Findus criticised for its handling of horsemeat crisis

http://www.guardian.co.uk/business/2013/feb/08/findus-crisis-horsemeat-communications-criticised

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The millionaire businessman behind horsemeat lasagne firm Findus said in a recent interview his golden rule is "work hard, play hard, but above all be honest". Now Lyndon Lea, the private equity boss behind the brand name synonymous with crispy pancakes and fish fingers, has some hard work to do to limit the fallout from a scandal which is inflicting huge damage on his company.

Analysts and experts believe that Grimsby-based Findus can recover its standing, but warned that the way it handles the next few weeks will be crucial. Yesterday the Findus website was still boasting: "Our chefs take painstaking care to ensure our recipes are developed to the highest standard. We use only the best ingredients and a generous pinch of imagination."

Neil Saunders, managing director of the retail researcher Conlumino, said: "I think it's a PR nightmare and a disaster for them. I think it's much worse than for a company like Tesco which sells a whole variety of products."

Last month Tesco was among the retailers caught up in the first wave of revelations that horse DNA had been found in meat products.

"Findus is a food brand associated with ready meals so when customers stand in front of a freezer in a supermarket, they have a lot of choice. People will look at the whole brand as tarnished and it will affect its other products," added Saunders. "Findus's reaction has been left wanting. If you go on their website, one of the products featured on the front page is the beef lasagne. I don't think they've been particularly clever at handling this."

The company has been under pressure for several years after it was snapped up by Lea's investment vehicle, Lion Capital, in 2008 for £1.1bn. The private equity group also owns a big stake in Weetabix and has previously bought and sold several other well-known brands, including crisp-maker Kettle Foods, Orangina Schweppes and restaurant chain Wagamama.

Findus is one of several UK food brands that have been bought by international private equity investors – such as Bird's Eye, John West and Quorn. Their strategy has been to take brands with predictable sales and load the companies up with debt. They then drive down costs to boost the bottom line and pay down the borrowings.

Findus had sales of £1.1bn in 2011 – but debts of around £400m. Last September the firm underwent a major financial restructuring with new US investors Highbridge, JP Morgan and Northwestern Mutual pumping £220m into the business. Lea's Lion now speaks for around one-third of the business, which is controlled through a tax-efficient network of companies in the Cayman Isles and Luxembourg.

The restructuring led to the departure of £696,000-a-year Findus chief executive Chris Britten. He was replaced by Dale Morrison, an executive from another New York investment group, Tripointe. Last month, Findus bosses said they would also start to clean up the complex web of companies that surrounds the Humberside food factory which has left the firm's current finance boss, Stephen Leadbeater, as a director of 50 subsidiaries.

A source familiar with Findus's operations said there has been "huge pressure" to lower the company's costs as it struggles to take its products upmarket. "Until they could introduce new products for which consumers are willing to pay more – by taking frozen food upmarket – the only option they had was to reduce the cost line," the source said.

He added: "No one in the company is responsible for communications as a full-time job. The company is not set up to manage a crisis. The last thing Findus and the frozen food industry needs is a reputational scandal … They wanted to introduce new brands, new products and take the whole category upmarket … The bet by Lion Capital was that instead of being 2 for £1 in Iceland, they could sell products for £3.50 in Waitrose. This scandal is a horrible setback for the company and a food category that is very unloved."

Lea, 43, is not involved in the day-to-day running of the company – the financier who started out in Morecambe is now a polo-playing high flyer, who splits his time between London and a ranch in Santa Barbara, California.

His investments have included Typhoo tea and Branston Pickle and he has a stake in US fashion label American Apparel. He had hoped to boost his stake in the UK frozen food market – which has been growing strongly since the financial crash as hard-pressed families have focused on price.

Saunders at Conlumino explained: "We've seen a much-greater interest in frozen food because there is no waste with it. Waitrose relaunched their frozen range and quality perception has improved."

Findus apologised for "any inconvenience caused" by the horsemeat scandal. It added: "We do not believe this to be a food safety issue. We are confident that we have fully resolved this supply chain issue. Fully compliant beef lasagne will be in stores again soon."

The brand is likely to remain on supermarket shelves for now, with Sainbury's, Morrisons, Asda and Tesco all saying they have no plans to remove other Findus products.

Christian Mahne, a corporate reputation expert at Vetch Mahne, said the real disaster would be if traces of animal drugs were to be found. "The problem will then become a full-blown crisis."