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Bondholder information pack Quarter 2 2016
Contents
Business highlights
Operating and financial review
R&R Ice Cream plc consolidated financial information
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FORWARD-LOOKING STATEMENTS
This Bondholder Information Pack includes “forward-looking statements” within the meaning of the U.S. securities laws and
the laws of certain other jurisdictions, which are based on our current expectations and projections about future events. All
statements other than statements of historical facts included in this Bondholder Information Pack including, without limitation,
statements regarding our future financial position, risks and uncertainties related to our business, strategy, capital expenditure,
projected costs and our plans and objectives for future operations, may be deemed to be forward-looking statements. Words such
as “believe,” “expect,” “anticipate,” “may,” “assume,” “plan,” “intend,” “will,” “should,” “estimate,” “risk,” and similar
expressions or the negatives of these expressions are intended to identify forward-looking statements. These statements are based
on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause
actual results, performance or events to differ materially from those anticipated by such statements. Factors that could cause such
differences in actual results include:
our inability to address significant changes in consumer preferences;
increased price, or decreased availability, of commodities we use to produce our products;
adverse changes in general economic conditions and/or reductions in consumer spending;
our ability to accurately predict demand for our summer selling season;
inclement weather in the regions in which our ice cream is sold;
our inability to effectively compete in our highly competitive industry;
the size and sophistication of our customers;
the loss of any of our major customers;
our dependence on the value and perception of our brands;
our reliance on licences from third parties;
increased shipping prices or disrupted shipping services;
significant damage to any of our factories;
significant charges incurred due to the closing or divesting of all or a portion of a manufacturing plant or facility;
the shipment of contaminated products or lawsuits relating to product liability;
health concerns which may cause a decreased demand for our products;
the damaged image or reputation of our customers, which could adversely affect the sales of our products;
our failure to comply with existing or future government regulations;
costs and liabilities imposed by environmental regulations;
our inability to retain or attract key personnel;
detrimental fluctuations in currency exchange rates;
our inability to adequately protect our confidential information due to the absence of patent protection;
our inability to successfully integrate our recently acquired businesses;
our inability to maintain adequate infrastructure and resources to support any future growth;
adverse economic, social or political conditions in any of the several different countries in which we operate; and
disruptions in our information technology systems.
We disclose important factors that could cause our actual results to differ materially from our expectations under the
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in this Bondholder
Information Pack. Other sections of this Bondholder Information Pack describe additional factors that could adversely affect
our business, financial condition or results of operations. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we
assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and
uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.
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BUSINESS HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 2016
Froneri joint venture with Nestlé
- No further updates can be shared currently but completion is anticipated around the end of the third quarter
- Today we announced the redemption of all of our senior secured notes and our senior PIK toggle notes
(collectively, the “Notes”), in connection with the creation of Froneri. The redemptions are conditioned
upon completion of one or more financing transactions by us or our affiliates in sufficient quantity to pay
the redemption prices for the Notes and all related expenses on or prior to the redemption date
Delivering on our growth drivers
- Growing our branded business year-on-year
- Branded share of revenue up 3% to 47%
- Capturing market share across our European business, particularly through Mondelēz
- Innovation driving revenue and improving mix
- New products developed in 2015 and 2016 year-to-date account for 17% of revenue (Q2 2015: 15%)
- Operational improvements continue to streamline our business and improve efficiency
- Integration of South Africa into the group is completed, with South Africa now on the same
IT system as Germany, Italy and Poland
- Group IT project is underway in the UK and France, and is expected to be completed by the
end of the year
Revenue of €475.1 million for the six months ended June 30, 2016
- Revenue up by €1.4 million on like-for-like FX despite second quarter markets down approximately 3.4%
year-on-year
- At actual FX rates, revenues are €13.8m lower year-on-year due to combined effect of unfavourable
exchange rates (€15.2 million) and disappointing market conditions in the early European summer versus
strong comparator in Q2 2015
- Strong southern hemisphere performance: €17.8 million of growth from Australia (organic growth of €3.3
million) and South Africa (acquisitive growth)
Adjusted EBITDA of €96.2 million increased €3.4 million (+3.6%) for the six months
ended June 30, 2016
- EBITDA at constant rates of FX up by €7.2 million (7.9%) with strong growth in UK and Poland offset by
slightly weaker performance elsewhere in Europe, due to tough market conditions and unseasonal early
summer weather
- €3.6 million adverse effect due to unfavourable exchange rates
- EBITDA margin up 1.3 percentage points year-on-year
LTM EBITDA of €191.1 million is up €3.4 million (+1.8%) from December 31, 2015
Net debt position of €635.9m, or 3.3x senior leverage (down from 4.4x at 30 June 2015)
Board changes
- As previously announced, Daniel Martinez joined R&R on August 1, 2016, to replace Andy Finneran, who
plans to retire as CFO at the end of the year after 25 years in the business
Notes: 1 Data presented here at actual average exchange rates. 2 Adjusted EBITDA is presented here before parent company or investor management charges. 3 LTM EBITDA represents Adjusted EBITDA of the group for the last twelve months to June 30, 2016 including the post-acquisition results of
R&R South Africa. There is no pro forma adjustment to the performance of R&R South Africa. 4 Net debt figure excludes parent company loan and any debt issued by parent companies.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the audited financial statements and related notes
thereto and other financial information included with this document. The statements in this discussion regarding
industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-
historical statements in this discussion are forward-looking statements. These forward-looking statements are
subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in
the “Forward-Looking Statements” section of this document. Our actual results may differ materially from those
contained in or implied by any forward-looking statements.
Overview
R&R Ice Cream plc (“R&R”) is the third largest global manufacturer of ice cream products and the largest private
label manufacturer in the world. R&R is the second largest take-home ice cream manufacturer in Europe, with leading
market shares in each of the United Kingdom, German, French and Italian ice cream markets. We also have a leading
market share in Australia and South Africa following the acquisition of Peters Food Group Limited (‘Peters’) in June
2014 and the acquisition of Nestlé South Africa’s ice cream business (‘R&R South Africa’) in May 2015.
R&R offers a broad product range of branded and private label ice cream products. We primarily produce take-
home ice cream products, including ice cream tubs and multi-packs of ice cream cones, ice lollies, ice cream sticks
and ice cream desserts, and impulse products, which individuals buy on impulse for immediate consumption. Our
scale, focus on large, stable take-home markets and highly efficient manufacturing operations provide us with key
advantages over our competitors and have allowed us to continue to generate stable earnings and significant free cash
flow through various economic cycles. We believe our broad product range allows us to maintain strong sales volumes
as consumer demand shifts between branded and private label products.
For R&R’s most recent year end, the year ended December 31, 2015, we generated Adjusted EBITDA of
€187.7 million, revenue of €991.6 million and free cash flow before acquisitions and exceptional operating items
of €113.4 million.
R&R operates eleven plants located in seven countries, on three continents. Eight of these plants are in the four
largest ice cream markets in Europe (the UK, Germany, France and Italy), which allows us to supply our customers
quickly and efficiently in these key markets. Our manufacturing platform benefits from many years of significant
capital investment and footprint rationalisation. Our plants have also benefited from sharing and implementation of
best practices and procedures across our group in order to leverage technological expertise. We believe that our scale
and manufacturing footprint provides us with a competitive advantage over most of our competitors, which are
generally smaller and only offer regional distribution. With the acquisition of the South African business, we now have
a production footprint to serve ice cream markets in sub-Saharan Africa. Following an acquisition, we make capital
investments and implement our best practices in order to bring such facilities in line with our group-wide standards.
We benefit from a variety of licensed and owned brands, and we have exclusive ice cream product licences with
the world’s largest food company (Nestlé), the world’s largest confectionary company (Mondelēz, formerly Kraft
Foods), and the world’s largest entertainment company (Disney). Strong private label relationships with our customers
provide us with strong opportunities to cross sell our branded products.
In the UK, we produce under licence a number of products under Nestlé’s prominent confectionary brand names,
including Smarties, KitKat, Rolo, Milky Bar and Lion Bar. We have an exclusive licence agreement with Mondelēz
to produce and sell in the UK ice cream products under the Cadbury brands that include Dairy Milk, Crunchie, Cadbury
Caramel and Marvellous Creations (which is a range of super-premium products).
Across Europe, our exclusive licence agreement with Mondelēz enables us to produce and sell ice cream products
under established brand names including Milka, Oreo, Toblerone, Philadelphia and Daim. We also have non-exclusive
access to various Disney licences such as Mickey Mouse, Minnie Mouse and Cars.
In Australia, we have, amongst others, the iconic Drumstick, Connoisseur, and Peters Original brands. In South
Africa, we have incorporated a number of similarly iconic brands (predominantly on an owned basis, rather than
licenced) in South Africa and across sub-Saharan Africa, such as Dairy Maid, Country Fresh, Tin Roof, King Cone,
Jive and KitKat.
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Comparing results for the six months ended June 30, 2016 and the six months ended June 30, 2015
We acquired Nestlé South Africa’s ice cream business (“R&R South Africa”) in May 2015. The results of R&R
South Africa have been consolidated into the results of R&R Group for the six months ended 30 June 2016, but not
included in the results for the six months ended June 30, 2015. Direct comparability of the results of the two periods
is therefore impacted by this difference. The R&R South Africa’s balance sheet has been fully consolidated into the
consolidated statement of financial position at June 30, 2016.
Comparing the six months ended June 30, 2016 to the six months ended June 30, 2015 is also affected by the
average exchange rates used to translate the UK and Australia business performance. In 2016, the six month average
rate was 1.2843 EUR: 1 GBP and 0.6572 EURO: 1 AUD, whilst in 2015 the rates were 1.3655 EUR: 1 GBP and
0.7006 EURO: 1 AUD. The Adjusted EBITDA for the six months ended June 30, 2016 was adversely impacted by
€3.6 million as a result of exchange rate difference when compared to the six months ended June 30, 2015.
Overview for the year-to-date
Adjusted EBITDA was €96.2 million at June 30, 2016 compared to €92.8 million at June 30, 2015, an increase of
€3.4 million. This is a record performance for the first half and includes €0.4 million of Adjusted EBITDA
contributed by R&R South Africa and €2.9 million of Adjusted EBITDA growth by R&R Australia, year-on-year (at
constant exchange rates). Our European businesses contributed €3.7 million of Adjusted EBITDA growth (at constant
exchange rates).
Adjusted EBITDA margin increased 1.3 percentage points from 19.0% in the six months ended 30 June 2015
to 20.3% in the six months ended June 30, 2016. This increase is due to improvements in gross margin and overhead
savings.
The Q2 YTD headlines are as follows:
Figures are €000 Six months ended
June 30, 2016
Six months ended
June 30, 2015 Year-on-year % Year-on-year
Consolidated revenue 475,055 488,896 (13,841) (2.8%)
Adjusted EBITDA 96,212 92,844 3,368 3.6%
Adjusted EBITDA% 20.3% 19.0% 1.3% -
Free cash flow(1) (44,627) (16,094) (28,533) (177.3%)
Note (1): defined as net cash flows from operating activities and investing activities, before acquisitions of subsidiaries and exceptional operating items
Source: consolidated interim financial information
Consolidated revenues have reduced €13.8 million or 2.8% year-on-year. On a like-for-like basis (i.e.
excluding the revenue contribution from R&R South Africa), and at constant exchange rates, revenue has fallen by
€13.2 million. The impact of average exchange rates, year-on-year has impacted revenue by a further €15.2 million.
