Inter Link Foods PLC

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Inter Link Foods PLC

Sett End Rd.
Blackburn
Lancashire BB1 2PT
United Kingdom
Telephone: (+44) 1254-554-95
Fax: (+44) 1254-663-602
Web site: http://www.interlinkfoods.co.uk

Public Company
Incorporated: 1994
Employees: 729
Sales: £51.4 million ($82.24 million) (2003)
Stock Exchanges: London (AIM)
Ticker Symbol: ITF
NAIC: 311812 Commercial Bakeries; 424490 Other Grocery and Related Product Merchant Wholesalers; 551112 Offices of Other Holding Companies

Inter Link Foods PLC is the rising star of the British baking industry. Since its formation in 1994, the company has grown through acquisitions and organically to take a place in the United Kingdom's top five industrial bakers, with the objective of claiming the number two spot in the market (number one, Mr Kipling, a subsidiary of Tomkins, holds a more than 50 percent share of the market). Inter Link itself is composed of a number of smaller bakery businesses, including Crossfield, Lisa, Hepworth & Whittles (Newton House), William Lusty, Maid Marian, Nicholas & Harris, The Creative Cake Company, Cakes for the Connoisseur, and, since February 2003, Soreen. This gathering of companies has enabled Inter Link to build a strong portfolio spanning most of the major cake and pastry categories, including sponge cakes, fruit pies, celebration cakes, low-fat loaf cakes, cherry bakewell tarts, chocolate mini rolls, swiss rolls, and malt cakes. The company also has a thriving business in licensed cakes, holding the licenses to create cakes in the image of such popular characters as Bob the Builder and Harry Potter. Most of Inter Link Foods' production goes toward private label and thirdparty branded items, and Inter Link counts nearly all of the major multiple supermarket groups among its customers. With the acquisition of Soreen, however, Inter Link has gained controlled of that brand's malt cakes, U.K. leader in its category. Inter Link has traded on London's Alternative Investment Market (AIM) since 1998, and has seen its revenues shoot up from just £1.5 million to more than £51 million since it was founded. The company is led by founder and CEO Alwin Thompson, and Managing Director Paul Griffiths.

Spotting a Market in the 1990s

The son of a Stockport newsagent, Alwin Thompson started his professional career at the age of 16. Over the years, he worked in a variety of jobs, beginning in the packing room of the drapery company James Stewart and Sons. That experience was to help Thompson later when he set up his own business, giving him an insight into his workers' needs.

Thompson moved into James Stewart's accounting department, then left for a sales job at cake and confectionery company Cadbury's, and later stints at Gallaghers and ADT Security Systems. In 1986, Thompson set out to run his own business, and founded Country Fitness Foods. After successfully launching that business, Thompson sold out, to Northumbrian Fine Foods, and instead joined that company on its board of directors.

In the meantime, Thompson kept an eye out for a new business opportunity. In the early 1990s, the diversified Yorkshire Food Group had begun preparing a public offering to support its push to focus itself as a specialist in the dried fruit and nuts market. Yorkshire sought to sell a number of non-core units, including a money-losing bakery operation, called Crossfield Foods. In the meantime, Thompson had recognized a new opportunity in the baking market, which by then had become dominated by Tomkins and its Mr Kipling, Cadburys, and Lyons brands. Thompson recognized that the major supermarket groups, eager to launch their own private label cakes, pastries, and other baked goods, including packaged and fresh products, would welcome a company willing to supply their needs.

In 1994, Thompson joined with ex-Asda and Tesco executive John Cummings and approached venture capital group 3i with a plan to create a new company, Inter Link Foods, in order to buy Crossfield Foods from Yorkshire Group. Yorkshire was on the brink of shutting down Crossfield, based in Blackburn, which at the time had been posting losses of £350,000 per year on sales of just £1.4 million.

Thompson and Cummings quickly reorganized the company. A major part of that effort went towards streamlining Crossfield's production. Previously, the bakery had produced more than 20 different products, most of which had to be fashioned by hand, or through antiquated equipment. Under Inter Link, the Crossfield site narrowed its product focus to just four low-cost, high-volume lines, cherry bakewells, sponge cakes, fruit pies, and mini-rolls. In support of its new product focus, the company installed new, highly automated equipment.

By the end of its first year, Inter Link had succeeded in turning around the Crossfield site, posting a profit of £35,000, while maintaining its sales volume despite the drastic reduction in product assortment. By the late 1990s, the Crossfield site alone generated more than £5 million in sales each year.

Flush with that success, Thompson and Cummings went in search of their next acquisition target. In 1995, the company turned to Lancashire Enterprises Venture Funds to acquire another small, family-owned bakery threatened for its survival. The addition of that company, Lisa Bakery, enabled Inter Link to expand its product range to include swiss rolls and sponge cakes. At the time of its acquisition, Lisa Bakery posted sales of less than £2 million per year. Within three years, Inter Link succeeded in nearly doubling that figure.

The acquisition of Lisa Bakery also enabled the company to cross-sell its expanding list of products among Crossfield's and Lisa's major supermarket customers. In 1996, Inter Link added another important product line to the Lisa site, that of packaged mini-rolls, which quickly became one of its strongest selling products. The company by then featured three of the United Kingdom's largest supermarket groups, Asda, Tesco, and Morrisons, among its customers.

