Zurich / CH. (aag) Swiss Aryzta AG announced its revenue update for the period ended 31 October 2015. Total revenue grew by 6.1 percent in the first quarter to 995.0 million EUR. This growth consists of negative underlying growth of (0.4) percent and acquisition growth of 0.7 percent and currency movements of 5.8 percent.
Commenting on the Q1 revenue update, Aryzta AG Chief Executive Officer Owen Killian said: «Underlying revenue development was satisfactory in Q1/2016. In Europe, Bakeries continued to outperform while Aryzta Food Solutions remains weaker due to some channel weakness as previously discussed. Our North American business is still digesting the impact of the capacity optimisation programme which commenced one year ago and also the impact of some supply chain contract renewals. We are focused on building the business by unlocking the innovation potential across our customer base. Consumer sentiment is positive in North America where we are encouraged by the initial consumer feedback to our renewed focus on our Brands particularly La Brea Bakery and Otis Spunkmeyer. Consumer sentiment is more muted in Europe although our business in Ireland and the U.K. returned to growth in the period».
Food Europe
Food Europe revenue grew by 9.5 percent in the first quarter to 442.5 million EUR. Europe had strong underlying revenue growth of 5.5 percent and a contribution of 1.5 percent from acquisitions. Currency had a 2.5 percent impact. The European performance reflects a continuation of the strong growth of large customers directly serviced by Aryzta’s well-invested European bakery network. Aryzta Food Solutions (AFS) performance improved in the quarter while convenience and independent retail serviced by AFS continues to face challenging market conditions. Hiestand Switzerland has commenced consultation ahead of the well planned phased transfer of some production volumes to Coop in Switzerland, which was first announced in 2011. The phased transfer will take place post the FY 2016 year-end. Coop will remain a key supply chain customer post this transfer.
Food North America
Food North America revenue increased by 5.2 percent in the first quarter to 500.1 million EUR. Underlying revenue growth was (5.6) percent, a 90 bps sequential improvement on Q4 as the impact of the capacity optimisation improves. Currency had a positive 10.8 percent impact. The Q1 underlying revenue performance remains negative and as indicated in September is not expected to turn positive until the second half of the current fiscal year. Improved utilisation and volumes are required to offset the negative operating leverage experience reported in FY 2015. The consumer response to initial testing of some consumer brand concepts involving La Brea Bakery and Otis Spunkmeyer has been encouraging. Aryzta will invest further in marketing and innovation in FY 2016 to ensure future relevance and success. The benefit of this investment will be seen in greater brand penetration and underlying revenue growth going forward. Aryzta announced the disposal of its non-core fillings, icings, glazes and mixes business in Rochester, New York. The revenue being disposed in FY 2016 is 70 million USD.
Food Rest of World
Food Rest of World revenue decreased by (10.0) percent in the first quarter to 52.4 million EUR. Underlying revenue growth of 2.2 percent, was more than offset by negative currency impact was of (12.2) percent. The improved sequential underlying revenue performance in Rest of World is in line with September guidance.
Wins / losses for the 13 weeks ended 31 October 2015 (unaudited)
The business continues to record significant wins, which in the quarter amounted to 7.7 percent at the Group level, reflecting the focus on innovation and the customer centric strategy. However, these wins are still being masked by losses of 8.1 percent at Group level, which reflect the lapping impact of the SKU rationalisation of one year ago as well as the impact of some supply chain contract renewals with reduced volumes during FY 2016 of approximately five percent of North American revenue. This is in line with the three percent revenue losses at Group level guided last September and the expectation of a return to positive underlying growth in North America in H2.
Outlook
Aryzta’s focus in FY 2016 continues to be on delivering the underlying revenue growth potential of the business. This is expected to generate a tenfold expansion in free cash generation to over 200 million EUR in FY 2016. We reiterate guidance for underlying fully diluted EPS in the range of 365 to 385 cent for FY 2016 (Image: pixabay.com).
