Interim / Quarterly Report • Mar 13, 2016
Interim / Quarterly Report
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Commenting on the results, ARYZTA AG Chief Executive Officer Owen Killian said:
"Underlying revenue growth momentum continued to improve, although still 18 - 24 months behind prior expectations. Free cash flow was strong during the period, as anticipated, and remains the key business focus. Underlying net profit from continuing operations remains flat.
Speciality food is a growth segment of the overall food market in Europe and North America where consumer demand was positive in the period. ARYZTA is well-invested and well-positioned to grow, because its recently invested infrastructure is the most relevant and most competitive for this market.
Revenue development has been erratic for the past 12 months and will be for a further 18 months as we commission and optimise our capacity. During this period, customer insourcing in Europe and contract renewal in North America will negatively impact revenue by circa 3%, as previously indicated. This will continue to be mitigated by crossselling, facilitated by business optimisation and ATI. During this period, the best investor barometers will be free cash flow and underlying revenue growth, with more predictable 'wins' and lower 'losses'. We are focused on establishing a sequential growth pattern and view short-term earnings guidance as less relevant, until we deliver on this priority. We are confident we can achieve our post 2020 strategic goals, for which the significant investment building blocks are in place."
Six month period ended 31 January 2016
| January | January | ||
|---|---|---|---|
| in EUR `000 | 2016 | 2015 | % Change |
| Continuing operations | |||
| Group revenue | 1,960,014 1,857,870 | 5.5% | |
| EBITA1 | 230,832 | 224,844 | 2.7% |
| EBITA margin | 11.8% | 12.1% | (30) bps |
| Associate and JVs, net of tax | 13,699 | (554) | – |
| EBITA incl. associate and JVs | 244,531 | 224,290 | 9.0% |
| Finance cost, net | (55,940) | (41,342) | – |
| Hybrid instrument accrued dividend | (15,876) | (14,359) | – |
| Pre-tax profits | 172,715 | 168,589 | – |
| Income tax | (29,348) | (27,890) | – |
| Non-controlling interests | (2,293) | (2,386) | – |
| Underlying net profit - continuing operations | 141,074 | 138,313 | 2.0% |
| Underlying net profit - discontinued operations2 | – | 6,214 | (100.0)% |
| Underlying net profit - total | 141,074 | 144,527 | (2.4)% |
| Underlying fully diluted EPS (cent) - total3 | 158.43 | 161.43 | (1.9)% |
| Underlying net profit - continuing operations | 141,074 | 138,313 | 2.0% |
| Underlying fully diluted EPS (cent) - continuing3 | 158.43 | 154.53 | 2.5% |
1 See glossary in section 18 for definitions of financial terms and references used in the financial and business review.
2 Following the reduction in the Group's investment in Origin during March 2015, the Group's proportion of Origin's results have been presented separately as discontinued operations in both the current and prior periods.
3 The 31 January 2016 weighted average number of ordinary shares used to calculate diluted earnings per share is 89,039,290 (H1 2015: 89,553,157).
3
Six month period ended 31 January 2016
| Continuing operations in EUR million |
Food Europe |
Food North America |
Food Rest of World |
Total Group |
|---|---|---|---|---|
| Group revenue | 881.7 | 971.0 | 107.3 | 1,960.0 |
| Underlying growth | 4.7% | (4.0)% | 3.9% | 0.2% |
| Acquisitions/(disposals), net | 2.7% | (1.8)% | – | 0.3% |
| Currency | 2.1% | 9.4% | (11.1)% | 5.0% |
| Revenue growth | 9.5% | 3.6% | (7.2)% | 5.5% |
| Food | Food North | Food Rest | Total | |
|---|---|---|---|---|
| Continuing operations | Europe | America | of World | Group |
| Wins | 6.8% | 9.6% | 7.5% | 8.2% |
| Losses | (2.1)% | (13.6)% | (3.6)% | (8.0)% |
| Total underlying growth | 4.7% | (4.0)% | 3.9% | 0.2% |
Six month period ended 31 January 2016
| Continuing operations in EUR `000 |
January 2016 |
January 2015 |
% Change |
EBITA Margin 2016 |
EBITA Margin 2015 |
% Change |
|---|---|---|---|---|---|---|
| Food Europe | 105,370 | 98,635 | 6.8% | 12.0% | 12.3% | (30) bps |
| Food North America | 113,129 | 112,974 | 0.1% | 11.7% | 12.1% | (40) bps |
| Food Rest of World | 12,333 | 13,235 | (6.8)% | 11.5% | 11.5% | – bps |
| Total Group EBITA | 230,832 | 224,844 | 2.7% | 11.8% | 12.1% | (30) bps |
During March 2015, ARYZTA announced the completion of its offering of 49 million ordinary shares of Origin Enterprises plc ('Origin'), which raised net proceeds for ARYZTA of €398.1m. Following the March 2015 placing, the Group's investment in Origin was reduced from 68.1% to 29.0% and since that time Origin was accounted for as an associate held-for-sale at fair value, rather than as a fully-consolidated subsidiary.
