Toland aims to turn Aryzta ship around

Just a matter of weeks into his new position as chief executive of Aryzta, Kevin Toland has set out his initial strategy to turn the ship around at Aryzta, the speciality bakery company best known for its Cuisine de France brand.

In a presentation to investors released this week, the new Aryzta boss has said his aim is to deleverage the company’s balance sheet through “cash generation and asset realisations” over the next four years, meaning the sale of certain assets or facilities is on the cards.

The scale of the task facing Toland was revealed this week after Aryzta released its results for the 2017 financial year which painted a difficult picture over the last 12 months. Pre-tax profits for the year almost halved (-43%) to €208m, while revenues were down 2% to €3.8bn.

Earnings (EBITDA) for the year declined by nearly a third (-31%) to just over €420m as profit margins narrowed sharply by 460 basis points to 11.1%.

Aryzta also took a non-cash charge of €860m, which is primarily related to the write-down of assets in its north American business. This impairment charge left the company with a reported net loss of €908m for 2017.

The sharp reduction in earnings for 2017 has seen Aryzta’s net debt to earnings multiple shoot up to a high 4.15 times. However, the Swiss-headquartered group has also announced a five-year €1.8bn refinancing agreement that will see the ceiling for the company’s net debt-EBITDA ratio under a new covenant with key banking partners extended to 4.75 times.

This gives Aryzta some flexibility in managing its long-term debt as Toland sets about rebuilding underlying earnings in the business once again.

Europe

Aryzta’s European business reported a slight decline (-0.5%) in sales for the 2017 financial year to €1.74bn.

However, with the effect of currency excluded, Aryzta’s European business recorded underlying growth of 1.4% as increased prices of 2% more than offset a 0.6% decline in sales volumes.

Earnings in the European business declined by almost a quarter (-23%) to €211m as margins weakened to 12.1%.

Aryzta said that margins were negatively affected by cost inflation related to a weaker sterling as well as the soaring price of butter in Europe right now, which is a key ingredient and significant cost for bakeries. The group said high butter prices would remain a challenge for the year ahead.

North America

In its North America business, Aryzta saw further sharp declines in sales as the effect of contract losses continues to be felt. Underlying sales in the group’s North America business declined by 6.3% to €1.8bn as sales volumes fell 8.5%.

Earnings for the year plunged by 43% to €170m following what Aryzta termed a “very severe” loss in margins to 9.5%. The group said this was a result of negative operating leverage following contract losses during the year and increasing labour and input costs.

Sales from Aryzta’s rest of world division grew 16% last year to €259m.