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Gardner Merchant poisedfor Stock Exchange entry

GARDNER Merchant’s 50% growth in trading profit for 1993, announced last week, indicates that public flotation of the contract caterer may begin more quickly than expected.

The giant concern, the subject of a management buyout from Forte, has 47,000 employees working in 18 countries. Chief executive Garry Hawkes, who spoke to Caterer from his plush Kenley, south London, office last week, confirmed the existence of plans to float the company on the Stock Exchange.

Mr Hawkes would not say exactly when the float might happen. But, given the recent public relations effort, including publication of the company’s trading results, industry observers would have to surmise that autumn this year could be a likely time.

Meanwhile, Gardner Merchant is in an “interregnum”, said Mr Hawkes. It is essentially a privately owned company, albeit a large one with a turnover of £1.015b last year and profits before interest and taxation of £46.9m (£31.3m in 1992).

Operating as a private company and no longer backed or controlled by Forte has not been a limiting factor, said Mr Hawkes.

“In no way are we constrained by a lack of cash. Since the year end we have acquired Kielholz Catering in Germany and we’re now actively negotiating with three other companies. Not that I believe our future growth will be based on acquisition.”

During the year to 31 January 1994, Gardner Merchant’s turnover increased by 3.5% to just over £1b. This resulted from organic growth by existing businesses.

While the company continued to lose contracts because of the general economic climate, it ended the year with a net gain of 161 contracts worldwide.

Mr Hawkes said the rate at which contracts were lost had slowed while the pace of gaining new contracts had increased in the UK and USA.

Gardner Merchant is operating in markets in varying states of maturity. In the UK, the industrial catering market is fully matured but the company has won public sector and education contracts. Countries such as Germany, Spain, Japan and the USA all offer opportunities for Gardner Merchant.

The company’s expansion strategy, said Mr Hawkes, was based on establishing a bridgehead in a new market by purchasing a contractor and then establishing a trading platform to sell contracts.

Gardner Merchant has to win more contracts to expand, and to satisfy new shareholders who will be looking for strong growth. But as industry becomes more technologically sophisticated, there are fewer mouths to feed at work.

“We are growing volume and are serving more people but we’re not growing volume as rapidly as we are adding new contracts.”

He added that, although Gardner Merchant would add another 300 contracts this year, no particular sector was growing more quickly than others. “This business grows by evolution, not revolution.”

Asked how Gardner Merchant made a 50% profit uplift from a 3% turnover increase, Mr Hawkes explained that, in contract catering, turnover and profit were not so closely linked as in other businesses. Turnover reflected volume, while profit reflected management fees and better purchasing.

In its quest for improved margins, Gardner Merchant has decentralised its management structure and created new profit centres which are closer to the customer. Around 50 middle-ranking managers were either offered early retirement or were made redundant.

It has negotiated purchasing deals directly with manufacturers and has then worked out agreements with distributors.

Gardner Merchant ended the year with an operating margin in the UK of 6%, increased from the 4% achieved the previous year. The margin from its business in the rest of Europe was 3.4% (2.4% in 1992) and 1.7% in the rest of the world, which was unchanged.

When asked why Gardner Merchant was not using high street brands as enthusiastically as other contract caterers, Mr Hawkes was characteristically frank: “Using brands in airports is, of course, pertinent. But to say that brands per se will revolutionise how people eat in staff restaurants is, in my view, nonsense.”

He cited as an example of brands’ irrelevance to staff catering the fact that Gardner Merchant’s Dutch company had been awarded a contract to feed staff at the headquarters of McDonald’s in Holland.

Burgers and fries will not dominate the menu.

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