R&R South Africa contributed revenue of €14.5 million in the year-to-date.
The lower revenue from the European business, year-on-year, is largely the effect of poor weather conditions
during the first half of the European summer season. Northern and Central Europe was adversely impacted with
above average rainfall being recorded during the period, with both France and Germany suffering floods during the
first part of the summer season, and the early season weather in Italy also adverse compared to 2015. Adverse
weather conditions have been combined with exiting less profitable contracts in our German business (as previously
disclosed in earlier results announcements).
Our gross margin (before exceptional items) increased 3.3 percentage points from 32.7% in the six months
ended June 30, 2015 to 36.0% in the six months ended June 30, 2016. The gross margin contributed by R&R South
Africa for the six months ended June 30, 2016 positively impacted the gross margin of the group by 0.6 percentage
points; though the majority of the increases were due to the exiting of less profitable contracts in our German
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 and improved factory performance.
Free cash flow has been impacted by a planned increase in the inventory held across the European business, increasing our inventory position by €14.7 million. This planned inventory build-up was designed to improve service levels through the European peak season and with slightly earlier stock builds, the peak of trade and other creditors has reduced a little earlier. Cash flow has also been affected by the settlement of a number of exceptional costs in the period, which includes costs related to the proposed joint venture with Nestlé (combined effect: €4.5
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million, year-on-year). Capital expenditure is also €7.1 million higher in the first half of 2016, compared to the first half of 2015, which is a result of continued investment in our manufacturing capability and IT systems, in particular.
Factors Affecting our Business
Various factors affect our operating results during each period, including:
Seasonality. Our business is seasonal, and a large percentage of our sales are generated between the months of
April and September of each year. As a result of our seasonality, our sales fluctuate from quarter to quarter, which
often affects the comparability of our results between quarterly periods. Sales in certain of our markets are more
seasonal than others, based on factors such as weather patterns and consumer preference. Our Australian and South
African businesses reduce the seasonality of the business, as the summer selling season in both Australia and South
Africa occurs during a period of historically lower sales in our European markets, and moreover the seasons in both
geographical markets are more consistent than in the rest of the Group. In 2015, the second and third quarters have
accounted for 63% of our revenues on a last twelve months’ revenue basis.
We generally produce most of our products prior to and during our summer selling season, as it is impossible for
us to produce upon receipt of orders for all customers during the primary selling season. Our inventory levels peak at
the end of May, as we generally build our inventory with what we expect to sell in the following three to five weeks,
based on forecast sales, working closely with our customers. We generally produce in advance a higher percentage of
our branded inventory than our private label products as these are not as dependent on the satisfactory conclusion of
the annual contracts prevalent in mainland Europe. If demand levels fluctuate, we can generally increase or decrease
production to bring our stock to our desired levels within approximately three weeks. During our peak production
periods, we purchase large amounts of raw materials, hire additional workers at our facilities as temporary workers
and incur many other costs of our operations that we consider to be variable.
We finance our working capital needs through cash and cash equivalents, revolving credit borrowings and
factoring facilities. Our working capital requirements are typically higher in the first half of each year due to our
build-up of inventory for the summer selling period in Europe. As a result, our revolving credit and factoring
borrowings typically increase from January to May. In June, as we begin to generate cash from early summer season
sales of our ice cream products, we begin to repay our borrowings. In 2012, we put factoring facilities in place in
the UK and France, in 2013 in Germany and in 2014 in Australia, to supplement our Revolving Credit Facility and
cash on hand. This financing better matches the seasonality of our working capital cycle. Aside from renewing
facilities before they became due for repayment or renewal, we have not entered into any new significant credit
facilities since that time. We have recently implemented local credit facilities in R&R South Africa, though this is
outside of the restricted group.
Changes in Prices of Raw Materials. Raw materials used as ingredients and for packaging account for a
significant portion of our cost of sales. The principal raw materials we use to manufacture our products are cream,
milk, whey protein, sugar, glucose, cocoa, butter, coconut oil and palm oil. Many of the raw materials we use in
our manufacturing processes are commodities and are subject to significant price volatility. Changes in the price of
oil has also had a significant impact on our results each year as it has an impact on the cost of packaging, freight
and the cost of other components that we use in our manufacturing process, such as plastic.
We continue to take actions to reduce overall materials expense and exposure to price fluctuations. At present,
we see raw material cost pressures in the sugar market, for example, and the futures market indicates a persistence
of this trend. However, we continue to take measures to reduce our exposures to these and other cost pressures,
where possible. Since 2007, we have increased the amount of raw materials that we purchase pursuant to fixed price
contracts which set prices for our raw material sales for that year. We enter into these arrangements when we believe
that we can secure favourable prices for our raw materials for specified future periods. We fix a substantial
proportion of the annual cost of our raw materials used for ingredients and packaging through fixed-price contracts,
with the proportion fixed as at December 31, 2015, representing approximately 64% of our expected raw materials
expenditure for 2016.
Dairy products represented 12% of our cost of sales in 2015. Fixed-price contracts do not generally exist for
dairy products. We have previously reduced the amount of dairy fat and increased the amount of vegetable fat in
our ice cream products in order to reduce the effects of volatility in dairy prices on our business. However,
increasing demand for premium ice cream products across all markets is now leading to an increased requirement
for dairy fats.
Weather Trends. Sales of ice cream are generally positively impacted by warm, sunny, dry weather and are
negatively impacted by cool, overcast or rainy weather. Hours of sunshine, temperature and rainfall are the three
most important weather factors during the summer selling season. Our 2015 results in the UK, in particular, were
adversely affected because of unseasonal weather, though our Italian business benefitted from a prolonged period
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of warm and dry weather over the 2015 summer. However, our recent acquisitions in the southern hemisphere
spread our risk related to weather trends.
The majority of our business is in take-home ice cream markets, rather than impulse markets. The only
significant parts of our business involving impulse are the “route” business in Australia (which was acquired in June
2014), and smaller elements of the business in the UK, Poland and South Africa. Trends in take-home ice cream,
such as the introduction of premium products and indulgent flavours (which frequently contain enhancements such
as pieces of confectionery or biscuits), and the resulting increase in home consumption have made ice cream sales
less dependent on warm, sunny, dry weather, as consumers increasingly purchase ice cream as part of their weekly
grocery shopping as opposed to an item purchased on impulse. This is particularly important in countries where the
summer months do not always guarantee warm, sunny or dry weather, such as the UK. Our acquisitions of Eskigel
in Italy, Peters in Australia and Nestlé’s South African ice cream business mean that we are now less dependent on
weather patterns in Northern Europe.
We are able to take steps to control our costs during the summer season if we expect weather trends to be
adverse. For example, a portion of our factory workforce across our enterprise is employed on a seasonal basis. We
are able to shorten the work period for our seasonal workers if our product requirements do not meet our projections.
Competition and Market Trends. The ice cream industry is highly competitive, and our products compete based
on a variety of factors, including design, quality, price, customer service and rate of innovation. Levels of
competition and the ability of our competitors to more accurately address consumer tastes, predict trends and
otherwise attract customers through competitive pricing or other factors impact our results of operations. Our
competitors’ ability to identify and encourage changes in consumer trends may impact our decision regarding what
types of ice cream to develop and sell.
Certain actions by our competitors may impact our operating results, such as changes in their pricing or
marketing or levels of promotional sales, which may cause us to take certain actions that impact our profitability,
such as reductions in our prices or increases in our marketing expenditures. Some of our competitors from time to
time reduce their prices significantly in order to enhance their brand recognition. In addition, during more difficult
economic conditions the level and frequency of promotional activity required to stimulate sales is typically greater
than in less difficult economic conditions. The levels at which we are able to price our products are influenced by a
variety of factors, including the quality of the product, cost of production for those products, prices at which our
competitors are selling similar items, price points of products and willingness of our customers to pay for higher
priced items. These factors may limit our ability to respond to such price changes. We have also sought to enhance
our competitive position by increasing our scale, diversifying our products and enhancing and acquiring brands and
brand licences. We have also sought to address the growing trend towards premiumisation of ice cream products, in
both the branded and private label markets, through new product development.
Foreign Currency Exchange Rates. As a result of our operations in various countries, we generate a significant
portion of our sales and incur a significant portion of our expenses in currencies other than the Euro, including the
British Pound, Australian Dollar, the Polish Zloty and the South African Rand. During 2015, 54% of our reported
revenue was derived from subsidiaries whose functional currency is not the Euro, largely the British Pound and
Australian Dollar. Typically, our costs and the corresponding sales are denominated in the same currency. Sometimes,
however, we are unable to match sales received in foreign currencies with costs paid in the same currency, and our
results of operations are consequently impacted by currency exchange rate fluctuations. Therefore, as and when we
determine it is appropriate and advisable to do so, we seek to mitigate the effect of exchange rate fluctuations through
the use of derivative financial instruments. These are typically less than 12 months in duration, and “vanilla” contracts
such as forward foreign exchange transactions and short-term swaps.
We present our consolidated financial statements in Euro. As a result, we must translate the assets, liabilities,
revenue and expenses of all of our operations with a functional currency other than the Euro into Euro at then-
applicable exchange rates. Consequently, increases or decreases in the value of the Euro may affect the value of these
items with respect to our non-Euro businesses in our consolidated financial statements, even if their value has not
changed in their original currency. For example, a stronger Euro will negatively affect the reported results of operations
of the non- Euro businesses and conversely a weaker Euro will improve the reported results of operations of the non-
Euro businesses. These translations could significantly affect the comparability of our results between financial
periods and/or result in significant changes to the carrying value of our assets, liabilities and shareholders’ equity.
We record the effects of these translations in our consolidated statement of comprehensive income and expense as
exchange differences on retranslation of foreign operations. During the six months ended June 30, 2016 the Euro to
British Pound exchange rate averaged 1.2843 to 1 (six months ended June 30, 2015: average of 1.3655 to 1); and
during the six months ended June 30, 2016 the Euro averaged 0.6572 to 1 Australian Dollar (six months ended June
30, 2015: average of 0.7006 Euro to 1 Australian Dollar). During the six months ended June 30, 2016 the Euro to
South African Rand exchange rate averaged 0.0581 to 1.
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A summary of the EUR: GBP exchange rates during the six months ended June 30, 2016 and 2015 is shown
below: Six months ended June 30, 2016 Six months ended June 30, 2015
Average for the period 1.2843 1.3655
Opening balance sheet rate 1.3570 1.2841
Closing balance sheet rate 1.2058 1.4118
A summary of the EUR: Australian Dollar exchange rates during the six months ended June 30, 2016 and 2015
is shown below: Six months ended June 30, 2016 Six months ended June 30, 2015
Average for the period 0.6572 0.7006
Opening balance sheet rate 0.6693 0.6756
Closing balance sheet rate 0.6701 0.6902
A summary of the EUR: South African Rand exchange rates during the six months ended June 30, 2016 and
2015 is shown below:
Six months ended June 30, 2016 Six months ended June 30, 2015
Average for the period 0.0581 Not applicable
Opening balance sheet rate 0.0591 Not applicable
Closing balance sheet rate 0.0609 Not applicable
Acquisitions of Complementary Businesses. We continue to evaluate acquisition opportunities that may
improve our market share and product offerings, reduce costs, or allow us to enter new geographic markets. We
have completed 11 acquisitions since 2007. Following any acquisition, our results of operations will be impacted
by the results of the newly acquired business, debt incurred to acquire the business and expenditures made to
integrate the newly acquired business into our company. In general, when looking to integrate and improve a newly
acquired business, we look to several main areas: (i) reviewing current prices and product engineering or changing
recipes to achieve acceptable margins on products sold; (ii) researching ways to enhance our purchasing to benefit
from economies of scale; (iii) reducing duplicated overhead; (iv) moving production to the most efficient locations,
subject to geography and logistics; (v) sharing knowledge and experience; (vi) creating synergies with and benefits
to the existing businesses; and (vii) improving management of working capital. Many of these integration measures
require expenditure. When acquiring a business, we believe that the best results are achieved by reviewing the
existing business over the first year and identifying the strengths and weaknesses of that business. During this period
we look to implement the R&R management reporting and key performance indicators to provide reliable,
standardised information. Additionally, we seek to achieve certain improvements, for example, from the purchase
of ingredients at better prices. After a period of observation and understanding, we determine the extent of capital
expenditure required to improve the business, potential further synergies that we believe can be extracted, how we
can sell more, staffing resources we believe may enhance the business and any identifiable savings we believe can
be achieved.
