Anthony Hilton: Barratt and Premier prove they are no longer part of the Walking Dead
Saturday 08 March 2014
It turned out to be a good week for zombie companies. With no money to invest for growth and no time to develop new markets these are businesses so burdened with debt that life is just one long struggle to keep the bailiffs away.
Right-wing economists preach that the struggle is a waste of time: they should be put out of their misery at the first opportunity.
But this week two such troubled businesses showed they can be restored to health. One of these was Barratt, the housebuilder whose shares dropped to 26p after the financial crash. Five years on they are around £4.30 and this week the company was admitted to the FTSE 100. A market capitalisation which at one point sank to £100m is today close to £4.5bn. Some zombie.
It is a particular triumph for chief executive Mark Clare. He had the misfortune to arrive from Centrica in October 2006, just before house sales collapsed and the business went into free fall. But he quietly and methodically stuck with it, cut where he had to cut, organised a rights issue to restore the finances so that he was in a position a couple of years ago to gamble on recovery and buy land. This meant that when things did finally pick up he had somewhere to build.
The board deserves a mention too because there are not many who would have kept their nerve and stuck with an unproven chief executive through such bad times.
The other business to shed its zombie tag was Premier Foods, maker of Mr Kipling cakes, Ambrosia puddings, Sharwood’s sauces, Branston Pickle and other culinary delights. Its troubles were largely self-inflicted because its previous management went on a buying spree and ran up a truly colossal debt for a business of its size. It almost crushed it and the last seven years have been spent working out how to move forward.
The core problem was the banks refused to restructure the debt because Premier also owned Hovis whose prospects were poor, and had a pension deficit of a size which would put off any lender. Chief executive Gavin Darby’s masterstroke was to put Hovis into a joint venture with another food group so it was off the balance sheet and therefore no longer a block. This he did last month when he also got an outline deal with his pension trustees. Together these opened the door to a £1.1bn refinancing.
Now, after several years at the helm, he too can get round to growing the business to meet changing customer tastes. No doubt he is looking forward to it.
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