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Richmond Foods PLC (RFD)


Tuesday 11 September, 2001

Richmond Foods PLC


Richmond Foods PLC
11 September 2001

11 September 2001

                              RICHMOND FOODS PLC



                         ARRANGEMENTS WITH NESTLE UK

Richmond Foods plc ('Richmond'), a leading independent UK manufacturer of
frozen confectionery products, has announced that it has entered into
agreements, conditional upon shareholder approval, to acquire the Nestle UK
ice cream business and to manufacture, distribute and market Nestle UK ice
cream products in the UK on a long term basis. The cash consideration for the
acquisition amounts to £4.5m, plus a further amount in respect of stocks
valued on completion to a maximum of £5.775 million.

These proposed arrangements represent a further important step in Richmond's
strategic development by:

  * adding major Nestle brands including Rolo, Smarties, Lyons Maid, Fab,
    Fruit Pastil - lolly, Maxibon, and After Eight to the product portfolio,
  * becoming the strong second player in the UK ice cream market,
  * allowing Richmond to improve the management of the ice cream category
    for both customers and consumers,
  * applying proven skills to achieve production integration and capacity
    utilisation benefits,
  * generating significant overhead savings and other synergies and
  * creating a partnership with Nestle, to develop new ice cream brands for
    the UK market

Commenting on this transaction, James Lambert, CEO of Richmond Foods plc said;

'The proposed purchase of Nestle's ice cream business, which had turnover of £
34.5m in 2000, makes Richmond Foods a strong number two in the UK ice cream
market. Richmond's efficient production, coupled with Nestles strong consumer
brands, should allow us to improve the returns of the Nestle ice cream
business and enable Richmond to enhance its position in both the UK take home
and impulse markets.

I feel sure that this excellent strategic fit of the two businesses will
contribute to our continuing growth in shareholder value.'

Richmond Foods plc                             Citigate Dewe Rogerson

James Lambert - CEO                            David Nolder
Andy Finneran - Finance Director               0207 638 9571
0207 597 5000 - 11 Sept only

01677 423397 - thereafter

                              RICHMOND FOODS PLC

               Acquisition of Nestle UK Ice Cream Business and

      Manufacturing, Distribution and Marketing Arrangements with Nestle

    1.          Introduction

On 16  August 2001, it was announced that Richmond had entered into
discussions with Nestle regarding the possibility of acquiring the Nestle UK
Ice Cream Business. Richmond has entered into conditional agreements to
manufacture, distribute and market ice cream products in the UK on behalf of
Nestle on a long-term basis and to acquire the Nestle UK Ice Cream Business.
The consideration for the Acquisition is £4.5 million in cash, plus the value
of stocks acquired on completion to a maximum of £5.775 million.

This acquisition is conditional on shareholder approval.

    2.          Richmond's business

Richmond is a leading independent manufacturer and supplier of ice cream and
frozen confectionery, operating in both the take-home and impulse markets. In
the take-home market, Richmond produces a range of own brand ice cream
products (mainly tub ice cream and ice-lollies) for sale to UK retailers,
primarily the larger supermarket groups. For the impulse market, Richmond also
manufactures individual ice-lollies and wrapped ice cream products under its
'Treats' brand and under licensed brands.

    3.          Recent developments and strategy

The Group's strategy has been to become the preferred supplier of own label
ice cream products to the main UK grocery multiple retailers. As part of this
strategy, the Group acquired the ice cream business and assets of Allied Foods
Limited, part of Associated British Foods plc, in May 2000. As a result of
that acquisition, the Board believes that Richmond now supplies approximately
60% of the UK's own label ice cream.

The UK take-home ice cream market has seen overall average growth of
approximately 3.5% per annum over the last three years (source: TNS Data to
July 2001). Growth in this market in recent years has been driven by branded
products, which also dominate the impulse market. Since 1999, the proportion
of the total UK ice cream take-home market represented by branded products has
increased from approximately 58% in 1999 to approximately 65% in 2001 (TNS
Data to July 2001). As a result, the Board believes that branded products are
likely to offer additional growth opportunities for Richmond.

