Inter Link Foods, the UK's third biggest cake maker, wants the money so that it can fill a gap in the private label market worth around £30 million (€43 million) per year left by the country's premier cake maker, Rank Hovis McDougall (RHM).
The company plans to raise the extra cash through a placing of more than one-and-a-half million new ordinary shares, of 2p each at £5.15 per share, with institutional investors. The shares will not be issued to the public and the move is conditional on the approval of existing Inter Link shareholders.
RHM announced in July this year that it would withdraw from the private label cake market to concentrate on its branded goods such as Mr. Kipling, Lyons and Cadbury's Cakes.
In a statement, Inter Link's directors said they thought the move by RHM presented an important opportunity to broaden product range, increase sales and strengthen ties with multiple retailers.
"There are a limited number of businesses with the capability to supply these products and we believe that Inter Link Foods is in a strong position," they said, adding that the company already produces a number of private label products similar to those that RHM was supplying to retailers, including cherry bakewells, swiss rolls and chocolate rolls. Taking over existing markets may also be the best way to progress in the current UK cake market climate, according to data from market analyst company Mintel, which says that although the market has risen in value by 3.8 per cent since 2003, this is mainly a reflection of higher prices and not increased sales.
Inter Link would use its extra funds, to increase production capacity to help it meet the potential additional demand from retailers.
Directors are reviewing how best to do this, though they have indicated they would prefer to acquire new businesses rather than invest in bakery equipment for current factories. That way Inter Link may also open up more existing markets to itself.
The company has made a number of successful acquisitions in its 10 years of existence, including buying up Soreen Malt Loaf in 2003 and winning the licence to make all Disney-branded small cakes in January 2004.
Alwin Thompson, executive chairman of Inter Link, said the company's latest expansion plans had received a good reception from investors, who recognised Inter Link's sound growth strategy. "We have stated our objective of becoming the largest private label cake supplier in the UK and second largest cake supplier in the UK," he said.
Inter Link's new ordinary shares are due to be traded on US investments group AIM after the 30th November, though the company will hold an extraordinary general meeting in Manchester for shareholders to vote on the proposals at 11am on 29th November.
In May this year, Inter Link reported its fifth successive year of record turnover, profits and earnings per share. Company profits for the 2003 financial year stood at almost £2 million, up from £1.7 million last year and £568,000 in 1999. And growth is continuing, with Inter Link sales up by 31 per cent after the first half of 2004, compared to the same period in 2003.