Contract renewals crimp full-year earnings at Aryzta

by Eric Schroeder
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Aryzta Otis Spunkmeyer retail products
 Increased investment to support the nationwide roll-out of Otis Spunkmeyer weighed on full-year results within the Food North America business of Aryzta AG.

ZURICH, SWITZERLAND — Contract renewals coupled with increased investment to support the nationwide roll-out of Otis Spunkmeyer weighed on full-year results within the Food North America business of Aryzta AG.

In the year ended July 31, Food North America EBITA decreased 12% to €243,292,000 ($272,586,000), which compared with €275,108,000 in fiscal 2015. EBITA margins declined 140 basis points to 12.8% from 14.2%.

“These declines reflect the increased investment in consumer facing brands to support the nationwide roll-out of Otis Spunkmeyer,” Aryzta said. “It also reflects the decreased operating leverage created by the decline in underlying revenues during the period. During the year, Aryzta North America invested an additional €39.8 million to expand and modernize existing capabilities, primarily in the premium artisan bakery segment.”

Food North America revenues in fiscal 2016 decreased 1.8% to €1,908.1 million ($2,137.7 million) from €1,942.3 million.

Aryzta said the decline in underlying revenues was entirely related to the impact of long-term contract renewals. Excluding the impact of those customers, underlying revenue growth would have been 22%, reflecting the success of the innovation-driven pipeline of new food items, cross-selling and overall extension of the customer base, the company said.

Owen Killian, Aryzta
Owen Killian, c.e.o. of Aryzta

“Aryzta has invested heavily in modern bakeries, using frozen technology to ensure the consumer gets an uncompromised experience every time, with freshly baked and prepared food, with a great variety and minimum waste,” Owen Killian, chief executive officer, said during a Sept. 26 conference call with analysts. “Aryzta has an innovation pipeline of foods, designed to deliver a great consumer experience in restaurants, whether fine dining, casual or quick service; in canteens, in vending, in retail in-store bakeries and deli counters, in convenience stores and hotels and coffee shops, in bakeries and boulangeries and cafes, or wherever consumers choose to shop or dine. Aryzta has established a relevance in the niche market of frozen specialty food, with specific expertise in baked goods.

“We have underperformed from an investor perspective over the past 18 months, but we take confidence from the real underlying revenue performance in the business, which will drive positive operating leverage in F.Y. ‘18, and, in the meanwhile, the continuing negative impact of contract renewals will be mitigated by reduced finance costs in the current year.”

Overall, EBITA at Aryzta decreased nearly 6% in fiscal 2016 to €484,867,000 ($543,347,000) from €513,965,000, while underlying net profit fell 13% to €311,542,000 from €359,723,000. Revenues increased 1.5% to €3,878,871,000 from €3,820,231,000. 
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