Richmond's strategy is therefore to offer branded and own-label ice cream
products, across the impulse and take-home markets. In implementing this
strategy, Richmond believes that it can benefit in particular from the
strength of its customer relationships and by achieving economies of scale in
its operations. As part of this strategy, Richmond now proposes to enter into
a manufacturing, distribution and marketing arrangement with Nestle. Nestle
S.A. is one of the world's largest branded food companies and therefore
represents an excellent partner in Richmond's brand strategy.

    4.          The Nestle UK Ice Cream Business

Nestle S.A. is engaged in a wide range of food and drink manufacturing,
distribution and selling operations worldwide, and has a number of sites in
the UK. As part of its general food business, Nestle's operations include the
manufacture of Nestle branded ice cream products at a site in Telford, plus a
divisional office in York. Nestle distributes and sells these products in the
UK plus other Nestle branded ice cream products manufactured by Nestle S.A. in
Europe. Of Nestle's ice cream products sold in the UK in 2000, approximately
56% were manufactured by Nestle in the UK, approximately 40% were imported
from Nestle S.A. manufacturing sites in Europe and approximately 4% were
manufactured by others (including Richmond).

Nestle has a broad product range, including branded premium frozen
confectionery, ice-lollies and extruded ice cream desserts, including the
Fruit Pastil-lolly and Fab products. Manufacture in the UK is predominantly of
water based products, with ice cream products being imported from Nestle
S.A.'s European operations.

The Nestle UK Ice Cream Business in 2000 was split as, approximately, 46% in
the impulse market, 49% in the take home market and 5% in the catering market.

    5.          Arrangements between Richmond and Nestle

Historically, Richmond has manufactured a very limited range of Nestle branded
ice-cream products which Nestle then sold to the retail trade. During the year
ended 30  September 2000, Richmond's sales of these products amounted to
approximately £1million.

Richmond will now be appointed the sole manufacturer and distributor of
Nestle's frozen confectionery products in the UK, subject to completion of the
Acquisition Agreement. Under these arrangements, Richmond will pay an annual
royalty fee to Nestle, based on sales of Nestle branded products. This
royalty, which is payable in half yearly installment's in arrears, will be a
percentage of annual turnover, subject to a minimum annual royalty of £1.7
million in each of the first two years and £2.1 million thereafter per annum.

As distributor, Richmond will be able to purchase Nestle's European Products
from Nestle S.A.'s European manufacturing sites on terms comparable with those
currently available to Nestle.

These arrangements are subject to a 10-year notice period, which may be
severed by either Richmond or Nestle at any time. These agreements will also
be capable of being terminated by Nestle without notice in the event of annual
sales falling below £20,000,000 per annum.

    6.          Terms of the Acquisition

In order to assist it in manufacturing and marketing Nestle's products,
Richmond has conditionally agreed to acquire the Nestle UK Ice Cream Business
for a cash consideration of £4.5 million, payable in cash at Completion with
an additional amount of consideration of up to £5.775 million to be paid on
agreement of the level of stocks in the Completion Statement at Completion.
The Completion Statement will also provide for any apportionments.

Under the Acquisition Agreement, Richmond will acquire certain machinery and
equipment, stocks and approximately 20,000 retail freezers branded under the
Nestle name.

The Acquisition will be part funded by a £6 million bank facility provided by
the Bank of Scotland.

    7.          Benefits

The proposed arrangements with Nestle represent an important step in your
Company's strategy of further developing its position in the ice cream market,
better enabling it to compete against other suppliers and to provide a broader
service to its major customers.

In particular these arrangements will help Richmond in pursuit of its key
strategic goals of manufacturing and selling both own label and branded
products and enhancing its position in the take-home and impulse market.