In May 2015, we completed the acquisition of Nestlé South Africa’s ice cream business. The consideration
paid was €8.6 million, which included separate sums for the trade and assets of the business, and certain intellectual
property (such as brand trademarks, patents and domain names). The trading business (known as R&R Ice Cream
South Africa Pty Limited) is outside of the restricted group for security purposes, though its direct holding company
(R&R Ice Cream South Africa Holdings Limited, registered in the UK, and owner of certain of the intellectual
property related to R&R Ice Cream South Africa’s trading business) is part of the restricted group. In the six months
ended 30 June 2016, the business achieved €14.5 million of sales and Adjusted EBITDA of €0.4 million.
In addition, certain acquisitions have resulted in, and future acquisitions may result in, efficiencies of scale and
therefore provide cost savings across the company. When integrating a newly acquired business, we review the key
production facilities and processes gained with that business to determine if they are duplicative of our current
facilities and production capabilities. Through this review and the resulting combination of duplicative processes,
we are often able to streamline our operations, reduce costs and recognise synergies across our operations.
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On April 27, 2016 we announced our agreement with Nestlé to set up Froneri, a joint venture with sales of
approximately €2.5 billion in over 20 countries, employing about 15,000 people. Froneri will be headquartered in
the UK and 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 certain closing conditions.
Financial details are not disclosed. There has been no effect of this joint venture on the accompanying condensed
consolidated interim financial information, except for €4.5 million of exceptional operating expenses related to the
proposed joint venture with Nestlé.
Retailer Customer and Consumer Preferences. Our revenues are also impacted by our ability to continue to
produce ice cream that is desired by our retailer customers. Retailer customers purchase our private label ice cream
primarily based on price, quality and ability to deliver products which meet margin targets, ability to deliver our
products on a timely basis and ability to manufacture various types of ice cream in large volumes. Our ability to
meet these demands impacts our ability to sell to new and existing private label customers. In addition, our ability
to effectively sell our branded products to our customers is driven by consumer demand for our products, as a result
of, among other things, our marketing campaigns and the taste and quality of our products.
Impact of Acquisitions
Impact of the acquisition of Nestlé South Africa’s ice cream business. In May 2015, we completed the
acquisition of Nestlé South Africa’s ice cream business. The consideration paid was €8.6 million, which included
separate sums for the trade and assets of the business, and certain intellectual property (such as brand trademarks,
patents and domain names). The trading business (known as R&R Ice Cream South Africa Pty Limited) is outside
of the restricted group for security purposes, though its direct holding company (R&R Ice Cream South Africa
Holdings Limited, registered in the UK, and owner of certain of the intellectual property related to R&R Ice Cream
South Africa’s trading business) is part of the restricted group. In the six months ended 30 June 2016, the business
achieved €14.5 million of sales and Adjusted EBITDA of €0.4 million which is, we believe, a significant
improvement in profitability.
Acquisition Accounting
We have accounted for the acquisition of R&R South Africa using the acquisition method of accounting. As a
result, the purchase price for R&R South Africa has been allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values as of the date of the acquisition.
The allocation of the purchase price of the assets acquired has been determined, where appropriate, by external
experts. Under applicable accounting guidance, we are permitted to continue to make fair value adjustments until 12
months after the acquisition date. In the period to 30 June 2016, we have completed the fair value exercise, further
information is included in note 9 to the condensed consolidated financial information.
Components of Revenue and Expenses
Revenue
We generate revenue from the sale of ice cream and related products. We generate sales under contracts with
retailers, and by individual orders through sales personnel and independent brokers. In the UK, we generally enter
into purchase orders or other contracts for sale that have a rolling thirteen-week term. In Germany and France we
generally enter into longer-term contracts, typically for twelve months. In many cases, subject to certain exceptions,
the contracts have fixed prices for products but do not specify volumes. Rather, the contract terms govern individual
purchase orders to be delivered to us as required by the retailer. In our contracts for sale of goods in Germany, certain
of our prices for our goods vary based on our costs of raw materials, allowing us to pass some of our increased costs
through to consumers. In Poland, we typically enter into contracts with distributors and retailers early in the calendar
year, fixing pricing and retrospective rebate levels for the coming summer season. In Italy, relationships with
customers are regulated by framework contracts setting quality standards and payment terms, while other metrics
(such as prices, discounts, promotional campaigns and new products) are negotiated annually. In Australia, there
are generally long standing arrangements with grocery customers. These arrangements are reviewed annually,
including the range of products and fixed pricing. Volumes are not specified, however agreed promotional and
marketing activity is undertaken to drive growth with additional incentives provided to the retailer based on achieving
stepped volume growth thresholds. In South Africa, there are generally long standing arrangements with grocery
customers and with distributors. In similar arrangements to Australia, these arrangements are reviewed annually,
including the range of products and fixed pricing, though volumes are not specified.
10
Revenues include sales of products less allowances, trade discounts and volume rebates. Revenue from sales
of products is recognised when the significant risks of ownership have been transferred to the buyer (which is
typically when the goods are dispatched). Our relationships with our retailer customers do not include a right of
return for unsold merchandise.
In the six months ended June 30, 2016, our ten largest customers by revenue, represented 42% (six months
ended June 30, 2015: 42%) of our revenue. Transactions with our largest customer accounted for 7% of our total
revenue in the six months ended June 30, 2016 (six months ended June 30, 2015: 6%).
Expenses
Cost of Sales. Cost of sales includes directly attributable costs such as material, labour, energy, product-specific
research and development, maintenance and consumables. Our costs of sales are primarily variable in nature based
on the amount of products we are selling at a given time.
Our raw material costs are the primary driver of our cost of sales, accounting for approximately 66% of our
cost of sales (excluding R&R South Africa) for the six months ended June 30, 2016, compared to 66% of our cost
of sales for the six months ended June 30, 2015. Personnel expenses, which are salaries and wages within cost of
sales, paid to our officers and employees, also significantly impact our cost of sales, accounting for approximately
14% of our cost of sales (excluding R&R South Africa) for the six months ended June 30, 2016 (six months ended
June 30, 2015: 14%). Our raw material costs and personnel expenses are expected to continue to be key components
of our operating expenses in the future.
Distribution Expenses. Distribution expenses represent the costs associated with the storage and shipping of
our products. These costs include freight, storage and other related distribution costs.
Administrative Expenses. Administrative expenses represent overheads including sales and marketing but also
those costs associated with support functions, such as finance, human resources, IT, professional fees (legal and
accounting) and senior management, and also include costs relating to impairment and amortisation of intangibles.
Typically, costs of these support functions are salaries, systems costs, insurance costs and costs of professional
services. Administrative costs are relatively fixed in nature and were 12% of our revenue for the six months ended
June 30, 2016 compared to 11% of revenue for the six months ended June 30, 2015. The change in the ratio of
administrative expenses to revenue is largely a result of the cost structure of R&R South Africa business, which is
similar to our Australian businesses, being branded and carries higher overheads in servicing larger land masses, as
well as a greater proportion of advertising and promotional expenses.
Finance Expenses. Finance expense consists primarily of cash interest expense on financial debt, interest rate
derivative instruments, capital lease and other financing obligations, non-cash interest on loans from our
shareholders and unrealised foreign exchange gains or losses on financial liabilities denominated in currencies other
than Euros (except to the extent covered by net investment hedging).
Income Tax Expenses. Our income tax expense includes UK and non-UK income taxes and is based on pre-tax
income or loss. The effective rate may be higher or lower than the income tax rate in our countries of operation largely
because of the non-deductibility of certain of our interest expense, unrealized foreign exchange losses and the (non-
cash) effect of movements in deferred tax balances.
Adjusted EBITDA. Adjusted EBITDA is defined as profit/(loss) for the period before income tax
(credit)/charge, net finance expenses, depreciation and amortisation, plus certain additional supplemental
adjustments. Adjusted EBITDA is stated prior to any parent company or investor management charges. For further
details of the calculation of Adjusted EBITDA, see note 3 to our financial statements.
11
Results of Operations
The following table sets forth, for the periods presented, our consolidated statements of operations data. In the
table below and throughout this “Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, our consolidated results of operations for the six months ended June 30, 2015 and 2016 have been
extracted from our unaudited condensed consolidated financial information. The information contained in the table
below should be read in conjunction with our condensed consolidated financial information and the related notes.
Six months ended
June 30
(in thousands of euros) 2016 2015
Consolidated Statement of Income Information:
Revenue ................................................................................. €475,055 €488,896
Cost of sales ......................................................................... (304,228) (328,805)
Gross profit ........................................................................... 170,827 160,091
Distribution expenses ............................................................ (44,456) (42,579)
Administrative expenses ........................................................
Before exceptional items and amortisation .......................... (45,191) (40,613)
Exceptional items and amortisation ...................................... (11,603) (11,277)
(56,794) (51,890)
Profit from operating activities .............................................. 69,547 65,622
Finance income...................................................................... 9,233 265
Finance expenses ................................................................... (40,758) (49,609)
Profit before tax ..................................................................... 38,022 16,278
Income tax charge ................................................................. (7,483) (5,861)
Profit for the period ............................................................... €30,539 €10,417
Other Financial Information:
Adjusted EBITDA ................................................................. €96,212 €92,844
12
The table below also sets forth consolidated statement of income data expressed as a percentage of
revenues for the periods indicated:
Six months ended
June 30
(in percentages of revenue) 2016 2015
Consolidated Statement of Income Information:
Revenue ................................................................................. 100.0% 100.0%
Cost of sales .......................................................................... (64.0) (67.3)
Gross profit ............................................................................ 36.0 32.7
Distribution expenses ............................................................ (9.4) (8.7)
Administrative expenses ........................................................
