Italian-styled coffee bar chain Caffe Nero says it has signed a preliminary agreement to buy 26 Aroma coffee bars from McDonalds.

The rapidly expanding coffee shop chain posted a 68% increase in sales during the six months to November 2001, and narrowed its losses.

British High Streets have filled up with designer coffee houses in recent years as rivals like Starbucks, Aroma, Coffee Republic and Manhattan Coffee - to name a few - promote their trademark bright decors and comfy sofas.

Caffe Nero remains confident of "substantial growth prospects...throughout the UK, particularly outside the M25".

Extra cash

No details of what Caffe Nero expects to pay for the 26 outlets, which form part but not all of the Aroma chain, were given.

"A further announcement will be made on exchange of contracts", said Gerry Ford, the coffee seller's founder, chairman and chief executive.

The company expects to start integrating the Aroma premises into its business from April.

Caffe Nero added that it has acquired an extra �5m in new funding to finance its development programme.

Caffe Nero said it is now "the largest independent UK coffee bar operator", with 107 premises including the 26 new Aroma sites.

It said it "has now achieved critical mass" with venues in 35 UK towns and cities "from Glasgow down to Brighton".

It said sales almost doubled to �11.3m in the six months to last November from �6.7m in the same period of the previous year.

It reduced its pre-tax loss to �760,000 from �868,000 one year earlier, and ended the half-year with some �3.8m in cash to fund its expansion plans.

Profits forecast

"The group has had an encouraging start to the year, in spite of a challenging trading environment. Our Italian format..and a European atmosphere, strongly differentiates us from our rivals and continues to register very favourably with consumers", the firm said.

It forecast it would reach profitability as as result of buying the Aroma sites.

"With increased scale, a greater percentage of revenues will now flow through to the profit line."

In the City, Caffe Nero shares were marked 0.5p higher at 25.5p in early trade.