Small Talk: Crumbling cake-maker may need to find a buyer

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The Independent Online

To say that the last week has been a difficult one for Inter Link Foods would be a gross understatement. It has been a true nightmare for the cake-maker and its shareholders. In fact, it is likely that Inter Link will want to forget the whole of the past 12 months altogether, as problem after problem has plagued it.

First, a little about the most recent drama at the company. On 16 February, the Blackburn-based group warned the City that it would make a loss in its current financial year. Most analysts were expecting it to make a sizeable profit.

It blamed the setback on disruption caused by its switch to a new central distribution centre in Warrington.

In the wake of the warning Inter Link shares have lost half their value, leaving valued at just £20m.

But this glitch was the latest in a long list, and combined, they have left the company's reputation among investors in tatters.

Admittedly, some of the problems it has faced have been beyond its control. Its profit warning in September came because the hot summer weather had negatively impacted summer sales, while the resignation of its executive chairman, Alwin Thompson, last month came due to his ill health.

Nevertheless, it is difficult to escape from the fact that sales declined in the first half of its financial year and are unlikely to grow much in the second half. Meanwhile, the move to the new distribution centre has been noticeably slower than planned and has proved to be very costly.

It is now clear that Inter Link is not seeing the new business it had hoped for in its fourth quarter, while the sales it does get are being achieved at lower-than-expected margins due to the competitive marketplace it faces and rising raw material costs. The departure of both its chief executive and executive chairman in the space of four months has unsurprisingly left investors feeling very nervous.

So where now for Inter Link?

Well, the group's current management held a series of meetings in the Square Mile with institutional investors last week. Given the state the cake-maker is in, many are likely to have urged the management to put the business up for sale.

Analysts believe that private equity is the most likely buyer of the company. In September it admitted to an approach, which was reported to have come from 3i and HG Capital. However, a move on the company this time around will find its bargaining position severely weakened. In fact, it is likely that Inter Link shareholders will bite the hand off any bidder, given the recent events at the group.

STM maps out off-shore route to profits

Holding one's wealth via an offshore company or trust was long the preserve of African dictators and the super-rich. These days even the more modestly wealthy are opting for offshore structures as a way to minimise their tax bills and hide capital. This coupled with the boom in the hedge fund industry - pretty much all hedge funds are registered in places like the British Virgin Islands, Gibraltar and the Isle of Man - means that those who set up and manage offshore companies enjoy a very good living.

STM Group hopes to cash in on this trend. Today it will signal its intention to list on AIM. The group, which expects to see its shares traded on the junior exchange by the end of March, is looking to raise £7.5m and should get a market capitalisation of between £17m and £20m.

STM wants to consolidate this fragmented and ultra-secretive part of the financial services sector. In the process it hopes to build a one-stop shop operation which can work across offshore jurisdictions and thereby provide its clients with the best structure for their circumstances.

STM has already lined up its first acquisition. It plans to swallow Fidecs, one of the largest financial services firms in Gibraltar, employing some 88 people. At the last count, Fidecs administered more than 375 offshore trusts and managed more than 550 offshore companies.

There is certainly strong logic to what STM wants to achieve. Managing offshore trusts and companies is a high fixed cost business because of onerous regulations, so the more clients a firm has, the better its profit margin.

The group plans to use its quoted shares as currency for future acquisitions.

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