Troubled bakery group Aryzta has downgraded its full-year guidance as it continues to work towards a sale in three business areas.
The company previously expected full-year earnings for 2018 to be in line with last year, but has now said it expects EBITDA to be around 15% lower.
While revenue has remained stabled, EBIDTA weakened during the second quarter in both the US and Europe. Aryzta reported a net loss of €970 million in the last financial year, with FoodBev reporting in September that the company would begin to dispose of assets as part of a €1 billion deleveraging programme that will aim to re-focus the business towards profitability.
As part of that effort, Aryzta expects to generate more than €450 million by the end of its current financial year from “non-core asset disposals”.
It has also appointed a new North American CEO, along with a new ‘chief strategy officer’, in an attempt to reverse its fortunes.
Chief executive Kevin Toland said the firm is working on an extensive deleveraging programme that could see meat processor La Rousse Foods, bakery brand Cloverhill and other joint-venture investments stripped away from Aryzta’s portfolio.
“While acknowledging the major challenges, revenue remains resilient,” Toland said. “The newly strengthened management team is now in place and fully focused on addressing
those challenges. We are progressing the disposal of non-core assets and deleveraging programme which is a key component of our multi-year turnaround programme and delivery of the €1 billion cash generation target.”
Aryzta said today that European underperformance is estimated to account for around 20% of the anticipated fall against expectations. There has been good progress on butter price recovery and improvements in capacity utilisation in Germany are on track, it said.
But this progress is not expected to be sufficient to offset the volume and associated margin lost to timing of insourcing, and the impact of Brexit-related pressures on Aryzta’s UK business remain.
US revenue, excluding Cloverhill, is continuing to stabilise while Canada continues to perform well. But EBITDA performance in Aryzta’s US business, again minus Cloverhill, is underperfoming against expectations. Aryzta blamed double-digit inflation in distribution costs, higher-than-expected labour costs and a continuing tightening of the US labour market for the underperformance.
In addition, a range of recovery tactics – including price increases, as well as reductions in selling and administrative costs and brand investments – are begining to generate savings but are short of previously expected levels.
Aryzta said its recently appointed North America CEO, together with a newly constituted group management team, were “fully focused on dealing with these challenges”.
In the three months to the end of October, the company’s total revenue declined by 5.5% to reach €909.7 million. It is expected to announce its second-quarter revenue and earnings on 12 March.
© FoodBev Media Ltd 2019