Aryzta AG: revenue declines further in Q3-2018

Zurich / CH. (aag) Swiss-Irish Aryzta AG announced its financial results for the period ended 30 April 2018. Third quarter Ebitda margins are below management expectations. Aryzta estimates that FY 2018 Ebitda will be approximately 9 to 12 percent lower than prior Ebitda guidance. The company also announced a cumulative three-year EUR 200 million cost reduction plan.

Revenue for the 13 weeks ended 30 April 2018 (unaudited)

in million EUR Europe North America Rest of World Group
Revenue 409.0 340.4 62.0 811.4
Organic growth (2.6)% (1.3)% 9.3% (1.2)%
Disposals (2.5)% (16.1)% (8.9)%
Currency (1.3)% (10.8)% (13.3)% (6.7)%
Revenue growth (6.4)% (28.2)% (4.0)% (16.8)%

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Q3 Performance Review

  • Group organic revenue declined by (1.2) percent in the period.
  • Group organic revenue remained relatively stable year-on-year, despite the challenging trading environment of weaker market conditions and difficulties recovering inflationary costs.
  • Group revenue declined by (16.8) percent in the quarter to EUR 811.4 million, mainly due to disposals (8.9) percent and currency (6.7) percent.
  • Disposal program on track, EUR 140 million+ realised to date.
  • Dividends from Picard are strengthening the balance sheet. Picard re-financing recently completed to facilitate second dividend in FY18.

Chief Executive’s Commentary

Chief Executive Officer Kevin Toland said: «Aryzta has identified and is addressing the challenges facing the historical business model and the industry generally and will stay focused on its core, the frozen B2B bakery market. As part of the ongoing process, the Group has sold selected loss-making assets, rationalised headcount, and under the new management put in place a series of efficiency and cost reduction activities to accelerate performance improvement. As part of this process, we are also announcing a three year EUR 200 million restructuring and cost reduction plan aimed at restoring financial flexibility and aligning our asset and cost base with current and expected business conditions».

Cumulative three-year EUR 200 million cost reduction plan

Aryzta’s Board has approved a three-year restructuring plan. Implementation will commence immediately and is aimed at restoring financial flexibility and improving Aryzta’s asset and cost base to its current revenue run rate. The plan is expected to deliver cumulative EUR 200 million in cost savings over three years.

Q3/2018 Review

Industry operating conditions, in particular higher input, distribution and labour costs, outlined by Aryzta in H1, continued to impact performance across the sector in Q3. Challenges include labour and distribution inflation in North America, sustained high butter prices, insourcing in Switzerland and Germany and weak consumer spending in the some European markets, particularly the UK.

Aryzta Group

Total Group revenue declined by (16.8) percent in the third quarter to EUR 811.4 million, mainly due to the impact of disposals (8.9) percent and currency (6.7) percent. Group organic revenue declined by (1.2) percent in the period, comprised of a volume decline of (2.7) percent and a price/mix improvement of 1.5 percent.

Aryzta Europe

Aryzta Europe revenue declined by (6.4) percent in the third quarter to EUR 409.0 million. Organic revenue declined by (2.6) percent in the period, while disposals (La Rousse) and currency had negative impacts of (2.5) percent and (1.3) percent, respectively. Volumes in Europe declined by (5.0) percent, while price/mix was positive by 2.4 percent. Sustained high butter prices across Europe remains a significant challenge. The volume decline reflects the impact of insourcing in Switzerland and Germany and weak consumer spending in the UK.

Aryzta North America

Aryzta North America revenue declined by (28.2) percent in the period to EUR 340.4 million. Organic revenue declined by (1.3) percent, while disposals (Cloverhill) and currency had negative impacts of (16.1) percent and (10.8) percent, respectively. Against the backdrop of a strong customer base, North America volumes declined nonetheless by (1.9) percent, while price/mix was a 0.6 percent positive. The North America business faces continued challenges from sustained high labour and distribution costs, which are not yet recovered by pricing initiatives.

Aryzta Rest of World

Aryzta Rest of World revenue declined by (4.0) percent to EUR 62.0 million as strong organic revenue performance of 9.3 percent was offset by a negative currency impact of (13.3) percent. Rest of World volumes grew strongly by 7.5 percent and price/mix by 1.8 percent, reflecting the continued strong growth dynamics in frozen bakery in Brazil and APMEA.

Revenue for the nine months ended 30 April 2018 (unaudited)

in million EUR Europe North America Rest of World Group
Group Revenue 1,277.3 1,126.8 193.9 2,598.0
Organic growth 0.3% (5.4)% 9.1% (1.8)%
Disposals (0.8)% (5.5)% (3.0)%
Currency (1.2)% (8.0)% (9.0)% (5.0)%
Revenue growth (1.7)% (18.9)% (0.1)% (9.8)%

Organic revenue year-to-date was significantly impacted by declines in Cloverhill (Chicago/Cicero) revenues, up until disposal during February 2018, after which the impacts are reflected as disposal related. Excluding the impacts of Cloverhill prior to disposal, North America organic revenue declined by (0.8) percent and Group organic revenue grew by 0.5 percent

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