Before exceptional items and amortisation .......................... (9.5) (8.3)
Exceptional items and amortisation ...................................... (2.4) (2.3)
(12.0) (10.6)
Profit from operating activities .............................................. 14.6 13.4
Finance income ...................................................................... 1.9 0.1
Finance expenses ................................................................... (8.6) (10.1)
Profit before tax ..................................................................... 8.1 3.3
Income tax charge .................................................................. (1.6) (1.2)
Profit for the period ............................................................... 6.4% 2.1%
Other Financial Information:
Adjusted EBITDA ................................................................. 20.3% 19.0%
Discussion and Analysis of our Results of Operations
The tables and discussions set forth below provide a separate analysis of each of the line items that comprise our
statement of income for each of the periods described below. In each case, the tables present (i) the amounts reported
by us for the comparative periods, (ii) the Euro changes and the percentage change from period to period and (iii) the
percentage change from period to period after removing the effects of changes in foreign exchange rates (“FX”), i.e.
the Euro versus Sterling, and the Euro versus the Australian Dollar. Changes in foreign currency rates have had a
significant translation impact on our reported operating results in the periods presented below, since a significant
portion of our operations have functional currencies other than the euro. As a result, we have included the percentage
change net of exchange rates in order to present operational and other changes and factors in addition to FX that
affected our business during the applicable periods. We have removed the effects of FX changes in each discussion
by identifying the exchange rate used to translate the earlier period’s non-Euro denominated results and re-translating
the later period’s non-Euro denominated results using that same rate. For the 2016 versus 2015 comparison, the
British Pound figures for the six months ended June 30, 2016 have been retranslated at €1.3655: 1 GBP (that is, the
average exchange rate that applied in the six months ended June 30, 2015). Similarly, for the 2016 versus 2015
comparison, the Australian Dollar figures for the six months ended June 30, 2016 have been retranslated at €0.7006:
1 AUD (that is, the average exchange rate that applied in the six months ended June 30, 2015).
We have not adjusted the numbers for the impact of the Polish Zloty as this is not considered to be significant.
For the six months ended June 30, 2016, the South African Rand balances have been retranslated at ZAR 0.0581:
€1.00. No results of operations for our South African business have been included in the results of the six months
ended June 30, 2015.
13
Six months ended June 30, 2016 compared to the six months ended June 30, 2015
The table below presents consolidated statement of income data, including the amount and percentage changes
for the periods indicated:
Six months ended
June 30
Amount of
Change
Percent
Change
Percent
Change
Excluding
GBP/AUS
FX (in thousands of euros) 2016 2015
Consolidated Statement of
Income Information:
Revenue ....................................................... €475,055 €488,896 (€13,841) (2.8)% 0.3%
Cost of sales ................................................. (304,228) (328,805) 24,577 (7.5)% (4.6%)
Gross profit ................................................... 170,527 160,091 10,736 6.7% 10.4%
Distribution expenses .................................. (44,456) (42,579) (1,907) 4.5% 7.1%
Administrative expenses ..............................
Before exceptional items and amortisation (45,191) (40,613) (4,578) 11.3% 15.2%
Exceptional items and amortisation ............. (11,603) (11,277) (326) 2.9% 5.4%
(56,794) (51,890) (4,904) 9.5% 13.1%
Profit from operating activities ..................... 69,547 65,622 3,925 6.0% 10.4%
Finance income ............................................ 9,233 265 8,968 3,384.2% 3,424.2%
Finance expenses .......................................... (40,758) (49,609) 8,851 (17.8)% (16.2)%
Profit before tax ............................................ 38,022 16,278 21,174 133.6% 146.9%
Income tax charge ........................................ (7,483) (5,861) (1,622) 27.7% 29.5%
Profit for the period ...................................... €30,539 €10,417 €20,122 193.2% 213.8%
Other Financial Information:
Adjusted EBITDA ........................................ €96,212 €92,844 €3,368 3.6% 7.5%
Revenue
Revenues reduced €13.8 million or 2.8% year-on-year. On a like-for-like basis (i.e. excluding the
contribution of R&R South Africa), and at constant exchange rates, revenue has fallen by €13.2 million. The
impact of average exchange rates, year-on-year, impacted revenue by €15.2 million, mainly due to the weakness
of Sterling in 2016 compared to the first half of 2015. South Africa contributed additional revenue of €14.5
million, with the Australian business also seeing year-on-year growth at constant exchange rates of €3.3 million.
The lower revenue from the European business, year-on-year, is largely the effect of poor weather
conditions during the first half of the European summer season. Northern and Central Europe was adversely
impacted with above average rainfall being recorded during the period, with both France and Germany suffering
floods during the first part of the summer season, and the early season weather in Italy also adverse compared
to 2015. Adverse weather conditions have been combined with exiting less profitable contracts in our German
business (as previously disclosed in earlier results announcements).
By geographical segment, based on our operating segment analysis in the Q2 2016 Condensed consolidated interim financial information, except as stated otherwise, was as follows:
Using constant exchange rates, UK revenues increased by €7.3 million, with strong growth in sales to
discounters and convenience stores, combined with the successful Kelly’s relaunch in Q2. Over 8% volume
growth was achieved, however the market has seen the effects of price promotions from our largest
competitor, resulting in the UK business offering incremental promotions, particularly in the retail channel.
In particular, the UK market was broadly flat (up only 0.2% in value terms in Q2 2016, versus Q2 2015).
Using constant exchange rates for each period, Australian revenues have increased €3.3m in the six months
ended June 30, 2016 compared to the six months ended June 30, 2015. Sales of indulgence range products
has driven growth in excess of the market, during the quietest quarter of the year in the local market.
German revenues showed a decline of €9.1 million in the six months ended June 30, 2016 compared to the
six months ended June 30, 2015. This was a combination of adverse weather conditions and the result of
14
exiting of less profitable contracts from April 2015 (as previously announced). However, the German
business was flat year-on-year in its branded business (despite declines in its private label business), and
showed €2.5 million growth in the Mondelēz business.
French revenues have decreased by €10.6 million year-on-year due to the adverse weather conditions during
Q2, which saw the market decline over 20% in volume terms and nearly 17% in value terms versus Q2
2015. Notwithstanding the market conditions, R&R France has seen its market share grow in the branded
segment and remain broadly flat in the private label market.
Italian revenues have also suffered due to below average weather conditions during the start of the European
summer season. Revenues decreased by €3.9 million in the six months ended June 30, 2016 compared to
the prior period, mainly from sales to large retailers, however the Italian business has continued to grow its
branded offerings year-on-year, and also grow its private label business in the discounters channel. This is
despite a market that was down more than 10% in value terms in Q2 2016 (versus Q2 2015).
Polish revenues increased €5.3 million compared to the prior period, an increase of 27% year on year. This
is mainly as a result of intercompany sales, combined with strong branded sales which were €1.9m ahead
year-on-year, with the Mondelēz range performing particularly well across all channels and customers.
South Africa contributed revenues of €14.5 million at the average exchange rate for the six months ended
June 30, 2016. Performance has benefitted from post-acquisition initiatives to grow sales and market share,
in what is a growing market. The largest contributors to sales performance has been the Country Fresh and
Farmhouse brands, with the R&R-owned brands contributing over 80% of revenues, with the remainder
made up of Nestlé-licensed products and private label.
Cost of Sales
Cost of sales reduced by €24.6 million or 7.5% to €304.2 million for the six months ended June 30, 2016 as compared to €328.8 million for the six months ended June 30, 2015. Gross margin increased 3.3 percentage points from 32.7% in the six months ended June 30, 2015 to 36.0% in the six months ended June 30, 2016. The gross margin contributed by R&R South Africa for the six months ended June 30, 2016 positively impacted the gross margin of the group by 0.6 percentage points; though the majority of the increases were due to the exiting of less profitable contracts in our German 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.
Distribution Expenses
Distribution expenses increased by €1.9 million or 4.5% to €44.5 million for the six months ended June 30, 2016 as compared to €42.6 million for the six months ended June 30, 2015. Excluding the effects of FX, distribution expenses increased €3.0 million, or 7.1%. The increase is largely attributable to the impact of R&R South Africa which has added €4.5 million to distribution costs in 2016 compared to 2015. This reflects a fairly complex distribution model which, in time, we will be looking to simplify. Excluding one-off effects and the impact of R&R South Africa, distribution costs reduced by €2.5 million including the effects of FX, or by €1.4 million excluding the effects of FX.
Administrative Expenses
Administrative expenses increased €4.9 million or 9.5% to €56.8 million for the six months ended June 30, 2016 compared to €51.9 million for the six months ended June 30, 2015. Excluding FX, our administrative expenses increased €6.8 million, or 13.1%. The increase is mainly due to the impact of R&R South Africa which has added €3.4 million to administrative expenses in 2016 compared to 2015, South African administration costs are relatively high in the first half of the year compared to the rest of the group partly reflecting its current cost base but also its southern hemisphere seasonality. It also results from an increase in advertising and promotional costs in Australia of €1.1 million, and €0.6 million in the UK, and a €0.3 million increase in exceptional operating expenses and amortisation, which includes €4.5 million of costs related to the proposed joint venture with Nestlé.
Finance Expenses
Net finance expenses decreased €17.8 million or 36.1% to €31.5 million for the six months ended June 30, 2016 as compared to €49.3 million for the six months ended June 30, 2015. This decrease is substantially due to a positive change in net foreign exchange gains / losses of €18.2 million (non-cash item).
Of the €31.5 million net finance charges (six months ended June 30, 2015: €49.3 million), €17.8 million (June 30 2015: €16.2 million) relates to non-cash interest on the subordinated shareholder loan.
Income Tax Charge
Income tax charge increased €1.6 million to a €7.5 million charge for the six months ended June 30, 2016 as compared to a €5.9 million charge for the six months ended June 30, 2015. Excluding FX, our income tax
15
charge increased €1.6 million, mainly as a result of the increasing profitability of the group.
Adjusted EBITDA
Adjusted EBITDA increased €3.4 million in the six months ended June 30, 2016 to €96.2 million compared
to €92.8 million in the six months ended June 30, 2015. This is a record performance despite an adverse impact
from unfavourable FX rates of €3.6 million and challenging weather conditions in Europe during early summer.
16
Cash Flows
The following summarises our primary sources of cash flow in the periods presented:
Six months ended
June 30 Change to Net
Cash Flow
Amount (in thousands of euros) 2016 2015
Cash generated used in:
Operating activities ............................................... (€28,777) (€6,666) (€22,111)
Investing activities ................................................ (22,459) (24,017) 1,558
Financing activities ............................................... (15,219) (12,241) (2,978)
Total ........................................................................ (€66,455) (€42,924) (€42,924)
Free cash flow before financing, acquisitions
and exceptional operating items: (€44,627) (€16,094) (€28,533)
Operating Activities
Cash generated from operating activities reduced €22.1 million to an outflow of €28.8 million for the six months ended June 30, 2016 as compared to an outflow of €6.7 million for the six months ended June 30, 2015. Cash flow has been impacted by an increase in the inventory held across the European business, increasing our inventory position by €14.7 million. The planned inventory build-up to improve service levels through the European peak season. It is affected by the settlement of a number of exceptional costs in the period, which includes costs related to the proposed joint venture with Nestlé (combined effect: €4.5 million, year-on-year).
Investing Activities
Cash used in investing activities decreased by €1.6 million to an outflow of €22.5 million for the six months
ended June 30, 2016 as compared to an outflow of €24.0 million for the six months ended June 30, 2015. This
decrease is due to the €10.7m acquisition of R&R South Africa in May 2015, offset by an increase in capex
spend in 2016 of €6.4 million reflecting continued capital investment in our manufacturing capability and
IT systems.
Financing Activities
Cash used in financing activities increased by €3.0 million to a net outflow of €15.2 million for the six
months ended June 30, 2016 as compared to a €12.2 million outflow for the six months ended June 30, 2015. This
related to a loan to Riviera Topco Limited in the six months ended June 30, 2016.
Free cash flow before financing, acquisitions and exceptional operating items
Free cash flow before financing, acquisitions and exceptional operating items worsened by €28.5 million to
an outflow of €44.6 million for the six months ended June 30, 2016 as compared to a €16.1 million outflow for
the comparative period. This is largely driven by the increase in working capital and capital expenditure year-
on-year.
