10 September 2012 | By Lucy Burton
Andrew McDonald joined brands powerhouse Premier Foods as GC just as the downturn delivered it a massive blow. But he has enjoyed helping the company recover
Andrew McDonald, Premier Foods
Position: General counsel and company secretary
Global legal capability: Five lawyers, one secondee, one paralegal
Annual legal spend: £3m-£5m
If you ask people what they have cut back on since the recession, you might not expect the answer to be Mr Kipling’s cakes. But Premier Foods, the company behind Mr Kipling, Hovis bread and Ambrosia creamed rice, was hit so hard by the crisis and its attendant belt-tightening that it seemed in danger of biting the dust.
“When I joined, soon after new chief executive Michael Clarke [who joined from Kraft Foods] in 2011, trading performance was the worst it’s ever been,” says general counsel Andrew McDonald, who has faced no small task in helping Premier reduce its £1.27bn debt mountain. “We got some breathing space from the banks by proposing to raise £330m in sale proceeds by 2014 and in the past five months we’ve done three deals - selling Sarson’s vinegar, Hartleys jams and Elephant Atta flour - and raised £275m. It’s been challenging.”
Ironically, this interview is taking place in Starbucks - a chain that has seen sales rise during the downturn. But while Starbucks has been riding the frothy coffee wave, Premier’s challenges have been more about business decisions than products.
After being relisted on the London Stock Exchange in 2004, the company embarked on a debt-fuelled acquisition bender that included snapping up Hovis-owner RHM and the Campbell Soup Company.
“When the UK economy was in good shape the aim was to grow scale through acquisition funded by bank debt,” McDonald says. “Nobody predicted the credit crunch, and recessionary times put huge pressure on consumers who were buying less while ingredients were costing us more.”
Don’t mess with Tesco
Premier then had a bust-up with the country’s biggest supermarket chain, Tesco, over the price of a loaf of bread. Premier allegedly tried to pass on higher wheat costs. The retail giant responded by removing a number of the company’s brands from its shelves last year. Don’t mess with Tesco, was the lesson.
McDonald does not hide from the fact that when he joined Premier last year from British food manufacturer Uniq [replacing former GC Suzanne Wise, now at Network Rail], the situation was a mess.
Led by Clarke and the management team, McDonald put together a recovery plan that involved two stages - stabilisation and growth. Loss-making businesses (mostly pies, Christmas puddings and ready meals) were sold off within two weeks, with Premier agreeing to sell off other non-core businesses to focus on its eight ‘power brands’ - products rated first or second in their category by sales.
“If you look at all the aspects of the recovery process you can see the legal team has been at the centre of things,” says McDonald, listing the legal responsibilities that have flowed from each management decision, including terms of purchase, brand protection, advertising and product development. “The volume, complexity and intensity of these issues covers the whole commercial arena. The beauty [of being in-house] is being at the heart of the decision-making process.”
That does not mean it has been a breeze. As part of a company-wide efficiency drive McDonald was forced to cut legal costs last year, resulting in him and his five-lawyer team taking most of the commercial work in-house.
While this saved the in-house legal team from redundancies Premier’s commercial counsel Wragge & Co (which continues to advise the company on a number of issues including pensions, property and employment) took a hit.
“We decided to spend less money externally and take lower value work - such as running the data room and ancillary contracts - in-house,” clarifies McDonald. “I then split the legal team in two, with one side looking after the business and the other helping me on divestments.”
With divestments being a focus for the next few years, the company’s corporate counsel Slaughter and May is set to be busy - as will Premier’s legal team, which has not increased in size along with the rising volume of work.
“It’s a tough market, especially when sellers think you’re desperate,” says McDonald. “It’s an uncertain environment we are living in.”
Despite this uncertainty Premier has a loyal legal team.
“There’s not much movement,” McDonald says. “It’s exciting being part of a high-change business, implementing a recovery plan while cutting costs. And everyone is passionate about the brands, of course.”
So which product is McDonald most passionate about? After much thought (Premier has something of a retro-looking brand list, including Bird’s custard and everyone’s favourite Martian-related powdered potato treat, Smash), he chooses Mr Kipling’s almond slices.
“We get samples and thoroughly enjoy the product testing,” he laughs, while explaining that Premier plans to expand its core brands - such as Mr Kipling - into adjacent markets.
The company’s recent foray into the £33m breakfast bar market, for example, saw Premier launch three lines under the Hovis brand.
Breakfast bars aside, has it all been what he bargained for?
“I came in with my eyes open to the challenge, but it has been extremely testing,” he admits, although he somehow manages to make the word ‘testing’ sound like a positive thing. “It’s fair to say that I like this sort of fast-moving company. Even when this [divestment] phase is over, there’ll always be challenges in a company of this scale. This is just the start.”
Paul Stebbings, head of legal, Tate & Lyle Sugars
As an in-house lawyer in the sugar business,s life is never dull. We provide assistance to the business on a wide variety of matters including raw sugar procurement contracts from exotic parts of the world; sales contracts; corporate; compliance; property; commercial disputes and IP.
The greatest threat to the business is the EU’s proposed reform of agriculture market legislation.
If EU policies continue to offer preferential treatment to beet refiners to the detriment of cane refiners the latter may not survive as part of Europe’s sugar supply mix.
This would be a tragedy, as cane refining provides consumer choice, competition and food security. There is a real risk that the proposed legislation will kill off the business, along with 4,500 highly skilled manufacturing jobs.
This company’s core values are ambition, innovation, pace and teamwork, and we strive to incorporate these values in the way we function, aiming to act as a business enabler rather than a ‘business disruption unit’.
Tate & Lyle Sugars owns some historic brands including Lyle’s Golden Syrup, which features the oldest unchanged brand packaging in the world.
The business was acquired by American Sugar Refining in 2010, making it part of the world’s leading sugar refining group.