AIMing High for the New Century

By 1998, the company's sales had climbed past £8 million, with profits topping £450,000. Inter Link now sought to accelerate its expansion, in particular by investing in new production lines and equipment. In order to raise funding for this new effort, the company decided to enter the stock market, and in April 1998 the company listed its shares on London's Alternative Index Market, or AIM, which specialized in listing smallscale companies. With the more than £2 million raised from the offering, Inter Link carried out its capital investment program, spending more than £600,000 on new equipment at both the Lisa and Crossfield sites. The increased production capacity in turn enabled it to attract a broader customer base, adding such key U.K. supermarket players as Aldi and Somerfield.

Until 1999, Thompson and Cummings had served as comanaging directors. After Cummings left in September of that year, to take up a senior executive position at Asda, Thompson took on a new position, as Inter Link's CEO.

Having proved its operating model, Inter Link now prepared to step up its growth. The company began identifying new acquisition targets to increase the scope of its product lines and enhance its penetration of the U.K. bakery market. In 1999, the company reached an agreement with the Bank of Scotland to assist in rebuilding the William Lusty Bakery, then in receivership. In return, Inter Link was given an option to purchase that company.

Yet the company's first new acquisition was in Nottingham, where Inter Link bought Maid Marian, a specialist in celebration, as well as novelty, cakes. The purchase also enabled the company to enter the fast-growing market for licensed cake products. Following the acquisition, Inter Link transferred Maid Marian's production to its main Blackburn site. In support of its growing range of products, the company commissioned a new production facility in Shadworth. Offering some 32,000 square feet of production space, the new facility was inaugurated at the beginning of 2001.

That year Inter Link confirmed its status as one of the fastestgrowing U.K. bakery groups, in part through a series of strategic acquisitions, starting with Hepworth & Whittles, which operated under the trade name of Newton House Bakery. The addition of that company added a number of small cake specialties, such as cup cakes and vienna whirls, for a cost of £4 million. Inter Link quickly linked the customer pool of its new acquisition into its existing pool, enabling the company to introduce its full range of products into the expanded customer base.

Acquisitions remained at the heart of Inter Link's growth strategy that year, although its next purchase, of Cakes for the Connoisseur (CFTC), represented its first non-bakery acquisition. Instead, CFTC, bought from bankrupt NFF for £2.7 million, enabled the company to gain access for its products to a wider distribution market, including the large numbers of smallscale independent retailers, as well as other catering outlets, such as train station and airport concessions.

The company returned to bakery expansion with its next acquisition, however, that of the celebration cake division of Nicholas & Harris Ltd., which was then renamed Creative Cake Company. The new division boosted Inter Link's position in the licensed baked goods segment, with licenses including Bob the Builder, Pokémon, and Harry Potter. The latter license was bought by the company for £50,000 in October 2001, ahead of the launch of the latest in the hugely successful book and film series. Later that year, Inter Link completed its £12 million acquisition drive with the purchase of the William Lusty Bakery, for £400,000.

By the end of 2001, Inter Link had transformed itself into one of the U.K. baking industry's top five companies. Although the company remained far behind longtime leader Mr Kipling, Inter Link's rapid growth was set to push its sales past £40 million, and earned it the title of AIM Company of the Year in 2001.

Company Perspectives:

Chairman's Statement: Our continued objective is to grow the business both organically and by selective acquisition and in the medium term become the number two supplier of high quality cakes and pastries in the UK.

Inter Link took the year off from acquisitions in order to integrate new operations and pursue organic growth as well. By the end of the year, the company had succeeded in gaining more than 50 product listings (that is, space on supermarket shelves) from all of the country's major supermarket groups, with the exception of Marks & Spencer. Inter Link had also continued to pursue its growing licensing operation, grabbing the lucrative Spiderman and the children's television characters The Fimbles that year.

With sales topping £50 million, Inter Link returned to acquisitions in 2003, buying Trafford Park's Soreen Bakery, the leading producer of malt loaves in the United Kingdom. That purchase also represented another first for Inter Link, in that it gave the company its first branded product line. Nonetheless, Inter Link remained committed to its more lucrative—and less costly—business of producing for private and third-party brands. The company also remained committed to growth, scouting for new acquisitions with the intention of doubling its sales and claiming the number two bakery products spot in the new century.

Key Dates:

1986:: Alwin Thompson founds Country Fitness Foods, which he then sells to Northumbrian Fine Foods, where he becomes a company director.
1994:: Thompson, joined by John Cummings, founds Inter Link Foods and buys failing Crossfield Bakery from Yorkshire Food Group.
1998:: Company lists on AIM market.
2000:: Company acquires Nottingham-based Maid Marian, a specialist in celebration, novelty, and licensed cakes.
2001:: Company acquires Hepworth & Whittles (Newton House); Cakes for the Connoisseur; Creative Cake Company; and William Lusty; opens new 32,000-square-foot production facility.
2003:: Inter Link acquires Soreen Bakery, a leading producer of malt loaves.