Gavin Darby’s bitter sweet exit from Premier Foods

It has happened six months later than they wanted, but disgruntled Premier Foods shareholders have got their way with the departure of CEO Gavin Darby announced this morning.

Darby survived a rancorous investor rebellion led by Hong Kong-based hedge fund and former board representative Oasis Management in July, but announced he is stepping down at the end of January after six years at the helm.

Did he jump? Was he pushed? Perhaps a bit of both. Oasis publicly berated Darby about Premier’s long-standing zombie status as the group struggled to deliver sustainable growth, with its shares barely moving from 40p for almost four years.

The one spark of life in the share price happened in March 2016 when US food group McCormick came calling. The shares touched 62p amid McCormick’s 65p per share bid interest. But the rally was soon snuffed out by Darby and his board, who publicly rebuffed the approach and made growth promises they’ve struggled to live up to since.

Add into the mix concerns about overly generous executive pay and a perceived lack of investor engagement over its partnership with Japan’s Nissin Foods at the time of the McCormick approach, and the charge sheet against Premier’s boss looks understandable.

But this fails to put in context the daunting task facing Darby when he came into the role six years ago. It was a Herculean task said the FT. A basket case that no one wanted and other highly rated executives had run away from.

Suffocated by pensions debt and reckless debt-driven expansion by his predecessors, the Premier Darby joined had a debt pile of £831m and a pensions deficit of £395m.

He spearheaded a wholesale £1.1bn restructuring plan in 2014 that has since helped cut debt back to £509.5m, bring its pensions payments back under control and move to a pensions surplus (though its pensions obligations remain a daunting £4.5bn). He also set up a viable international export division, and helped breathe some life back into the group’s dusty and in some cases moribund brand portfolio.

Ironically, on the day Darby announced his departure, Premier took the first step in the potentially more radical approach disgruntled investors had been calling for: it pledged to sell off its Ambrosia brand to pay down debt and reinvest in its core brands.

But Darby’s hands have been tied to stop him taking some of these radical steps – a problem most of his listed food group contemporaries have not faced.

Almost every large food group has faced the same problems – particularly in the UK – of fragmenting consumer demand eroding the power of historic brands, while the growth of own label and the discounters squeeze market share and margins.

Other players have responded by shaking up their portfolios, investing back into areas of growth – such as healthier, more premium or free-from products.

Premier simply has not had the cash to pull off this sort of portfolio restructure. Its focus has had to remain on dealing with its historic debt pile – and its existing brands haven’t produced the growth to fund such a restructure.

While there are Premier brand successes – notably recent growth in Batchelors after its partnership with Nissin, and Mr Kipling following a brand refresh – much of the portfolio remains in decline because Premier’s brands simply aren’t in areas of the grocery market that are growing.

When it has invested in NPD and marketing, it has grown sales in these target areas, but these investments have had to be highly selective. When the tap has been turned on to support one brand, support for another has lessened, meaning Premier has struggled to sustain broad-based growth.

Ambrosia itself is a good example – the dairy brand was in decline back in 2016 before Premier put some marketing support behind it in 2017 to mark its centenary year. Sales picked up last year, but Premier today said they were back down again in the first half of 2018.

A sale of Ambrosia – a brand Shore Capital’s Clive Black describes as being “in a more challenging end of the dairy cabinet” – isn’t going to provide the sort of cash bonanza needed to re-shape Premier’s portfolio.

Nonetheless, it shouldn’t be forgotten that amid all the investor criticism Premier has now delivered five consecutive quarters of growth – something that looked a distant prospect when it delivered yet another profit warning back in January 2017.

Now someone else will get a chance to put their own strategic imprint on the group. Activist investor Oasis previously stated it had identified seven “viable CEO candidates” to replace Darby.

But investors may find that breathing life back into a zombie is easier said than done – and Darby certainly leaves Premier in a better state than he found it in.

So Darby’s departure is bitter sweet - a bit like a Sharwoods cook in sauce. He leaves on his own terms, but with a job half done, and a sense of disappointment that he hasn’t been able to push the share price up. And he’s going without a succession plan in place, a new strategic plan only half formed and the prospect of Brexit to deal with too.