R&R Ice Cream plc
Registered No. 05777981
Condensed consolidated interim financial information
(unaudited) for the six months ended
30 June 2016
2
Contents
Page
Condensed consolidated interim financial information
Condensed consolidated income statement 3
Condensed consolidated statement of comprehensive income 4
Condensed consolidated statement of changes in equity 5
Condensed consolidated statement of financial position 6
Condensed consolidated statement of cash flows 7
Notes to the condensed consolidated interim financial information 8
Condensed consolidated income statement
3
For the six months ended 30 June 2016
In thousands of Euros
Note
Before exceptional
items, amortisation and non-cash
interest
Exceptional items,
amortisation and non-cash
interest(1)
Six months ended
30 June 2016 Total
Before exceptional
items, amortisation and non-cash
interest
Exceptional items,
amortisation and non-cash
interest(1)
Six months ended
30 June 2015 Total
Revenue 1 475,055 - 475,055
488,896 - 488,896
Cost of sales (304,228) - (304,228)
(328,805) - (328,805)
Gross profit 170,827 - 170,827
160,091 - 160,091
Distribution expenses (44,486) - (44,486)
(42,579) - (42,579)
Administrative expenses (45,191) (11,603) (56,794)
(40,613) (11,277) (51,890)
Results from operating activities 81,150 (11,603) 69,547 76,899 (11,277) 65,622
Finance income 4 2 9,231 9,233
257 8 265
Finance expenses 4 (19,486) (21,272) (40,758)
(21,856) (27,753) (49,609)
Net finance costs (19,484) (12,041) (31,525)
(21,599) (27,745) (49,344)
Profit before income tax 62,075 (23,644) 38,022 55,300 (39,022) 16,278
Income tax charge 5 (7,483)
(5,861)
Profit from continuing operations
30,539 10,417
Attributable to:
Equity holders of the Company 30,539 10,417
Adjusted EBITDA 3 96,212 92,844
Note (1): in order to aid understanding of the financial results, the Directors have presented additional analysis prior to the effect of exceptional items, amortisation of intangible assets and non-cash interest income / (charges). These items are analysed in detail in note 2.
The notes on pages 8 to 27 are an integral part of this condensed consolidated interim financial information.
All operations are continuing.
Condensed consolidated statement of comprehensive income
4
For the six months ended 30 June 2016
In thousands of Euros
Six months
ended
30 June 2016
Six months
ended
30 June 2015
Profit for the period 30,539 10,417
Other comprehensive income / (expense)
Items that are or may be reclassified to profit or loss
Exchange differences on retranslation of foreign operations (27,778) 26,658
Net investment hedging 26,211 (21,335)
(1,567) 5,323
Total comprehensive income for the period 28,972 15,740
Condensed consolidated statement of changes in equity
5
For the six months ended 30 June 2016
In thousands of Euros
Share
capital
Currency
translation
Accumulated
loss
Total
equity
Balance at 1 January 2016 – as reported(a) 50,886 (21,276) (193,079) (163,469)
Prior year adjustment(a) - (411) 1,550 1,139
Balance at 1 January 2016 - restated(a) 50,886 (21,687) (191,529) (162,330)
Profit for the period - - 30,539 30,539
Exchange difference on retranslation of
foreign operations - (27,778) - (27,778)
Net investment hedging - 26,211 - 26,211
Total comprehensive income/ (expense) for
the period - (1,567) 30,539 28,972
Balance at 30 June 2016 50,886 (23,254) (160,990) (133,358)
Balance at 1 January 2015 50,886 (17,141) (226,472) (192,727)
Profit for the period - - 10,417 10,417
Exchange difference on retranslation of
foreign operations - 26,658 - 26,658
Net investment hedging - (21,335) - (21,335)
Total comprehensive income for the period - 5,323 10,417 15,740
Balance at 30 June 2015 50,886 (11,818) (216,055) (176,987)
Note (a): Restatement of prior year: Equity has been restated following the finalisation of the fair value
exercise relating to the acquisition of R&R South Africa in 2015 (see note 9).
Condensed consolidated statement of financial position
6
As at 30 June 2016
In thousands of Euros
Assets
Note
30 June
2016
30 June
2015
Restated(a)
31 December 2015
Non-current assets
Investments - 8,944 -
Property, plant and equipment 199,536 207,870 204,047
Intangible assets 577,902 628,608 607,612
Deferred tax assets 23,548 18,025 21,270
Total non-current assets 800,986 863,447 832,929
Current assets
Inventories 160,740 144,455 94,618
Current tax assets 1,412 3,529 780
Trade and other receivables 280,880 244,047 168,488
Cash and cash equivalents 48,229 22,700 108,676
491,261 414,731 372,562
Assets classified as held for sale 428 403 428
Total current assets 491,689 415,134 372,990
Total assets 1,292,675 1,278,581 1,205,919
Equity and liabilities
Equity
Share capital 50,886 50,886 50,886
Currency translation reserve (23,254) (11,818) (21,687)
Accumulated loss (160,990) (216,055) (191,529)
Total equity (133,358) (176,987) (162,330)
Non-current liabilities
Financial liabilities 6 1,056,049 1,087,925 1,084,799
Deferred tax liabilities 18,386 19,451 18,048
Provisions 7 4,566 4,251 4,741
Total non-current liabilities 1,079,001 1,111,627 1,107,588
Current liabilities
Financial liabilities 6 16,604 35,676 5,543
Trade and other payables 315,720 298,776 244,555
Current tax liabilities 7,713 2,520 3,914
Provisions 7 6,995 6,969 6,649
Total current liabilities 347,032 343,941 260,661
Total liabilities 1,426,033 1,455,568 1,368,249
Total equity and liabilities 1,292,675 1,278,581 1,205,919
Note (a): Restatement of prior year: The balance sheet at 31 December 2015 has been restated following the finalisation of the fair value
exercise relating to the acquisition of R&R South Africa in 2015 (see note 9).
These financial statements were approved by the Board of Directors on 26 August 2016 and were signed on its behalf by:
Ibrahim Najafi Director
Condensed consolidated statement of cash flows
7
For the six months ended 30 June 2016
In thousands of Euros
Note Six months
ended
30 June 2016
Six months
ended
30 June 2015
Cash flows from operating activities
Adjusted EBITDA 3 96,212 92,844
Adjustments for exceptional items (7,093) (2,580)
Operating cash flow before changes in working
capital and provisions 89,119 90,264
Increase in inventories (66,122) (56,250)
Increase in trade and other receivables (97,355) (107,948)
Increase in trade and other payables 71,010 93,723
Increase/(decrease) in provisions 171 (973)
Cash (used in)/ generated from operations (3,177) 18,816
Interest paid (20,285) (21,680)
Income tax paid (5,315) (3,802)
Net cash used in operating activities (28,777) (6,666)
Cash flows from investing activities
Interest received 2 257
Proceeds from sale of property, plant and equipment 5 63
Acquisition of subsidiary, net of cash acquired - (10,690)
Acquisition of property, plant and equipment (19,959) (13,511)
Acquisition of intangible assets (2,507) (136)
Net cash used in investing activities (22,459) (24,017)
Net cash outflow from operating and investing activities (51,236) (30,683)
Cash flows from financing activities
Funding of parent undertaking’s external PIK Toggle loan note interest 8 (11,701) (11,701)
Loan to parent undertaking 8 (3,336) -
Repayment of finance lease liabilities (182) (540)
Net cash outflow from financing activities (15,219) (12,241)
Net decrease in cash and cash equivalents (66,455) (42,924)
Cash and cash equivalents at 1 January 108,676 36,012
Effect of exchange rate fluctuations on cash held (3,992) 612
Prepaid transaction costs deducted from revolving credit facility - 134
Cash and cash equivalents at 31 March 38,229 (6,166)
Closing cash and cash equivalents reconciled by:
Cash 48,229 22,700
Revolving credit facility (10,000) (28,866)
Cash and cash equivalents at 31March 38,229 (6,166)
Memorandum:
Net cash flow from operating and investing activities (51,236) (30,683)
Acquisition of subsidiaries, net of cash acquired - 10,690
Exceptional operating items – cash flows 6,609 3,899
Free cash flow before financing, acquisitions and exceptional
operating items
(44,627) (16,094)
The notes on pages 8 to 27 are an integral part of this condensed consolidated interim financial information.
Notes to the condensed consolidated interim financial information
R&R Ice Cream plc Annual Report 8
Basis of preparation
This condensed consolidated interim financial information presents the consolidated financial records for the six months ended 30 June 2016 of R&R Ice Cream plc and its subsidiaries. The condensed consolidated interim financial information for the six months ended 30 June 2016 has been prepared in accordance with the International Accounting Standard (“IAS”) 34 ‘Interim financial reporting’ as adopted by the European Union. The condensed consolidated interim financial information for the six months ended 30 June 2016 does not constitute statutory financial statements under the definition of Section 434 of Part 15, chapter 7 of the Companies Act 2006, and does not include all of the information and disclosures required for full annual financial statements. It should be read in conjunction with the consolidated report and financial statements for the group for the year ended 31 December 2015. The condensed consolidated interim financial information has not been audited. The comparative figures for the financial year ended 31 December 2015 are not the Company’s statutory accounts for that financial year. Those accounts have been reported on by the Company’s auditors and delivered to the registrar of companies. The auditor’s report on those financial statements was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. We have changed the presentation of the condensed consolidated statement of cash flows to re-present working capital movements within cash used in operating activities. This change does not impact any totals presented from the comparative period. Going concern At 30 June 2016, the group has consolidated net liabilities of €133.4 million (30 June 2015: €177.0 million). Net liabilities are typical in private equity backed businesses largely due to the financing structure adopted and the rolling up of non-cash interest on parent company loans, which is not payable until 2110 at the earliest. In 2014, the business refinanced, securing loan notes providing absolute certainty over future interest charges until 2020. The Directors believe that the rates are competitive and reduce the exposure of the business to increases in interest rates for the medium term. This gives the Board further comfort as to the going concern status, understanding the related cash requirements and the lack of additional unknown risk. The Directors have considered this position, together with the group’s budgets and positive net current assets position, and after making appropriate enquiries, the Directors consider that the group has adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis for the preparation of this condensed consolidated interim financial information. Seasonality This condensed consolidated interim financial information was approved for issue on 26 August 2016. Except as described below, the basis of preparation and accounting policies applied in this condensed consolidated interim financial information for the six months ended 30 June 2016 is consistent with those of the annual financial information for the year ended 31 December 2015, as described in that annual financial information. For the purposes of this condensed consolidated interim financial information, it should be noted that the group’s sales are subject to significant monthly fluctuations as a result of the seasonal weather patterns experienced in our core geographical markets. As a result of these seasonal fluctuations, the group has historically made the majority of its revenue and profits in the second and third quarters of the year. However this has now reduced following the acquisition of businesses in Australia and South Africa. In the year ended 31 December 2015, we generated 63% of our sales between April 1 and September 30 (2014: 70%). The balances of inventories, trade debtors and trade creditors at 3) June each year are also higher than at the financial year end as a result of seasonal fluctuations.
Notes to the condensed consolidated interim financial information (continued)
9
Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments. The methods used to measure fair values are discussed further below. Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions
that affect the reported values of assets, liabilities, revenues and expenses. The estimates and associated
assumptions are based on historical experience and other judgements reasonable under the circumstances, the
results of which form the basis of making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from those estimates. Significant areas of
estimates and judgement for the group are:
Measurement of fair value assets and liabilities acquired as part of business combinations.
