Zurich / CH. (aag) Swiss Aryzta AG made an announcement regarding the current trading as follows:
- Aryzta announces that following a review of five months of trading ending December 2016, the underlying fully diluted EPS is tracking approximately 20 percent behind prior year.
- H1 underlying fully diluted EPS approximately 20 percent lower than expected, with a similar impact on full year.
- The under-performance is due largely to North American weakness compounding the already anticipated weakness in Europe due to the ongoing German bakery commissioning and the impact of Brexit.
- Underlying revenue growth in North America is tracking lower in Q2 than Q1.
- The under-performance in North America is due to reduced revenue and higher than expected labour inflation costs.
- Otis Spunkmeyer branded strategy has triggered co-pack volume losses earlier than anticipated. This resulted in significant negative operating leverage at the Cloverhill facility.
A significant component of the reduced revenue can be explained by revenue losses at Cloverhill in Q2 and mitigating initiatives taking longer than anticipated to be realised. Aryzta’s strategic investment in the Cloverhill facility was predicated around a brand development strategy for Otis Spunkmeyer snack cakes and the recent launch has triggered the earlier than anticipated loss of co-pack volumes.
Aryzta reported 34 percent of its North American revenue as branded as of July 2016. Aryzta’s strategy is to grow this further, with significant growth expected through the rollout of Otis Spunkmeyer snack cakes brands, which involves an annual investment of approximately 10 million EUR to support the brand.
In addition, higher than expected labour inflation costs in North America means under recovery of costs and lower H1 margins, which are now expected to be approximately 6 percent to 7 percent. North American margins are expected to improve in H2, as agreed price increases take effect with the majority of customers.
Aryzta also announces that the Board is reviewing its investment strategy as it relates to its joint ventures and the Chairman will engage directly with shareholders to understand their perspectives on this important issue.
Commenting on this announcement the CEO, Owen Killian, said: «The performance in the current period is both unexpected and extremely disappointing. Cloverhill was acquired with the objective of unlocking the Otis Spunkmeyer brand into retail. Aryzta’s brand investment strategy in Otis Spunkmeyer will in time replace the co-pack volumes and create a more predictable and higher margin business. The Capital Markets day in October 2016 focused attention on the go-to-market strategy and profiled the capability of the business and the executive teams in North America. Aryzta North America is well invested and structured to support a significantly larger business very effectively and efficiently. It has best-in-class processes and technology, and is capable of further initiatives to develop its potential.
«We have initiated price increases to address United States labour inflation, which is significant across the business. We are also investing in upskilling, training and development to ensure Aryzta becomes an employer of choice in what is becoming a highly competitive labour market in which there are significant skills shortages in many locations».
«We know that it will take a recovery followed by a period of sustainable growth to re-establish investor confidence. It will also require an alignment with our key shareholders in terms of our future strategy and capital allocation. A substantial element of this significant setback is timing related. The Aryzta Board and management teams are committed to returning the business to solid performance and growth and dealing with the challenges presented».
