R&R Ice Cream Sales Dip in Soft German and UK Markets
Consolidated revenues for R&R Ice Cream slipped by €2.2 million to €167 million, or 1.3% year-on-year, during the first quarter of 2016. The Leeming Bar, North Yorkshire, England-headquartered company, a unit of private equity firm PAI Partners, reported that at a like-for-like and constant exchange basis, receipts fell by €5.9 million. Exchange rate fluctuations impacted sales by a further €5.3 million.
Tough market conditions in Europe, especially in Germany where sales declined by €5.5 million, weighed heavily on results for the January 1 to March 31 period. The company has “exited a number of less profitable contracts” in the German business, which generally runs from April to March of each year. The lower cash flow result is evident in Q1 figures.
In the United Kingdom sales of €53.1 million reflected a €2.2 million downturn in revenue. This was attributed to slow market conditions as well as promotional timing that affected the start of the season.
The company’s gross margin (before exceptional items) increased 4.7 percentage points from 34.2% in the three-month period. The gross margin contributed by R&R South Africa during the same timeframe positively impacted the group’s performance by 0.8%.
“Though the majority of the increases were due to the exiting of less profitable contracts in our Germany business, the growth in new product development (which has a positive effect on our gross margin), the growth of our branded share in the sales mix, and the positive effects of capital expenditure projects on our operational efficiency,” reported the company.
Sun Shines for R&R in South Africa
In May of 2015 R&R completed the acquisition of Nestlé South Africa’s ice cream business for €8.6 million. During the first quarter of 2016 the unit rang up sales of €9 million and adjusted EBITA of €1 million, “illustrating the continued strong performance in the latter part of the South African peak season.”
Froneri Joint Venture Ready to Roll
Meanwhile, in post balance sheet events, R&R and Nestlé recently confirmed that they are establishing Froneri, a joint venture with sales of around CHF 2.7 billion in over 20 countries employing about 15,000 people. Headquartered in the UK, it will operate primarily in Europe, the Middle East (excluding Israel), Argentina, Australia, Brazil, the Philippines and South Africa.
The new company will combine Nestlé and R&R’s ice cream activities in the relevant countries and will include Nestlé’s European frozen food business (excluding pizza and retail frozen food in Italy), as well as its chilled dairy business in the Philippines. The transaction is subject to employee consultations and the approval of regulatory authorities.
Luis Cantarell, Nestlé’s executive vice president for Europe, Middle East and North Africa, will chair Froneri’s board of directors, which will be composed of three senior Nestlé executives and three senior executives appointed by private equity firm PAI Partners. R&R’s CEO Ibrahim Najafi will serve as chief executive officer of Froneri. Nestlé and PAI will have equal equity interests in the joint venture.
"This is an exciting growth opportunity in a dynamic category,” said Nestlé CEO Paul Bulcke. “Froneri will capitalize on complementary strengths and innovation expertise, combining Nestlé’s strong and successful brands and experience in ‘out-of-home’ distribution with R&R’s competitive manufacturing model and significant presence in retail."
CEO Najafi commented: "I am thrilled about the potential of Froneri and the opportunity for R&R to combine with the biggest and best food business in the world. R&R has gone from strength to strength in the last few years and the blend of people from the two organizations will create a leading team, ideally suited to drive future growth."
Currently employing over 3,500 people systemwide, R&R has three UK manufacturing sites – in Leeming Bar, Skelmersdale and Bodmin – as well as factories on mainland Europe at Osnabrϋck, Germany; Plouéderne, Vayres and Dangé St Romain, France; Terni, Italy; and Mielic, Poland. In addition to producing a wide range of private label products for supermarket chains, the company co-packs some of Europe’s best-known brands such as Nestlé, Mondelēz, Oasis, Disney, Pilpa, Kelly’s and Zielona Budka.