Historically, on the acquisition of businesses, significant judgements are required in respect of
the fair value of intangible assets, such as brands and customer relationships, the fair value of
Property, plant and equipment and other assets.
Discount factors and future cash flow projections used in testing for impairment of assets, in
particular in respect of brands and goodwill which have indefinite useful economic lives and are
tested annually for impairment. The impairment testing is based on value-in-use calculations,
which include estimates and assumptions in respect of future cash flows of the group, in
particular in respect of future sales, costs, growth rates and terminal values. Judgements are
also involved in the calculation of discount factors by country and for the group.
Measurement and recognition of current and deferred tax assets and provisions. The group is
subject to income tax in numerous jurisdictions. Significant judgement is required in determining
current tax liabilities and in the recognition of deferred tax assets and liabilities; and this
includes reassessing judgements formed in previous periods when circumstances change, such as
changes in legislation, dialogue with tax authorities or other factors. Where this is the case, the
judgement exercised in these matters may cause the group to alter balances from the amount
initially recognised, and such differences will impact the current and deferred income tax assets/
liabilities and credit/ charge in the period of determination. Judgement is also required in
respect of the utilisation of tax losses. Deferred tax assets are only recognised to the extent that
their utilisation is supported by future forecasts of profitability.
Adoption of new and revised standards
There have been no new accounting standards adopted by the group for the first time for the financial year
beginning 1 January 2016. The following new standards, when adopted, may have some effect on the
results or presentation of the financial statements:
IAS amendments to IAS 7 Statement of cash flows (effective date from 1 January 2017) introduces additional
disclosures to enable users of financial statements to evaluate changes in liabilities arising from financing
activities. This will require the group to disclose a reconciliation of changes in certain financial liabilities
from the opening to closing statement of financial position.
IFRS 15 Revenue from contracts (effective date from 1 January 2018) deals with revenue recognition.
Revenue is recognised when a customer obtains control of a good or service and has ability to direct its use
and obtain the benefits. The group is yet to make a detailed assessment of IFRS 15’s impact but a material
impact is not anticipated.
IFRS 9 Financial instruments (effective date from 1 January 2019) addresses the classification,
measurement, and recognition of financial assets and liabilities. The group is yet to make a detailed
assessment of IFRS9’s full impact on classifications and disclosure of financial assets and liabilities but a
material impact is not anticipated.
Notes to the condensed consolidated interim financial information (continued)
R&R Ice Cream plc Annual Report 10
Basis of consolidation
Business combinations
The group accounts for business combinations using the acquisition method when control is
transferred to the group. Subsidiaries are entities controlled by the group. The group controls an
entity when it is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity. In assessing control,
the group takes into consideration potential voting rights that are currently exercisable. The
acquisition date is the date on which control is transferred to the acquirer. The financial
statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
The accounting policies of subsidiaries have been changed when necessary to align them with the
policies adopted by the group. Losses applicable to the non-controlling interests in a subsidiary are
allocated to the non-controlling interests even if doing so causes the non-controlling interests to
have a deficit balance.
The consideration transferred in an acquisition is generally measured a fair value, as are the
identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any
gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are
expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre existing
relationships. Such amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to
pay contingent consideration that meets the definition of a financial instrument is classified as
equity, then it is not remeasured and settlement is accounted for within equity. Otherwise,
subsequent changes in the fair value of contingent consideration are recognised in profit or loss.
If share based payment awards (replacement awards) are required to be exchanged for awards held
by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the
acquirers replacement awards is included in measuring the consideration transferred in the business
combination. This determination is based on the market-based measure of the replacement awards
compared with the market-based measure of the acquiree’s awards and the extent to which the
replacement awards relate to pre-combination service.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-
group transactions, are eliminated. Unrealised gains arising from transactions with equity-
accounted investees are eliminated against the investment to the extent of the Group’s interest in
the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
Foreign currency
The functional currency of each group company is the currency of the primary economic
environment in which the group company operates. The financial statements are presented in Euros
which is the functional and presentational currency of the group.
Transactions denominated in foreign currencies are translated into the functional currency of each
group company at the exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated into Euros at the rate of exchange ruling
at the balance sheet date. Foreign exchange gains and losses arising on the settlement of such
transactions and translation of monetary assets and liabilities are recognised in the income
statement.
Notes to the condensed consolidated interim financial information
(continued)
11
On consolidation, the financial statements of subsidiaries with a functional currency other than Euro
are translated into Euros as follows:
The assets and liabilities in their balance sheets plus any goodwill are translated at the rate
of exchange ruling at the balance sheet date.
The income statements and cash flow statements are translated at the average rate of
exchange for the year.
Currency translation movements arising on the translation of the net investments in foreign
subsidiaries are recognised in the currency translation reserve, which is a separate
component of equity.
Hedge of a net investment in foreign operation
The group applies hedge accounting to foreign currency differences arising between the functional
currency of the net assets of the UK and Australian operations and the group’s functional currency
(Euro).
To the extent that the hedge is effective, foreign currency differences arising on the translation of
a financial liability designated as a hedge of a net investment in a foreign operation are recognised
in and accumulated in the currency translation reserve; any remaining differences are recognised in
profit or loss. When the hedged net investment is disposed of, the relevant amount in the
translation reserve is transferred to profit or loss as part of the gain or loss on disposal.
Other accounting policies
Revenue
Revenue from the sale of goods is measured at the fair value of the consideration received or
receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is
recognised when the significant risks and rewards of ownership have been transferred to the buyer
(which is generally when the goods are despatched), recovery of the consideration is probable, the
associated costs and possible return of goods can be estimated reliably, and there is no continuing
management involvement with the goods.
Taxation
Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is
recognised in the income statement except to the extent that it relates to items recognised directly
in equity, in which case it is recognised in equity.
Deferred tax is recognised using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognised for the following temporary
differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable
profit, and differences relating to investments in subsidiaries and jointly controlled entities to the
extent that they probably will not reverse in the foreseeable future. The amount of deferred tax
provided is based on the carrying amount of assets and liabilities, using the prevailing tax rates.
The deferred tax balance has not been discounted.
Current tax is the expected tax payable on the taxable income for the period, using prevailing tax
rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in
respect of previous years.
Employee benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in
the income statement when they are due.
The group recognises within provisions its obligations in respect of French retirement benefits,
Italian termination benefits, Australian employment benefits and South African retirement benefits
and post-retirement medical benefits, which are set out in more detail in note 7. In general the
Notes to the condensed consolidated interim financial information
(continued)
12
obligation in respect of these benefits is calculated based on future benefits earned in return for
their service in current and prior periods, discounted to present value. The discount rate is the yield
at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of
the group’s obligations. Any actuarial gains or losses are recognised directly in equity.
Share-based payments
For cash settled share-based payment transactions, the fair value of the amount payable to the
employee is recognised as an expense with a corresponding increase in liabilities. The fair value is
initially measured at grant date and spread over the period during which the employees become
unconditionally entitled to payment. The fair value is measured based on an option pricing model
taking into account the terms and conditions upon which the instruments were granted. The
liability is revalued at each balance sheet date and settlement date with any changes to fair value
being recognised in the Condensed consolidated income statement.
For equity settled share based payment transactions, the fair value of the amount payable to the
employee is measured at the date of grant and is recognised as an expense with a corresponding
increase in equity. The fair value is based on an option pricing model taking into account the terms
and conditions upon which the instruments were granted.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses.
Depreciation on property, plant and equipment is provided using the straight line method to write
off the cost less any estimated residual value, as follows:
Land nil depreciation nil depreciation
Buildings 40-50 years 2% - 2½%
Plant and equipment 3-15 years 6.67% - 33.33%
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
Leased assets
Assets financed by means of a finance lease are treated as if they had been purchased outright and
the corresponding liability to the leasing company is included as an obligation under finance leases.
Depreciation on such assets is charged to the income statement, in accordance with the stated
accounting policy, over the shorter of the lease term or the asset life. The finance element of
payments to leasing companies are calculated so as to achieve a constant rate of interest on the
remaining balance over the lease term, and charged to the income statement accordingly.
Amounts payable under operating leases are charged to operating expenses on a straight line
accruals basis over the lease term.
Intangible assets
An intangible asset acquired as part of a business combination is recognised outside of goodwill if
the assets are separable or arises from contractual or other legal rights and its fair value can be
measured reliably. Following initial recognition, the historic cost model is applied, with intangibles
being carried at cost less accumulated amortisation and impairment losses.
Notes to the condensed consolidated interim financial information
(continued)
13
Intangible assets with a finite life have no residual value and are amortised on a straight line basis
over their useful lives with charges included in cost of sales, distribution expenses and
administrative expenses as appropriate as follows:
Customer relationships 10-20 years 5% - 10%
Brands and trademarks 20 years 5%
Licences 10-20 years 5%-10%
Recipes 2-3 years 33.33% - 50%
Computer software and development costs 3-10 years 10% - 33.33%
The valuation methodologies in arriving at values for intangible assets on acquisition of subsidiaries
are as follows:
Customer relationships – Multi-period excess earnings
Brands and trademarks - Royalty relief
Recipes – Cost to recreate
Acquired brands are initially valued using discounted cash flow models. Certain brands are not
amortised as the group believes that the value of those brands is maintained indefinitely. These
brands are tested annually for impairment. Acquired software licences and software developed in
house are capitalised on the basis of the costs incurred to acquire and bring into use the specific
software.
The carrying value of intangible assets is reviewed for impairment wherever events or changes in
circumstances indicate the carrying value may not be recoverable.
Impairment
The carrying amounts of the group’s assets, other than inventories and deferred tax assets, are
reviewed at each balance sheet date to determine whether there is any indication of impairment. If
any such indication exists, the asset’s recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet
available for use, the recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating
unit exceeds its recoverable amount. Impairment losses are recognised in the Condensed
consolidated income statement.
Impairment losses recognised in respect of cash-generating units (not relating to other intangible
assets specifically) are allocated first to reduce the carrying amount of any goodwill allocated to
cash-generating units and then, to reduce the carrying amount of the other assets in the unit on a
pro rata basis. A cash-generating unit is the group of assets identified on acquisition that generate
cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The recoverable amount of assets or cash-generating units is the greater of their fair value less
costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does
not generate largely independent cash inflows, the recoverable amount is determined for the cash-
generating unit to which the asset belongs.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, an impairment
loss is reversed if there has been a change in the estimates used or a change in market factors used
to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Notes to the condensed consolidated interim financial information
(continued)
14
Inventories
Inventories are stated at the lower of cost and net realisable value. Work in progress comprises
direct materials, labour costs, site overheads and other attributable overheads.
Trade and other receivables
Trade and other receivables are held at cost less any impairment in realisable value.
The group sells certain of its trade receivables through factoring and invoice discounting
arrangements. These arrangements are without recourse to the seller. Consequently, these
transactions meet IAS 39 requirements for asset derecognition, since the risks and rewards have
been substantially transferred.
Cash and cash equivalents
Cash and cash equivalents are defined as cash balances in hand and at the bank (including short
term cash deposits). The group routinely utilises short term credit facilities, which are repayable on
demand, as an integral part of its cash management policy. Offset arrangements across the group
business have been applied to arrive at the cash figure.
Non-current assets held for sale and discontinued operations
A non-current asset or a group of assets containing a non-current asset (a disposal group) is
classified as held for sale if its carrying amount will be recovered principally through sale rather
than through continuing use, it is available for immediate sale and sale is highly probable within one
year.
