Hard task awaits new Premier Foods chief

Investors have a right to expect more.

Michael Clarke, after barely 17 months at the helm, resigned abruptly from Premier Foods this week .

The company put a brave face on it. Mr Clarke, its spin-doctors opined, had done an excellent job during his brief sojourn at the maker of Hovis bread and Mr Kipling cakes. He sold off several of Premier Foods’ brands, such as Sarson’s vinegar and Hartley’s jam, and used the proceeds to make a dent in the company’s crippling debts. Back in October, Mr Clarke was talking about the disposals having freed him up to “really focus on unlocking value in the bread division”.

Such unlocking, it appears, will now be someone else’s task. And it is hard to avoid the impression that Mr Clarke’s financial rewards are out of kilter both with the length of his stay at the company and the scale of the challenge he has left for his successor.

Arriving at Premier Foods in September 2011, and having forgone benefits and a bonus at his former employer, Kraft, Mr Clarke received £400,000 in cash and another £1.5m which, after tax, was invested in Premier Foods shares. He was also awarded more shares vesting this year and next, plus a possible cash payment to make up for “volatility” in the share price. He will now receive the shares vesting in 2013 but not those vesting in 2014.

These one-off payments were in addition to his annual salary – £750,000 a year – and the £150,000 a year on top that he receives “in lieu of pension payments”. He is also, dependent on certain conditions, eligible for an annual bonus of 150 per cent of his base salary – £1.13m. Some of this Mr Clarke will still receive at the end of this financial year for his performance in 2012, despite his resignation.

Setting aside the questionable merits of paying people what they might have earned at their former employer had they not left, it is difficult to feel that shareholders have had a fair deal from Mr Clarke. During his tenure, Premier Foods’ market capitalisation has fallen by £94m to £224m. And, despite the disposals and a tick-up in revenue, he leaves the company in parlous shape.

Some analysts have suggested that Mr Clarke is leaving because his replacement, Gavin Darby, who presided over Cable & Wireless Worldwide’s sale to Vodafone , would do a better job of preparing Premier Foods for a potential sale.

Shareholders should be so lucky. Premier Foods does not make an appealing target – not only because of its £1.3bn of net debt, built up during an acquisition binge last decade and worth a staggering 10 times last year’s post-disposals trading profit. It also languishes beneath £3.44bn of pension liabilities and a £273m deficit in its pension scheme.

Premier Foods’ other options are limited. Selling off more of its brands will endanger the cash flows needed to service its debt. And, although sales growth has picked up, it is unlikely to be able to trade its way out of its financial problems.

All this means that Premier Foods’ new chief executive faces a Herculean task – and that shareholders can feel justified ire that Mr Clarke has ducked the challenge.