Greggs serves up a 25% improvement in profits: Effect of Baker's Oven acquisition will be slow to come through

GREGGS, the bakery and sandwich shop owner which acquired the Baker's Oven shops from Associated British Foods last month, increased profits by a quarter in the 24 weeks to 18 June.

The profits growth recorded yesterday, however, was achieved without help from Baker's Oven. The purchase was made after the close of the half-year.

Much of the advance was achieved by enhancing operating efficiency and increasing prices.

Taxable profit was pounds 3.7m, up from pounds 2.9m. Operating profit progressed at a similar rate but the margin on sales improved from 5.6 to 6.5 per cent.

The purchase of outlets from ABF, in a deal worth pounds 18m, doubled the size of Greggs' retail chain. The business had been unprofitable under ABF's ownership with losses of pounds 1.5m in 1993, pounds 12m in 1992 and pounds 8m in 1991.

Michael Darrington, Greggs' managing director, said that action already taken meant Baker's Oven was now making profits. He warned, however, that the effect of the acquisition on Greggs' profits would be felt only gradually.

'We envisage that two or three years' hard work will be required to realise the full benefits of the acquisition,' he said.

Malcolm Simpson, finance director, said the performance of the new shops was being impeded by the recent hot weather.

Mr Darrington said second-half profits growth in the original Greggs' shops would ease.

'We expect slower profit growth in the second half of 1994 as start- up costs are incurred bringing our new bakeries into operation,' he added.

New bakeries have been built in Enfield, London and in Birmingham.

The shares rose 25p yesterday to close at 933p while earnings per share for the half-year grew to 21.4p from 17p and the dividend was lifted 16 per cent to 7p.