In a note on R&R, which recently bought French ice cream maker Rolland, Moody’s said: “It is Moody's expectation that R&R will continue to implement margin-enhancing initiatives in particular geared at improving profitability in its French operations. This should result in gradually improving credit metrics.
“The resulting headroom in the current rating category may be used for a further expansion of the business through potential acquisitions.”
Assigning a provisional B2 rating to the proposed issue of €280m senior secured notes by R&R, Moody’s lead analyst for R&R Anke Rindermann said R&R’s strong market position, its well-established customer relationships, improved geographic spread following the Rolland deal and recent improvements in operating profitability and cash flow generation all stood it in good stead.
However, it remained partly constrained by its “low absolute scale as well as its seasonal nature with a high dependency on weather conditions”.
Managing price volatility in key raw materials was also a challenge, added Rindermann. “Input price management remains a major challenge in our view, though this could be mitigated through some ability to re-price its products.”
Blazing the acquisition trail
Speaking to FoodManufacture.co.uk earlier this year, R&R chief executive James Lambert said more deals were on the cards.
“We will acquire more businesses. If you look at the European ice cream market, there are really only two players – Unilever and R&R – that are genuinely profitable and have the cash to invest. It is such a capital-intensive industry that scale really matters.
“The retail sector is consolidating fast, and retailers such as Aldi - our biggest customer - want to deal with fewer, bigger suppliers that can supply them in multiple markets across Europe.”
R&R also planned to make a significant investment in new equipment at Rolland’s factory in Plouédern in Brittany, he revealed.
“We need to conduct a thorough review of the range and capabilities but the plan is to make a significant investment in the site, which will probably take at least 18 months. The likelihood is that new equipment will go in during winter 2011, but there is a lot we can do in the meantime to improve efficiency.”
R&R Ice Cream was created in 2006 by Oaktree Capital Management, bringing together Richmond Ice Cream in the UK and Roncadin in Germany.