‘Disappointing year’ for Aryzta shareholders

Shares in Swiss-Irish food group Aryzta hit another 12-month low yesterday after the company reported a drop in underlying profit, which chief executive Owen Killian described as "disappointing" for shareholders.

Aryzta shares have dropped 50 per cent in the last 12 months on foot of concerns over a recent acquisition in France and problems with its North American business.

The company, best known here for its Cuisine de France brand, reported an underlying profit of €360 million for the year to the end of July, down 4.7 per cent year on the previous year.

While total revenue was up 12.6 per cent to €3.8 billion, underlying revenue, which strips out acquisitions and currency fluctuations, fell by 2.2 per cent.

The company also forecast earnings per share (EPS) of 365- 385 cent for 2016, significantly below analyst expectations, as a result of increased debt costs and squeezed margins.

Aryzta’s latest results, coming in the wake of Friday’s surprise move to sell its remaining stake in agri-services firm Origin Enterprises, saw its shares fall a further 1.5 per cent to €41.53, down from a 12-month high of €76.

“2015 has been a disappointing year for shareholders as underlying revenue growth failed to materialise, resulting in negative operating leverage,” Mr Killian said.

“Aryzta has been in constant evolution to remain relevant to consumers as changing consumer trends negatively impacted parts of our business,” he said, noting that this hasinvolved significant capital investment of €1.3 billion and acquisitions of €2.4 billion to reposition the business since 2010.

“ Aryzta is now fully focused on speciality food, with the divestment of our Origin investment and reinvestment in Picard,” Mr Killian said.

Forced move

Last year, Aryzta was forced to switch production of more than 100 million cookies for fast food chain Subway from its US operation to Europe because of changes to EU rules governing GM foods, resulting in under-capacity issues in the US and a drag on costs in Europe.

Combined with the acquisition of a 49 per cent stake in French frozen food group Picard, deemed expensive by analysts, this has seen its share price suffer.

Investec analyst Ian Hunter said the results confirm the underlying business model is under pressure and having to be readjusted.

The results show revenues in Aryzta’s European operations rose by 3.8 per cent to€1.65 billion during the year, while its North America revenues grew by 22 per cent to €1.9 billion. Revenues in its operations in the rest of the world grew by 4.7 per cent to €231 million, meanwhile.

The company said it generated €623 million in proceeds by shedding its 68.1 per cent stake in Origin this year, part of which was used to fund the Picard acquisition.

In a note, Davy Stockbrokers said the numbers were “broadly in line with expectation” pointing to some bright spots, including operating margin progression in North America. However, the near-term environment “remains challenging as the business transitions to a more sustainable base,” it added.

The relationship between Aryzta and Origin dates back to 2006, when the old Irish Agriculture Wholesale Society (IAWS) established Origin to separate its agri-services and food businesses. The remaining part of IAWS merged with Swiss food group Hiestand in 2007 to form Aryzta.

At a glance Share price - €41.53 (down nearly 50 per cent on 12-month high) Underlying profit - €360 million (down 4.7 per cent) Total revenue - €3.8 billion (up 12.6 per cent)