Since floating in 1998, Inter Link Foods has been one of the Alternative Investment Market's brightest stars.
Neil Tague caught up with executive chairman Alwin Thompson over a few cakes
Barely a month goes by without the advisory community organising events to sell the benefits of AIM to business owners. And when asked for exemples of North West businesses that have flourished on AIM, most refer to Inter Link Foods.
Along with Colin Davies, Alwin Thompson, a food industry veteran with years of experience at Cadbury and Gallaher behind him, founded Inter Link Foods in April 1994. After a steady start, it floated on AIM in August 1998, made a flurry of acquisitions and in 2005 recorded a turnover just shy of £3100m, with profits up 14.4 per cent to £34.5m.
It was the Blackburn-headquartered company's sixth successive year of record turnover, profits and earnings per share. Thompson, a modest and immediately likeable man, would blush at the suggestion but he truly is the North West's King of Cakes.
It says a lot for InterLink that when it announced in the wake of a poor April that full-year profits would be lower than expected the profits warning was reported as a shock. The bigger picture is rosier - year-on-year sales growth is expected to be in the region of 34 per cent. Thompson and his team remain confident.
The Inter Link story started in 1994 with the acquisition of Blackburn bakery Crossfield Foods, a business with a turnover of £31.4m, but that had lost £3350,000 the previous year. "Modest beginnings," smiles Thompson. "It was loss-making but we knew the business had an awful lot of potential. We knew we could make changes to products and enter different markets. With the right management we knew we could turn the business around."
They did just that, before turning their attentions in December 1995 to Lisa Bakery in Oldham. "It was a family-owned business and the family wanted to retire," says Thompson. "They had excellent products and excellent plant and machinery. We knew we could take the business further."
Lisa Bakery made Swiss rolls. What Thompson's team had identified was that with an investment in a chocolate-enrobing machinery at the site, the company could also enter the chocolate-coated mini-rolls market. "That was a very popular product at that time. We knew we could capitalise on the strong base we had and the business blossomed," says Thompson.
The purchase of Lisa Bakery was typical of the ambitious but considered strategy that would continue as the business grew - Inter Link has made a further nine acquisitions since flotation. "The main reasons for acquiring a business in bakery are plant-specific," says Thompson. "The plant and machinery in a bakery are very expensive and very specific to a task. Machinery to make Swiss rolls does just that - it can't make other things as well. "We've bought companies that make things we don't. What we've done is target the very best bakeries that make certain products, whether that be cherry bakewells, mince pies or apple pies. We don't just think "oh there's a bakery for sale, let's buy it' - we identify the gaps in our product range and find the companies we want to fill those gaps."
The single most important point in Inter Link's evolution, Thompson says, was the AIM flotation. Until that point, the business had been backed by venture capitalists (VCs). The management team wanted to raise money to grow the business but didn't want to cede further control to the VCs. Flotation was the way forward but, as Thompson says, it was a bit of a struggle for a small Lancashire bakery to get itself heard in the City. "At the time we were an £38.6m-turnover business showing a pre-tax profit of around £3450,000. I made a few calls to London brokers and set up a few meetings - but when we got to London and people found how small the business was they lost interest."
In 1998 small businesses in traditional sectors just didn't float, but Thompson persevered. He met with City institutions to find out if Inter Link was something they'd back. Enough responded positively to encourage him to take the plunge.
It raised £32.4m at 110 pence a share and on the day I visit Thompson's new headquarters building in Blackburn, the poster at reception informs me of the day's latest price - 746 pence. "Flotation was a great thing for us. It has enabled us to acquire businesses and get to where we are today," says Thompson.
Today Inter Link is in a fairly lofty position. It is the second largest cake producer in the UK and, Thompson believes, the largest private-label producer - that is, the company that makes most of the cakes branded as supermarkets' own. It supplies "every high street and supermarket name you could think of". "AIM has been very good for us," says Thompson. "Providing you give investors the right return it gives you the ability to make acquisitions. It enables us to offer staff share options, which is very motivating - you can reward people according to the business' success. "People within Inter Link Foods are achievers and being a part of this is something better than short-term treats for staff. Short-term treats are just that - they don't last."