In implementing the Nestle Arrangements, the Board foresees the following

  * potential to develop further the Nestle branded products in the
    take-home market, using the strength of Richmond's existing customer

  * significant production efficiencies, mainly by enhancing utilisation of
    Richmond's existing facilities at its Crossgates site;

  * potential for overheads savings and synergies, in the light of
    production efficiencies and in distribution and marketing to common

  * opportunity for economies of scale in the impulse market, by combining
    Richmond's own sales with those of Nestle; and

  * potential for the launching of further Nestle products.

    8.          Integration and Development Plans

Initially, Richmond intends to continue to manufacture and distribute Nestle's
products at the current Nestle Telford site and will use the Nestle sales
office in York. However, the Board expects to transfer these operations to its
existing sites, subject to employee consultation and due process, and
integrate them as soon as practicable, with a view to obtaining the benefit of
its lower cost structure and to achieving efficiencies and synergies.

The Board believes that there are significant opportunities for improving the
utilisation of Richmond's existing facilities by carrying out production of
Nestle branded products at Richmond's Crossgates site, which, like Telford, is
used to produce water based products. Richmond expects to incur initial
additional capital expenditure at the Crossgates site of approximately £1
million (to be funded from existing bank and other financial resources), which
will facilitate a better use of existing plant and machinery.

On 20  August, Nestle commenced consultation with its employees in relation to
the proposed Acquisition, announcing that it may result in substantial
redundancies among existing employees. Richmond will continue employee
consultation following Completion.

Looking further forward, Richmond believes that it can use its expertise in
the take home market to improve the penetration of the Nestle's products in
this market.

    9.          Financial information on the Nestle UK Ice Cream Business

    The results of the Business for the three years ended 31st December 2000
    are as follows:

                            Year ended          Year ended          Year ended
                           31 December         31 December         31 December
                                  1998                1999                2000
                                  £000                £000                £000

Turnover                        33,139              37,081              34,539
Cost of sales                 (19,488)            (21,117)            (22,758)
Gross profit                    13,651              15,964              11,781
Operating costs               (20,751)            (20,932)            (21,277)
Operating loss                 (7,100)             (4,968)             (9,496)

The Nestle UK Ice Cream Business is not a legal entity and accordingly, has
not prepared statutory or audited accounts. The Nestle UK Ice Cream Business
is a comparatively small part of the various businesses of Nestle. As a
division of another entity the financial information identifiable in relation
to the UK Nestle UK Ice Cream business does not necessarily include all the
costs or assets or liabilities that will be associated with a standalone
business. In particular, Nestle accounts for some costs, tax charges, debtors
and creditors centrally across all its operations.

The value ascribed in the Acquisition Agreement to the tangible fixed assets
being acquired is approximately £4.3m.

    10.          Current trading and prospects

The Board looks forward to satisfactory results for Richmond for the year to
30  September 2001.

There has been a slight improvement this year in the performance to date of
the Nestle UK Ice Cream Business, albeit that its returns continue to be
unattractive. The costs of the transition and integration of the Nestle UK Ice
Cream Business, which it is not possible to quantify at this stage, will be
reflected in Richmond's interim results for 31 March 2002, some of which may
be exceptional. These interim results will also to some degree reflect the
current cost structure of the Nestle UK Ice Cream Business pending its
integration, and will also reflect seasonally high borrowings and the cost of
the acquisition.

After an initial phase of operational restructuring, your Board is confident
that it will be able to derive benefits from the Nestle Arrangements, which
will be realised over the coming years.

The Board believes that the general outlook for the Enlarged Group is

11.          General

A circular will be sent out to shareholders, in due course, setting out
further details of the Acquisition and convening an Extraordinary General
Meeting of the Company to effect the Acquisition.

Terms used in this announcement have the same meaning as defined in the
forthcoming circular to shareholders save where the context requires.


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