On initial classification as held for sale, non-current assets and disposal groups are measured at the
lower of previous carrying amount and fair value less costs to sell with any adjustments taken to
profit or loss. The same applies to gains and losses on subsequent remeasurement although gains are
not recognised in excess of any cumulative impairment loss. Any impairment loss on a disposal group
is first allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except
that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets
and investment property, which continue to be measured in accordance with the group’s accounting
policies.
Bank and other borrowings
Interest bearing borrowings, bank and other borrowings are carried at amortised cost. Finance
charges, including issue costs, are charged to the income statement using an effective interest rate
method.
Trade and other payables
Trade payables on normal terms are not interest bearing and are stated at their nominal value.
Provisions
A provision is recognised in the balance sheet if, as a result of a past event, the group has a present
legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability.
Operating segments
An operating segment is a component of the group that engages in business activities from which it
may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the group’s other components. The operating segments are determined on a
geographical basis, which reflects the group’s management and internal reporting structure.
Turnover, including intercompany sales, and adjusted EBITDA are the measures which are reviewed
regularly by the Management Board of the group (considered the Chief Operating Decision Maker
under IFRS 8) to make decisions about resources to be allocated to each segment and to segment
performance, and for which discrete financial information is available.
Notes to the condensed consolidated interim financial information
(continued)
15
Non-IFRS measures
Exceptional items
The group presents as exceptional items, on the face of the income statement, those material
items of income or expense which, because of the nature and expected infrequency of the events
giving rise to them, merit separate presentation. This allows users of the accounts to better
understand the elements of financial performance in the period, so as to better assess trends in
financial performance.
EBITDA, Adjusted EBITDA and Pro Forma EBITDA
Management uses EBITDA, Adjusted EBITDA and Pro Forma EBITDA to monitor the ongoing
performance of the group. EBITDA is defined as earnings before interest charges, taxation,
depreciation and amortisation. Adjusted EBITDA also excludes any other exceptional items and
parent company or investor management charges. Pro forma EBITDA also includes an adjustment
for management’s assessment of pre-acquisition trading performance for businesses acquired mid-
year.
Fair values
Determination of fair values
A number of the group’s accounting policies and disclosures require the determination of fair value,
for both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and / or disclosure purposes based on the following methods.
Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination is
based on market values. The market value of property is the estimated amount for which a
property could be exchanged on the date of valuation between a willing buyer and a willing seller
in an arm’s length transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion. The market value of items of plant and
equipment is based on the quoted market prices for similar items or depreciated replacement cost
where quoted market prices are not available.
Intangible assets
The fair value of intangible assets is calculated using methods which reflect the value that the group
would have paid for the assets in an arm’s length transaction. Such methods include where
appropriate, discounting estimated future net cash flows from the asset and applying multiples to
royalty streams that could be obtained by licensing the intangible asset.
Inventories
The fair value of inventories acquired in a business combination is determined based on its
estimated selling price in the ordinary course of business less the estimated costs of completion and
sale, and a reasonable profit margin based on the effort required to complete and sell the
inventory.
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of the amounts to be
received, determined at appropriate interest rates less allowance for bad debts. Discounting has not
been applied to current receivables.
Contingent liabilities From time to time in the normal course of trading, the group may become subject to claims. The nature of claims means they can take a long time to resolve. It is the group’s policy to investigate claims, and in the event a financial settlement is considered probable and the amount reliably estimable provision is made.
Notes to the condensed consolidated interim financial information
(continued)
16
Financial instruments
The fair value of interest rate and foreign exchange derivatives is the estimated amount that the
group would receive or pay to terminate the derivative at the balance sheet date, taking into
account current interest rates and foreign exchange rates and the current creditworthiness of the
derivative counterparties.
Trade and other payables
The fair value of trade and other payables is estimated as the present value of the amounts to be
paid, determined at appropriate interest rates. Discounting has not been applied to current
payables.
Notes to the condensed consolidated interim financial information
(continued)
17
1. Operating Segments
The results of the group under the key management reporting segments as reported to the
Management Board of the group are as follows:
In thousands of Euros
Six months
ended
30 June 2016
Six months
ended
30 June 2015
Revenue
- UK 155,623 137,125
- Australia 88,880 88,724
- Germany 99,837 108,961
- France 79,012 89,666
- Italy 51,075 54,960
- Poland 25,339 20,026
- South Africa 15,588 -
- Intra-group (29,802) (25,112)
- Sub-total as reported to management 485,552 474,350
- Reconciling item - actual exchange rates(1) (10,527) 14,499
- Reconciling items - other(2) 30 47
475,055 488,896
Adjusted EBITDA
- UK 40,175 32,564
- Australia 17,670 15,438
- Germany 15,386 16,941
- France 10,437 11,532
- Italy 8,846 9,249
- Poland 5,780 3,832
- South Africa 385 -
- Sub-total as reported to management 98,679 89,556
- Reconciling item - actual exchange rates(1) (2,449) 3,333
- Reconciling items - other(2) (18) (45)
96,212 92,844 Note (1): This item illustrates the impact of translating the results of subsidiaries which report in currencies other than EUR (GBP, A$, PLN and ZAR) to the average rate for the period under IFRS, rather than the budgeted exchange rate used in the management accounts. Note (2): This item includes presentation differences between the management accounts and the group accounts.
See note 3 for a reconciliation of Adjusted EBITDA to the profit for the period.
Notes to the condensed consolidated interim financial information
(continued)
18
2. Exceptional items, amortisation and non-cash interest
The table below shows an analysis of the items separately disclosed on the face of the Condensed
consolidated income statement.
In thousands of Euros
Six months
ended
30 June 2016
Six months
ended
30 June 2015
Exceptional operating items
Froneri joint venture costs (4,549) -
Restructuring and redundancy costs (1,267) (1,009)
One-off legal and professional fees (1,014) (228)
Acquisition costs (263) (1,343)
Total exceptional operating items (7,093) (2,580)
Amortisation and impairments
Impairment of intangible assets - (2,833)
Amortisation of intangible assets (4,510) (5,864)
Total impairments and amortisation (4,510) (8,697)
Total exceptional operating items and amortisation (11,603) (11,277)
Non-cash interest
Accrued but unpaid interest to parent undertaking (17,752) (16,195)
Net foreign exchange gains/(losses) 8,942 (9,233)
Movement in fair value of derivatives (2,003) (873)
Amortisation of transaction costs (1,228) (1,444)
Total non-cash interest (12,041) (27,745)
Total exceptional items, amortisation and non-cash
interest
(23,644) (39,022)
Analysed as:
Cash items (7,093) (2,580)
Non-cash items (16,551) (36,442)
Total exceptional items and non-cash interest (23,644) (39,022)
The total of exceptional operating items and amortisation of €11.6 million is included in
administrative expenses (six months ended 30 June 2015: €11.3 million).
Notes to the condensed consolidated interim financial information
(continued)
19
2. Exceptional items, amortisation and non-cash interest (continued)
Froneri joint venture costs In the six months ended 30 June 2016 we have continued to incur costs (€4.5 million) in respect of our proposed joint venture with Nestle (“Froneri”). On 27 April 2016 we announced that agreement had been reached in respect of the proposed joint venture between our two businesses (see note 10).
Restructuring and redundancy costs
We have continued to incur costs in respect of the consolidation and integration of the group’s
operations.
One-off legal and professional fees
This represents one off legal and professional fees which have been classified as exceptional on the
grounds of their magnitude or incidence.
Acquisition costs
This represents due diligence expenses and other professional fees in respect of acquisitions,
whether successful or unsuccessful.
3. Profit for the period reconciliation to Adjusted EBITDA
In thousands of Euros
Six months
ended
30 June
2016
Six months
ended
30 June
2015
Profit for the period 30,539 10,417
Adjustments for:
Taxation 7,483 5,861
Net finance costs 31,525 49,344
Result from operating activities 69,547 65,622
Adjustments for:
Depreciation of property, plant and equipment 15,067 16,008
Amortisation of intangible assets (note 2) 4,510 5,864
Impairments of intangible assets (note 2) - 2,833
Gain on disposal of plant, property and equipment (5) (63)
Operating cash flow before changes in working capital
and provisions 89,119 90,264
Adjustments for exceptional operating items (note 2) 7,093 2,580
Adjusted EBITDA prior to parent company
management charges 96,212 92,844
Notes to the condensed consolidated interim financial information
(continued)
20
3. Profit for the period reconciliation to Adjusted EBITDA (continued)
Memo: Reconciliation of Result from operating activities to Result from operating activities
before exceptional items and amortisation (“EBITA”) and Adjusted EBITDA prior to parent
company management charges:
In thousands of Euros
Six months
ended
30 June 2016
Six months
ended
30 June 2015
Result from operating activities 69,547 65,622
Adjustments for:
Amortisation of intangible assets 4,510 5,864
Impairment of intangible assets - 2,833
Exceptional operating items 7,093 2,580
Result from operating activities before exceptional items and
amortisation (“EBITA”) 81,150 76,899
Adjustments for:
Depreciation of property, plant and equipment 15,067 16,008
Gain on disposal of plant, property and equipment (5) (63)
Adjusted EBITDA prior to parent company management charges 96,212 92,844
4. Finance income & expenses
In thousands of Euros Six months
ended
30 June 2016
Six months
ended
30 June 2015
Finance income Foreign exchange gains 9,231 8
Other finance income 2 257
9,233 265
Finance expenses Interest accruing to parent undertakings (17,752) (16,195)
Interest expense on senior secured loan notes (18,746) (19,707)
Amortisation of transaction costs (1,228) (1,444)
Foreign exchange losses (289) (9,241)
Loss on fair value of derivatives (2,003) (873)
Other finance expenses (740) (2,149)
(40,758) (49,609)
Net finance costs (31,525) (49,344)
Included in finance income and expenses are net foreign exchange gains of €8.9 million (six months ended 30 June 2015: losses €9.2 million). These include unrealised gains (six months ended 30 June 2015: losses) on the retranslation of the £315 million senior secured loan notes which are not taken to reserves as part of net investment hedging or offset by unrealised foreign exchange gains arising elsewhere.
