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MZB Group, 1H results show sharp increase in the Single Serve segment

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VILLORBA, Treviso, Italy – Yesterday (August 8th, 2017), the Board of Directors of Massimo Zanetti Beverage Group S.p.A. (“MZBG” or the “Company”) approved the half-year financial report at June 30, 2017.

During the first half of 2017, the MZB Group had sales volumes of roasted coffee totalling 63,239 tons, substantially stable (-0.7%) compared to the same period in the previous year.

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Excluding the contribution from Nutricafés, which was consolidated last September, roasted coffee sales volumes would have been amounted to 61,039 tons, down 4.1% compared to the same period in the previous year.

Also during the second quarter of the current year, there was a continued development in the sales mix towards more profitable products. This meant that, in the first half of 2017, they accounted for over half of total volumes relating to MZB Group brands

In the first half of 2017, the Food Service channel reached 6,198 tons of coffee sold, recording a sharp increase of 16.7%. This increase involved all geographical areas, providing a clear sign of the Group’s strong priority to this channel.

The Food Service channel accounted for 9.8% of total volumes for the MZB Group, continuing to increase its weight from quarter to quarter. Net of the considerable contribution from Nutricafés, amounting to 756 tons of coffee sold, the channel grew organically by 2.5%.

In the first half of 2017, the Mass Market channel recorded an increase in volumes of 1.3% compared to the same period in the previous year, reaching 26,537 tons. Excluding the contribution from Nutricafés, the Mass Market channel was down by 0.8%. In the first half of 2017, the Mass Market channel accounted for 42.0% of total volumes for the MZB Group.

In the first half of 2017, the Private Label channel showed a decline of 5.2%, to 30,504 tons, mainly affected by performance in the Americas.

Excluding the impact from Nutricafés, the Private Label channel fell by 8.0%. The Private Label channel accounted for 48.2% of the MZB Group’s total volumes.

The Single Serve segment recorded growth at a Group level of 64.5% compared to the first half of 2016, thanks to the contribution from all geographical areas and, in particular, from the Segafredo, Nicola, Kauai, and San Marco brands.

Even excluding the contribution made by Nutricafés, the capsule segment would still grew by 18.3%.

At a geographic level, in the first half of 2017 the Americas achieved 37,134 tons, with a decline of 6.1% compared to the same period in the previous year, mainly due to the reduction in the Private Label channel. The Americas accounted for 58.7% of total volumes for the MZB Group.

Southern Europe posted total volumes of 14,663 tons in the first half of 2017, growing by 13.2% compared to the previous year.

This growth included all distribution channels with a more marked increase in the Food Service channel. Nutricafés contributed to the increase in the region with 2,200 tons of roasted coffee sold.

Excluding this impact, Southern Europe showed a decline of 3.7%. In the region it is worth noting the significant performance in the Singel Serve segment that triplicate its volumes in the first half of 2017. Southern Europe accounted for 23.2% of total volumes of the MZB Group.

In the first half of 2017, Northern Europe recorded 10,185 tons of roasted coffee sold, substantially unchanged compared to the first half of 2016.

The weakness shown in the first quarter of the year was fully recovered in the second quarter due to increases in all distribution channels and, in particular, the volumes from the Mass Market channel remained stable despite the significant increase in the average sale price driven by of the increase in the cost of green coffee.

There was continued growth in the Food Service channel in the region, also due to the acquisition of new customers. Northern Europe accounted for 16.1% of total volumes of the Group.

Roasted coffee sales volumes in the Asia, Pacific and Cafés division came to 1,257 tons in the first half of 2017, with an increase of 23.0% compared to the first half of 2016.

The increase was reflected in all distribution channels of the division. This increase was marked in the second quarter also due to the agreement reached with the “Café de Coral” catering chain. Asia, Pacific and Cafès accounted for 2.0% of the MZB Group’s total volumes.

Consolidated revenue

The consolidated revenue of the MZB Group in first half of 2017 totalled Euro 475.6 million, up by 7.4% over the same period in the previous year. The second quarter showed growth of 7.7% compared to the second quarter of 2016.

