Tuesday 21 November 2017

Profit warning wipes €1bn off Aryzta value

Aryzta boss Owen Killian
Aryzta boss Owen Killian

Margaret Donnelly and Sean Duffy

Swiss-Irish food maker Aryzta lost €1.1bn in value yesterday as the company announced an "extremely disappointing" performance in the last five months of 2016.

The announcement saw investors hurrying to unload the stock, with the value of the company being slashed by almost a third from €3.74bn to €2.65bn.

Aryzta closed the day down more than 32pc at €28.50 per share in Dublin. Aryzta said H1 revenues were 20pc lower than expected and forecast a similar drop-off over the course of the year.

"The performance in the current period is both unexpected and extremely disappointing," said Aryzta ceo Owen Killian.

The figures cover the last five months of 2016 and, in a statement, the company said that the impact of Brexit, reduced revenue in the US and higher than expected labour inflation costs had impacted across the business.

It is the latest blow to Mr Killian, who was forced to forego an annual bonus last October on account of the company's underwhelming performance.

In 2014 the company invested $1bn (€730m) on US and Canadian acquisitions, including the US company Cloverhill Bakery.

At the time Aryzta said the acquisitions would allow it increase its presence in the pastry consumer market in North America.  

However, the company said that its US baked goods distribution company, Otis Spunkmeyer, has triggered losses earlier than anticipated.

It also said that higher-than -expected labour inflation costs in North America have meant lower H1 margins, which are now expected to be 6-7pc. However, it says that North American margins are expected to improve in H2, as agreed price increases take effect with the majority of customers.

Aryzta also announced that the board is reviewing its investment strategy as it relates to its joint ventures.

Mr Killian said it will take a recovery followed by a period of sustainable growth to re-establish investor confidence.

"We have initiated price increases to address United States labour inflation, which is significant across the business. 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," Mr Killian said.

David Holohan, chief investment officer at Merrion Capital, believes the spotlight will now turn to Mr Killian and his team.

"The results really put the focus back on management and the decisions they have taken in the past couple of years. The outlook now is significantly bleaker than it was just a few months ago when management were giving a more upbeat assessment.

"They are going to have to look at the internal operations and how they manage the different businesses that they have acquired. It may be the case that they have spread themselves too thin," Mr Holohan said.

Irish Independent

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