Delivering the savings made from recent disposals to the debt-laden giant’s bottom line, was the consensus view.
Darren Shirley, analyst with Shore Capital, told FoodManufacture.co.uk: “The biggest challenge will be ‒ now that the company has put up additional targets and additional cost savings of £40M over and above what they promised from before from simplifying the business from disposals ‒ getting those numbers through to the bottom line.”
Balance sheet issues
Shirley said: “The major constraints within the business, for us, were the balance sheet issues rather than operations."
Graham Jones, analyst with Panmure Gordon, agreed. “Biggest challenge will be securing the cost savings to Premier’s bottom line and that’s a thing it has been unable to do through all the acquisitions. It has delivered the cost savings but it has not been able to retain them."
Jones said the danger Premier faced was “ending up with a smaller group but the same size of pension liability”. He added: “It is absolutely essential that they get the cost savings to stick this time. If not, they could find themselves in more of a mess than they started.”
Eaton’s appointment was timely, said Jones. “Yes, it is one more mouth to feed at Premier Foods but it does need that focus at the top to make sure that it gets things right and things don’t slip.”
Julian Wild, food group director at legal firm Rollits, agreed that Eaton and his senior management colleagues faced a tough challenge. “I do think Premier Foods are in a cleft stick because it has been forced into selling off some of its more profitable businesses to satisfy the banks. It has been successful but the result has been diluting its profits.
So the profits are going south but the debt is reducing.”
‘I don’t see much progress’
Wild questioned how the firm could improve profitability while selling some of their better businesses. “I don’t see much progress and profitability any time soon. It will be interesting to see how they get on with their focus on the brands they’ve decided to concentrate on.
“Premier’s milling and baking activities are top priority because it’s a big part of its area and the returns aren’t very good. There’s no easy answer because all of the major bread players are struggling and have been doing so for years.”
Martin Deboo, analyst with Investec Securities, highlighted Eaton’s experience in pension management. “Geoff Eaton brings a useful and relevant skill set. Eaton was well known to us in his former role as ceo of Uniq, where he presided over the piecemeal break-up and eventual disposal of the Group to Greencore. He was also central to their pension restructuring. Both are relevant skill sets for Premier.”
But “role proliferation was a concern”, he added. “Premier argues that the chief operating officer role is justified by the breadth of its agenda.
“But the company is not short of senior managers with restructuring experience. It already has at least one other minister without portfolio in the form of managing director, Iwan Williams. With the business so cost-constrained, the symbolism is unhelpful to our eyes.”