Revenue grew in all geographical areas and in all distribution channels, despite the stability in sales volumes.

The increase in revenue can be attributed to the more effective mix of channels and products, as well as to the improvement in average sales prices. Excluding the contribution from Nutricafés, the Group’s consolidated revenue came to Euro 457.1 million, with an increase of 3.2% over the first half of 2016.

With regard to the distribution channels, the Food Service channel grew by 13.4% compared to the same period in the previous year and contributed 22.0% of the MZB Group’s consolidated revenue.

The Mass Market grew by 7.6%, with a contribution to consolidated revenue of 37.4%.

In the first half of 2017 the Private Label channel grew by 3.8% and contributed 34.4%, down from the first half of 2016, when it contributed 35.6%.

Revenue from branded products in the Food Service and Mass Market channels followed the same trend already seen with the progress in volumes and represents the strategic development in the sales mix.

The Americas remained the main geographical area in terms of revenue, accounting for 47.8% of the MZB Group’s revenue. Southern Europe represented the second most important geographical area, contributing 25.5% of revenue. Northern Europe contributed 18.9% of revenue, while Asia, Pacific, and Cafés1 contributed 7.8%.

Revenue from the Single Serve channel grew by 41.7% during the year compared to the first half of 2016, in line with the volume trends.

Gross profit

Consolidated Gross Profit increased by 6.3% compared to the first half of 2016 to Euro 195.9 million; the contribution provided by Nutricafés was Euro 9.8 million.

The increase in Gross Profit generated by the sale of roasted coffee is largely attributable to the improved mix of channels and products and an improvement in average sales prices over green coffee purchase costs, which partially offset the reduction in volumes.

Organic Gross Profit per Kg continued to grow, rising from EUR/kg 2.50 in the first half of 2016 to EUR/kg 2.57 in the first half of 2017, with an increase of 7 cents or 2.8%. The Gross Margin was 41.2% in the first half of 2017.

EBITDA

EBITDA in the first half of 2017 came to Euro 29.1 million, up by 9.1% compared to the first half of 2016. Nutricafés contributed Euro 4.0 million to the MZB Group’s EBITDA.

The increase in operating costs, net of the changes in exchange rates, is attributable to the higher investment in advertising and promotional activities. The EBITDA Margin of the first half of 2017 was 6.1%

Operating Profit

The operating profit of the MZB Group in the first half of 2017 amounted to Euro 10.8 million, down by Euro 0.3 million compared to the first half in the previous year. In addition to the change in EBITDA, this decrease is attributable to the increase in “Amortisation and Depreciation”, primarily from the acquisition of Nutricafés.

Profit for the period

Profit for the period of the first half of 2017 came to Euro 4.4 million, down by 14.6%, compared to the first half of 2016, when the figure was Euro 5.2 million.

In addition to what was said concerning the operating profit, this decline is primarily attributable to the combined effect of the increase in net financial costs, mainly due to a reduction in FX gains; the decrease in income tax linked to the taxable income generated by the Group in the first half of 2017 compared to 2016 and loss’ increase related investment in join venture and associates.

Earnings per share moved from Euro 0.15 per share in the first half of 2016 to Euro 0.13 per share in the first half of 2017.

Net financial indebtedness

Net financial indebtedness of the MZB Group at June 30, 2017 was Euro 247.0 million, showing an increase of Euro 26.1 million compared to December 31, 2016. This increase was mainly due to the use of cash generated by the greater liquidity needed to finance net working capital.

Guidance

Based on the results achieved in the first half of 2017, the outlook for the MZB Group performance in 2017 is unchanged.

Merger of Nutricafés S.A. and Segafredo Zanetti Portugal SA

The process of merging two of the Group’s companies, Nutricafés SA and Segafredo Zanetti Portugal SA, started in July 2017 and should reach completion by the end of September 2017.

The objective of the merger is to create a production and sales platform geared to reinforcing the presence of the Segafredo, Nicola and Chave d’Ouro brands in the Iberian Peninsula, by simplifying the business model and optimising structural costs.

This operation should provide the Group with significant efficiencies over the coming years.

1 This geographical area includes the revenue generated by the international network of cafés.