If other staff benefits include the occasional freebie cakes, there's plenty to go at. Inter Link has, Thompson assures me, the widest product range in the UK and is expanding that apace. "We're getting new products out there all the time. Innovation is essential in this business. And why? Because cakes are such an impulse category," says Thompson.
Thomson demonstrates - and I get the feeling he's done this a few times - what he means. He asks me what sort of bread I get with my weekly shopping, what sort of dog food and so on. Brand names trip off the tongue. But what sort of cake? It's a very rare shopping list, he says, that goes week after week to the same tried and trusted cake. "Cake is a treat, a reward purchase. What you buy is what you like the look of when you're in the shop, the wow factor if you will," he says. "Shoppers want something new, something different and refreshing. Innovation in what you make and how you package it is so important."
Inter Link has also been ahead of the game when it comes to licensing. Through the Salisbury-based Creative Cake Company (bought for £35.4m in 2001) it is the UK licence holder for all Disney small cakes sold in the UK, and also has the licences for Spiderman, Harry Potter, Star Wars and more. "We've been doing it for years," says Thompson. "We're very proud to have the Disney licence. It's a world name and is a fantastic coup for us. This July we'll be off to New York again for the licensing show where Warner Brothers, Disney and the rest will be demonstrating the big films of the next two years and the characters in those films. All the hot properties and cold ones too will be on display - the trick is to pick the winners."
A move into Poland is firing up the Inter Link management team - as I'm waiting in reception chief executive Paul Griffiths dashes out on his way to Manchester Airport - and could give the biggest indication as to Inter Link's future acquisition strategy. How did it come about? "A chap called Jim Hubnor in Surrey phoned me out of the blue and said he was one of six owners of a Polish bakery. If he drove up to Blackburn would I give him an hour of my time?" says Thompson. "We talked for an hour and I agreed to go and see it but thought it would be a waste of time - I'd been in several East European bakeries and from a food standard they're 30 years behind - but I found it was an absolute peach of a business."
Thompson found a 70,000 sq ft bakery with modern plant and machinery and a "brilliant" workforce. A deal was done "more or less on the spot". Since then, the bakery has been improved further and its turnover increased by £37m. "Poland sounds like Sydney to a lot of people, but we can serve the UK market with great efficiency from there - it takes 24 hours to deliver to our customers from leaving the bakery in Poland," says Thompson. "Things can take that long just within Britain.
Thompson is relishing the potential challenge of Europe. "Europe is exciting. There are 400 million consumers out there and the foothold we already have is getting stronger all the time," he says.
At the same time he doesn't want the business to become a conglomerate. "Bakery is what we understand and we'll continue to grow organically and continue to acquire the right companies," he says. "What we are looking to do is look at other areas of bakery - if we could do the same in puddings as we've done in cakes it could be a whole new beginning."
When he handed over the chief executive post to Griffiths some may have thought Thompson was preparing for retirement - but taking over a more chairman-like role never meant taking a back seat, just a slightly more removed overall view of how the business can continue to grow. "I'm 59 now, but the truth is I'm not the retiring sort. I don't play golf and I'm not a gardener," he says. "I enjoy business life and I enjoy business people too much to give this up. I'm not watching the clock counting the hours until the weekend - I'm here because I enjoy it."
Also in: May 2006
-
Best defence
An imminent £bn deal for Saudi Arabia to buy 24 military aircraft from BAE Systems could help secure an important corner of the economy in Lancashire. Dave Chadwick reports on the balancing acts required to underpin the modern defence industry
-
Thoroughly modern masons?
Common Purpose brings together managers and leaders from all walks of life and its graduates form strong bonds. Those outside of the organisation are curious about just what goes on. Joanne Birtwistle finds out