month-old forecasts had envisaged. Last year's performance was a shocker: Clarke's eight "power" brands (Hovis, Ambrosia, Mr Kipling, Sharwood's, Loyd Grossman, Bisto, Oxo and Batchelors) were unworthy of the title as trading profits from "ongoing" businesses slumped 29% to £174m, leaving the debt pile even larger than feared. The new advertising campaigns need to produce quick results; the next set of disposals of unwanted assets need to yield decent prices; and it would help if Premier can avoid further warfare with Tesco.
Clarke seems to have a sensible strategy, but financial stability within two years still looks a very tough challenge.
