THE LONG awaited sale of Associated British Foods' (ABF) the Baker's
Oven retail chain took place yesterday with the news that Greggs, the
Newcastle-based manufacturer and retailer of bread, confectionery, and
savoury proucts, is paying #19m cash for the business.
Greggs is buying 424 retail bakers' shops, two main bakeries and
certain related assets. In addition, Gregg's will purchase stocks and
receive a cash allowance for certain liabilities, primarily related to
employees, which it will assume.
These amounts will be calculated at the time the deal is completed and
are expected to result in a net cash payment to Greggs of about #1m.
Baker's Oven's outlets are predominately in southern England and the
Midlands, which makes them a natural fit with Greggs' existing chain of
shops. Gregg's estimates that around #6m of cash will be generated from
the Baker's Oven business in the two months following completion.
Within Baker's Oven, most of the shops' products are either supplied
by the two main bakeries or made by 169 in-store bakeries. Currently 170
shops have seated catering facilities.
Total fixed assets being acquired by Gregg's total #22.6m. In the year
to September 18, 1993, the Baker's Oven made a loss before tax and
interest and closure costs of about #650,000. This was after crediting
#350,000 of rental income from certain properties not being acquired.
However, Gregg's directors believe that the past results do not give a
meaningful guide as to the likely trading performance of the business
being acquired.
This assumption is based on the fact that in recent years as a result
of shop closures, the trading loss has steadily fallen.
In March 1990, there were 628 shops and four main bakeries. By the end
of the last financial year this had been reduced to 496 shops and two
main bakeries. This process has continued with the closure or planned
closure of another 72 shops since the year-end.
Rationalisation and cost reductions have resulted in a continuous
improvement in the operating performance of the business. In the 24
weeks to March 5, 1994, the operating loss was said to be significantly
below that for the comparable period last year.
In addition, some central overheads allocated from ABF will no longer
be necessary and will result in savings of around #750,000.
Commenting on the acquisition, Michael Darrington, Greggs' managing
director said it provided ''a unique opportunity for Greggs to expand in
its key target areas and to extend its operations into in-store bakeries
and seated catering.''
In terms of current trading Greggs' profit is said to be ahead of the
comparable period last year.
In a falling stockmarket Greggs' shares gained 12p to 805p while ABF
dropped 12p to 543p.
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