Aryzta cites Brexit pressure as it issues profit warning

Aryzta has warned its earnings will be down 15% year on year, but insists revenue is ‘relatively’ stable.

The business, which underwent a senior management shake-up a year ago, has today (25 January) updated a previous estimate that its 2018 EBITDA would be “broadly in line” with 2017.

Aryzta today said its “current best estimate” was that 2018 EBITDA would be down 15% year on year on a like-for-like basis, with reported EBITDA down 20%.

In its last financial year (ending 31 July 2017), EBITDA fell by almost a third to €420.3m on group revenue down 2.1% to €3.8bn.

Its UK business is still under pressure from factors including weakened sterling and high ingredients costs following the Brexit vote, and the company said underperformance in its European division would account for around a fifth of the earnings shortfall.

“There has been good progress on butter price recovery and the improvements in capacity utilisation in Germany are on track,” Aryzta reported.

“However, 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 our UK business remains.”

Aryzta’s North American operation has been badly hit by a drop in efficiency and production at its Cloverhill plant after a federal audit of a third-party agency that supplied staff for the site revealed inadequate documentation. This resulted in about 800 experienced workers leaving the business last year and having to be replaced with new hires.

The company said US revenue, excluding the Cloverhill business, was continuing to stabilise – with Canada performing well – but EBITDA was underperfoming expectations, due to factors including double-digit inflation in distribution costs, and higher staffing costs, while price increases and cost-cutting had not yet delivered the planned savings.

Aryzta said it expected the sale of ‘non-core’ operations, including Cloverhill, to bring in €450m by the end of the current financial year.

“While acknowledging the major challenges, revenue remains resilient,” said CEO Kevin Toland, the former Glanbia boss who joined the business last year following the departure of CEO Owen Killian, chief financial officer Patrick McEniff, and Americas CEO John Yamin.

“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 the deleveraging programme, which is a key component of our multi-year turnaround programme and the delivery of the €1 billion cash generation target.”

Aryzta is expected to announce its half-year results on 12 March.

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