Zetar: Acquisition of the Assets and Business of Britannia Biscuits Company (International) Limited

24 May 2007 - Zetar, the AIM listed snack foods and confectionery group, is pleased to announce that its newly incorporated subsidiary, The Baked Snacks Company Limited (“BSC”) has acquired the assets and business of Britannia, a manufacturer of innovative baked and other snack products (the “Britannia Business”) for an initial £4.7 million, with additional consideration payable dependent upon the future financial performance of BSC.

Information on the Britannia Business

The Britannia Business, based in Teesside, has been at the forefront of the development of baked snacks, biscuits, crisps and cereals and to date has made substantial investments in a purpose built, state of the art manufacturing facility and in the development of a product range which includes:

 ·Baked potato crisps;

·Rice crackers;

·Baked tortilla chips;

·Cereals;

·Snackdoms (potato, rice and lentil flour snacks);

·Mini popadoms;

·Healthier children’s biscuits and snacks; and

·Soft, chewy biscuit bars.

A number of these products are already sold under private label to major UK retailers and certain internationally renowned household brands, for example Weight Watchers (via its licensee, Anytime Foods).

Britannia’s limited financial resources have constrained its ability to fully exploit the potential of the Britannia Business which is currently loss making. In the year ended 31 July 2006, Britannia made an unaudited loss before tax of £0.4 million on sales of £4.5 million.

Terms of the Acquisition

BSC has paid Britannia an initial consideration of £4.7 million (the “Initial Consideration”) for the Britannia Business, representing the market value of its fully equipped 30,000 sq ft freehold factory and five acre site in Middlesbrough.

Further consideration (“Additional Consideration”) may become payable to Britannia dependent upon the performance of BSC over the three years ending 30 September 2010 (the “Earn Out Period”). In each year of the Earn Out Period, BSC must report minimum levels of profit before tax (as set out below) before any Additional Consideration becomes payable for that year:

 
Additional Consideration of, in aggregate, up to £23.0 million may become payable over the Earn Out Period with the maximum amount falling due only in the event that the aggregate profit before tax of BSC over the Earn Out Period is in excess of £18.0 million. Britannia will apply 25 per cent of any Additional Consideration received to purchase Zetar ordinary shares. 

The Initial Consideration and any Additional Consideration payments have and will be satisfied in cash from debt facilities provided by Barclays Bank plc and Zetar’s own cash resources.

As part of the Acquisition, Mobeen Mehdi, chief executive of Britannia, and certain members of his management team (the “Britannia Management Team”) have entered into new service contracts with BSC. The Britannia Management Team are shareholders in Britannia and will therefore benefit from any Additional Consideration which becomes payable.

Background to and benefits of the Acquisition

The Directors of Zetar (the “Directors”) believe that the healthier baked snacks sector is a high growth area of the snacks market and they expect the Acquisition to provide the Group with excellent opportunities to address this sector swiftly. 

The Directors expect the combination of the Britannia Business’s manufacturing and product development capabilities together with Zetar’s customer relationships, sales and distribution resources, character licence expertise and financial backing will enable BSC to optimise the potential of the Britannia Business and transform the currently loss making operation into a profitable part of the Zetar group. 

The Directors expect the Acquisition to be earnings enhancing to Zetar in the financial year ending 30 April 2009.

Commenting on the Acquisition, Ian Blackburn, Chief Executive of Zetar said:

“Britannia has a first class factory with an excellent portfolio of products. The formation of The Baked Snacks Company and its purchase of the assets and business of Britannia provides Zetar with an opportunity to enter the emerging healthier baked snacks sector and to quickly build BSC into a significant business. We look forward to working with Mobeen Mehdi and his colleagues to build upon the foundations that they have established to realise Britannia’s potential.”