Froneri provides its mid-year update for the six months ended 30 June 2020

Above budget performance for the first two months of the year. Since March, COVID-19 impact in the out-of-home (‘OOH‘) channel partially offset by strong Retail growth. Froneri’s sales are c.30% OOH and c.70% Retail. US acquisition out-performing expectations, transformation and integration under way.

Highlights

Financial performance

• Market share gains in Top 7 pre-existing Froneri markets (6 x Europe + Australia)

• Acquisition of Dreyer’s, Nestlé’s US ice cream business, and Puerto Rico (‘PR’) business completed on 31 January 2020

• Both the “pre-existing Group” and US/PR businesses above budget sales and EBITDA for the first two months of the year

• Impact of COVID-19 on OOH markets partially offset by strong Retail growth as consumers switch channels as a result of lockdown restrictions

• Profitability impacted by loss of OOH sales and increased Retail sales at relative lower margins, but proactive steps taken to mitigate this through tight control of overheads

• Recent acquisitions (Nestlé US, Nestlé Israel and Tip Top (New Zealand)) all performing in line with or above expectations, and providing additional downside protection against COVID-19 impact

• Strong cash position at 30 June 2020 and the group’s €600m RCF facility is fully undrawn due to aggressive management of working capital

Operational performance

• As a food manufacturer, none of our operations have been required (by law) to shut down despite various lockdown restrictions having been enforced

• Various initiatives implemented to reduce the risk of COVID-19 spread

• Capacity and production monitored carefully to ensure the ability to maintain supply while keeping people safe

• Transformation and integration of US business under way

• Southern Hemisphere growth continues to diversify earnings including acquisition of Tip Top in New Zealand in 2019

• Non-critical capex projects put on hold to protect liquidity during the pandemic

Performance review

On 31 January 2020, Froneri completed the acquisition of Nestlé’s US ice cream business (Dreyer’s), propelling Froneri to be the second largest ice cream manufacturer globally and marking its first entry into the US ice cream market. Dreyer’s consists of a portfolio of iconic brands including Häagen-Dazs, Drumstick, Outshine, Dreyer’s and Skinny Cow. Integration is ongoing, with some cost savings and synergies already realised in the five months since acquisition. To fund the acquisition and refinance the existing term loan facilities, Froneri entered into a new €6.2bn equivalent financing package including EUR and USD senior term loan facilities, EUR and USD second lien term loan facilities, USD shareholder loan and a new multi-currency revolving credit facility (‘RCF’). At the end of Q2, the €600m RCF was undrawn.

Froneri’s performance in January and February was strong, with above budget sales and EBITDAE. The impact of COVID-19 commenced in March when the majority of our countries entered lockdown. The travel restrictions and impact on tourism have resulted in customer closures in the OOH and Hotel, Restaurant and Catering (‘HoReCa’) channels. Being a food manufacturer, no operations have been required (by law) to shut down and there have been no major material supply chain or logistics challenges as a result of the pandemic.

Sales have been adversely affected by COVID-19, particularly in countries where sales are predominantly in the OOH channel including Spain, Germany, Erlenbacher and Italy. However, Froneri has benefited from growth in the Retail market during the lockdown restrictions, particularly in US, UK, Germany, Australia and Switzerland. A-Brand sales have performed well, despite the impact of COVID-19 on sales, now representing 46% of total sales, up from 26% in FY19.

Profits have been negatively impacted by the channel shift with Retail sales typically at a lower selling price than OOH and the impact of higher fixed costs in those OOH markets with direct store delivery route-to-market models. Decisive action at the start of the pandemic has resulted in reduced overheads including marketing support and selling costs, where non-committed marketing activities on non-critical plans were put on hold. Other initiatives have been implemented to mitigate the impact of COVID-19 including the reduction of production volumes to manage storage costs and stock obsolescence risks, temporary factory shut-downs and headcount reductions, use of annual leave, utilisation of government support and tight management of overheads.

The transformation programme for the pre-existing Group is substantially complete, with Switzerland transferred onto Froneri’s IT and reporting systems in Q4 2019, and Germany and Austria in the first half of 2020. New Zealand and Israel (acquired in 2019), are both performing in line with or above expectations and are expected to be transferred from legacy systems in 2021.

Q3 continues to be impacted by COVID-19. While some restrictions have been lifted, travel and tourism are still lower than normal and many OOH and HoReCa outlets remain closed. COVID-19 cases are increasing again across the world creating uncertainty and will continue to impact countries to differing extents. Management continues to assess the impact of the pandemic on the business and to ensure initiatives are in place to mitigate P&L downside and to manage cash.

Notes for editors:

Froneri is a fast-growth international business with a vision to build the world’s best ice cream company. A passionate challenger brand, we are building the market through a focus on ice cream, delivering value for retailers and consumers. Created in 2016 as a joint-venture between PAI Partners and Nestlé, we have since acquired a number of businesses, the most recent being the acquisition of Dreyer’s (Nestlé’s US ice cream business). We are now the second largest manufacturer of ice cream and the number one private label producer worldwide. We are present in 23 countries with annual revenue of circa €4 billion and over 13,000 employees worldwide. For more information visit: www.froneri.com