Notes to the condensed consolidated interim financial information
(continued)
21
5. Income tax charge
In thousands of Euros Six months
ended
30 June 2016
Six months
ended
30 June 2015
Current tax charge
Current period 8,926 6,693
Adjustments for prior periods - (80)
Total current tax charge 8,926 6,613
Deferred tax credit
Origination and reversal of temporary differences (1,443) (900)
Adjustments for prior periods - 148
Total deferred tax credit (1,443) (752)
Total income tax charge 7,483 5,861
Reconciliation of effective tax rate
In thousands of Euros
Six months
ended
30 June 2016
Six months
ended
30 June 2015
Profit for the period before income tax 38,022 16,278
Total income tax using UK domestic corporation tax rates 7,604 3,296
Non-taxable income (3,065) (2,744)
Non-deductible interest costs 379 2,414
Foreign exchange losses not tax deductible (204) 623
Other non-taxable income/ non-deductible costs (20) (83)
Impact of a change of tax rate on deferred tax (162) -
Over accrued in prior periods – current tax - (80)
Under accrued in prior periods – deferred tax - 148
Difference between local tax rates and UK standard rate 2,951 2,287
7,483 5,861
Notes to the condensed consolidated interim financial information
(continued)
22
6. Financial liabilities
In thousands of Euros 30 June 2016 30 June 2015 Non-current liabilities
2020 €150 million senior secured notes 150,000 150,000 2020 £315 million senior secured notes 397,827 444,717 2020 A$152 million senior secured notes 101,855 104,910
631,682 699,627 Less: deferred transaction costs (8,321) (10,703)
623,361 688,924 Finance leases 14,872 15,859 Other financial liabilities 1,292 818 Derivative financial instruments - 16 Loan from parent undertakings 416,524 382,308
Total non-current liabilities 1,056,049 1,087,925
Current liabilities Revolving credit facility 10,000 29,000 Less deferred transaction costs - (134)
10,000 28,866 Senior secured notes accrued interest 4,554 5,032 Current portion of finance leases 549 427 Derivative instruments 1,501 1,351
Total current liabilities 16,604 35,676
Total financial liabilities 1,080,974 1,134,438 Less: deferred transaction costs (8,321) (10,837)
Total financial liabilities 1,072,653 1,123,601
Summary of net debt
In thousands of Euros 30 June 2016 30 June 2015
Fixed rate third party
Senior secured notes 631,682 699,627 Senior secured notes accrued interest 4,554 5,032
636,236 704,659 Finance leases 15,421 16,286 Other financial liabilities 1,292 818
Total fixed rate third party 652,949 721,763 Floating rate third party Revolving credit facility 10,000 29,000 Cash (48,229) (22,700) Factored borrowings (non-recourse) 29,548 41,570
Total floating rate third party (8,681) 47,870
Total third party net debt 644,268 769,633 Other Prepaid transaction costs (8,321) (10,837) Parent company loans 416,524 382,308
Total net debt 1,052,471 1,141,104
Notes to the condensed consolidated interim financial information
(continued)
23
6. Financial liabilities (continued)
Reconciliation from financial liabilities to net debt
In thousands of Euros 30 June 2016 30 June 2015
Total financial liabilities 1,072,653 1,123,601 Cash (48,229) (22,700) Factored borrowings (non-recourse) 29,548 41,570 Derivative financial instruments (1,501) (1,367)
Total net debt 1,052,471 1,141,104
The derivative financial instruments fall into level two of the fair value hierarchy since their
valuation is derived from observable market prices.
7. Provisions
In thousands of Euros Legal
Provisions
Employment
Provisions
Factory
Closures
Total
Balance at 1 January 2015 900 10,010 1,145 12,055
Provisions created in the period - 344 - 344
Provisions used in the period (893) - (424) (1,317)
Foreign currency adjustment - 138 - 138
Balance at 30 June 2015 7 10,492 721 11,220
Balance at 1 January 2016 - 10,854 536 11,390
Provisions created in the period - 1,346 - 1,346
Provisions used in the period - (1,098) (114) (1,212)
Foreign currency adjustment - 37 - 37
Balance at 30 June 2016 - 11,139 422 11,561
Analysed as:
30 June 2015
Payable within one year 7 6,247 721 6,969
Payable in more than one year - 4,251 - 4,251
7 10,492 721 11,220
30 June 2016
Payable within one year - 6,573 422 6,995
Payable in more than one year - 4,566 - 4,566
- 11,139 422 11,561
Notes to the condensed consolidated interim financial information
(continued)
24
7. Provisions (continued)
Employment provisions
Rolland SAS and Pilpa SAS hold provisions in respect of lump sum payments on retirement granted to
all employees under French law, based on their seniority in the company, and their current level of
remuneration. The remuneration is paid to all employees when they reach retirement age, 60 to 65,
depending on when they commenced working. Cash outflows from this provision are not expected
to be significant over the next three years. The balance as at 30 June 2016 was €3.2 million (30
June 2015: €3.1 million).
Until December 2006, Eskigel Srl was required to withhold a percentage of all employees’ salaries in
a provision called Trattamento di Fine Rapporto, or TFR. It is paid to employees when their period
of employment ceases. Since January 2007, following a change of law, a portion of salary is still
retained but is now paid to the Italian tax authority on a monthly basis. The TFR provision
represents the residual obligation for the benefit accruing to employees until 31 December 2006.
This provision is a long-term employee benefit scheme. Cash outflows from this provision are not
anticipated to be significant over the next three years. The balance as at 30 June 2016 was €0.4
million (30 June 2015: €0.5 million).
In Australia, Peters hold provisions in respect of employee long service leave and leave entitlement.
Employees are entitled to 13 weeks of holiday after 15 years of service. Employees are entitled to
a pro rate payment if they leave employment after 7 years. The balance as at 30 June 2016 was
€6.7 million (30 June 2015: €6.9 million).
In South Africa provisions are recognised in respect of post-retirement medical benefits for certain
employees (30 June 2016: €0.8 million) (30 June 2015: €nil). In addition certain employees are
members of the Nestlé South Africa defined benefit pension scheme, for which R&R South Africa are
required to contribute (30 June 2016: €57 thousand) (30 June 2015: €nil). Total provisions at 30
June 2016 was €0.9 million (30 June 2015: €nil).
Factory closures
In the year ended 31 December 2013, the group initiated the closure of three of its factories.
Provision was made for the expected further costs of closure. The majority of cash outflows
associated with these provisions was realised during 2014. It is anticipated that the remaining cash
outflows will be during 2016 and 2017.
8. Related parties
Immediate parent undertaking
At 30 June 2016 and 2015, the immediate parent company of R&R Ice Cream plc was New R&R Ice
Cream Limited, a private company incorporated in England and Wales, and its ultimate parent
company in the UK was Riviera Topco Limited, company incorporated in England and Wales.
Ultimate parent undertaking
At 30 June 2016 and 2015 the group was owned by PAI Partners SAS and funds managed by PAI
Partners SAS, a private equity firm based in Paris, France.
At 30 June 2016 and 2015 the ultimate parent undertaking of R&R Ice Cream plc was Riviera Topco
S.à r.l. A company incorporated in Luxembourg.
The largest group of undertakings for which group accounts are prepared is Riviera Midco S.A, a
company incorporated in Luxembourg. Riviera Midco S.A. is an immediate subsidiary of Riviera
Topco S.à r.l.
Notes to the condensed consolidated interim financial information
(continued)
25
8. Related parties (continued)
Related party transactions
The following balances are outstanding in relation to transactions with related parties:
The following transactions relating to the related party balances:
At 30 June 2016, the group owed €416.5 million (30 June 2015: €382.3 million) in long term loans and unpaid interest to New R&R Ice Cream Limited. The loan accrues interest at 8.92% and is due to mature in 2110.
Outstanding balances other than the above loan are interest free and are repayable on demand.
Key Management personnel compensation Key management personnel compensation comprised short term employee benefits of €0.5 million (six months ended 30 June 2015: €0.8 million). Key management personnel are defined as the group directors as at 30 June 2016.
In thousands of euros
30 June 2016
31
December
2015 30 June 2015
Trade and other receivables
R&R PIK PLC
34,836
23,135
11,434
New R&R Ice Cream Limited 1,711 1,923 1,545
Riviera Topco Limited 3,336 - -
Riviera Midco S.A. 4 4 -
Trade and other receivables due from related parties 39,886 25,062 12,979
Trade and other payables
R&R PIK PLC
(307)
(346)
(7,284)
New R&R Ice Cream Limited (61,624) (61,624) (54,813)
Riviera Acquisitions Limited (16,201) (18,046) (15,912)
Riviera Topco Limited - - -
Trade and other payables due to related parties (78,132) (80,016) (78,009)
Loans
Interest bearing loan from New R&R Limited (416,524) (398,771) (382,308)
Loan from parent undertakings (416,524) (398,771) (382,308)
In thousands of euros Six months
ended
30 June
2016
Six months
ended
30 June
2015
Payment of PIK Toggle interest 11,701 11,701
Interest on loan from parent undertakings (17,752) (16,195)
Loan to Riviera Topco Limited 3,336 -
Management charges and funding transactions 1,578 (507)
Other (including foreign exchange on translation) 92 (936)
(1,045) (5,937)
Notes to the condensed consolidated interim financial information
(continued)
26
9. Acquisition of subsidiaries
Business acquisition – South Africa
On 4 May 2015, the group acquired Nestle South Africa’s ice cream business and certain assets and liabilities for a total consideration of €8.6 million. This included €3.8 million for the acquisition of certain brands and trademarks which were acquired separately from the acquisition of the ice cream business. The business, based in Johannesburg, manufactures iconic brands such as Country Fresh, King Cone and Eskimo Pie.
As at 30 June 2015 the group did not consolidate the balance sheet or trading performance of R&R South Africa, which was the acquisition vehicle, due to the ongoing carve out of the business from Nestlé. As a result, the group recognised consideration paid to Nestlé, including some temporary working capital adjustments, of €8.9 million as an investment in the 30 June 2015 balance sheet.
R&R South Africa was consolidated in the group’s financial statements for the year ended 31 December 2015. The acquisition balance sheet of South Africa is shown below. Fair value adjustments have been made to certain of the assets and liabilities, and the excess of net identified assets and liabilities recognised, has resulted in negative goodwill. The fair value exercise has been finalised, resulting in changes to certain acquisition balance sheet values previously disclosed. The finalised acquisition balance sheet is set out below.
Pre-acquisition Fair
carrying Fair value values on
In thousands of euros amounts adjustments acquisition
Property, plant and equipment 12,098 (6,044) 6,054 Intangible assets 3,839 - 3,839 Inventories 2,782 (419) 2,363 Trade and other receivables 3,477 - 3,477 Deferred tax liabilities - (827) (827) Current liabilities - Trade and other payables
(3,212) - (3,212)
Provisions (1,011) - (1,011)
Net identifiable assets and liabilities 17,973 (7,290) 10,683
Negative goodwill on acquisition (2,125)
Total cash consideration 8,558
Net cash outflow on acquisition (8,558)
Fair value adjustments
Management reviewed the fair value of the land and buildings based on market values. This
included significant judgements in respect to sales value. Plant and machinery was valued based on
depreciated replacement cost. The finalisation of both of these exercises has resulted in a fair
value of €6.1 million compared to our initial estimate of €3.1 million at 31 December 2015, and the
pre-acquisition balance sheet value of €12.1 million. A related deferred tax liability of €0.8m has
also been recognised.
Negative goodwill
Exceptional income from negative goodwill of €2.1m has been recognised in accumulated losses at
31 December 2015.
Notes to the condensed consolidated interim financial information
(continued)
27
9. Acquisition of subsidiaries (continued)
Impact on 2016 opening balance sheet
As a result of the finalisation of the fair value exercise, a prior year adjustment has been
recognised at 31 December 2015, to adjust for both the impact on the acquisition balance sheet,
and the consequential impact on the balance sheet at 31 December 2015. The prior year
adjustment is set out below:
Other
During the six months ended 30 June 2015 the group paid deferred consideration of €1.7 million in
respect of its Durigon business acquired in 2011. As a result the group recognised a total cash out
flow net of acquisitions in the cash flow statement for the six months ended 30 June 2015 of €10.7
million.
10. Material events
Nestlé and R&R to create Froneri, an ice cream and frozen food joint venture
On 5 October 2015, we announced that R&R was in advanced discussions with Nestlé to set up a
new joint venture covering ice cream based mainly in Europe and Africa. On 27 April 2016 we made
a further announcement setting out our agreement with Nestlé to set up Froneri, a joint venture
with sales of approximately €2.5 billion in over 20 countries employing about 15,000 people.
Froneri will be headquartered in the UK and 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 certain closing conditions.
Financial details are not being disclosed.
There is no effect of this transaction, aside from the charges disclosed in note 2, in these
condensed consolidated interim financial statements.
In thousands of euros 31 December
2015
Property, plant and equipment 1,708
Deferred tax liabilities (569)
1,139
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