In September 2015, the Group completed the divestment of its remaining 29.0% interest, which raised additional net proceeds of €225.1m. As the €270.9m fair value of the associate held-for-sale was more than the proceeds received, this resulted in a loss on disposal of €45.7m during the period.
As Origin previously represented a significant component and a separately reported segment of the Group, Origin's results have been separately presented as discontinued operations, in both the current and prior periods, as shown below:
| in EUR `000 | January 2016 |
January 2015 |
|---|---|---|
| Revenue | 194,721 | 531,599 |
| EBITA | 146 | 4,110 |
| EBITA margin | 0.1% | 0.8% |
| Associates and JV, net of tax | 881 | 6,284 |
| EBITA incl. associates and JV | 1,027 | 10,394 |
| Finance cost, net | (1,015) | (2,789) |
| Pre-tax profits | 12 | 7,605 |
| Income tax | 154 | (309) |
| Total underlying net profit | 166 | 7,296 |
| Non-ARYZTA portion of discontinued operations | (118) | (1,082) |
| Underlying contribution associate held-for-sale | (48) | – |
| Underlying net profit - discontinued operations | – | 6,214 |
| Underlying contribution associate held-for-sale | 48 | – |
| Cash received, net of transaction costs | 225,101 | – |
| Carrying value of 29% interest disposed | (270,870) | – |
| Net loss on disposal of associate held-for-sale | (45,721) | – |
ARYZTA's business is speciality food with a primary focus on speciality baking, a niche segment of the overall bakery market. Speciality bakery consists of freshly prepared food giving the best value, variety, taste and convenience to consumers at the point of sale. ARYZTA's customer channels consist of a mix of large retail, convenience and independent retail, Quick Serve Restaurants ('QSR') and other foodservice categories.
Total revenue from continuing operations grew by 5.5% to €1.96bn, primarily due to currency, which provided 5.0%. Underlying revenue increased in the period by 0.2%, while acquisitions, net of disposals, provided 0.3%.
Group EBITA from continuing operations increased by 2.7% to €230.8m, while EBITA margins declined by (30) bps to 11.8%, reflecting short-term reduced operating leverage as a result of the capacity optimisation, volume transitions and some supply chain contract changes.
Group underlying revenue growth during the quarters to date, and the comparative quarters during the prior year, were as follows:
| Continuing operations | Q1 2016 | Q2 2016 | H1 2016 | |||
|---|---|---|---|---|---|---|
| Food Europe | 5.5% | 3.8% | 4.7% | |||
| Food North America | (5.6)% | (2.4)% | (4.0)% | |||
| Food Rest of World | 2.2% | 5.7% | 3.9% | |||
| Total Group | (0.4)% | 0.8% | 0.2% | |||
| Q1 2015 | Q2 2015 | H1 2015 | Q3 2015 | Q4 2015 | FY 2015 | |
| Food Europe | 3.1% | 1.7% | 2.4% | 1.8% | (2.1)% | 1.0% |
| Food North America | (3.2)% | (8.4)% | (5.8)% | (6.7)% | (6.5)% | (6.2)% |
| Food Rest of World | 6.1% | 8.1% | 7.1% | 3.4% | (3.6)% | 3.3% |
| Total Group | 0.5% | (2.4)% | (0.9)% | (2.3)% | (4.3)% | (2.2)% |
Food Europe outperformed in the first half, with revenue growth of 9.5% to €881.7m, of which underlying revenue increased by 4.7%. In addition, acquisitions, net of disposals, contributed 2.7% and there was also a favourable currency impact of 2.1%. Food Europe EBITA increased by 6.8% to €105.4m. EBITA margins decreased by (30) bps to 12.0%, reflecting the short-term reduced operating leverage in some parts of ARYZTA Food Solutions ('AFS'), while ARYZTA Bakeries Europe brought on-stream newly invested infrastructure.
The in-store bakery market has been experiencing above average growth in Europe, driven by the entry of discount formats supported by sophisticated, highly efficient supply chains. Substantial newly invested capacity to support this growth is coming on stream over the next 12 months. While isolated customer insourcing is expected to impact revenues, good progress in terms of expanding the European customer base through long-term partnerships has been achieved. Unlike North America, the European bakery market is experiencing price deflation, primarily due to lower soft commodity prices in the region.
AFS has seen a recovery to positive underlying revenue growth overall, driven by strong performance in Ireland and the UK, offsetting some weakness in Continental Europe, especially in France and Switzerland, as anticipated. Disruption in the independent retail channel continues, due to growth in discounting. Innovation investment continues to support the AFS portfolio alignment with consumer trends.
During the period, AFS completed the divestment of Fresca in France and the acquisition of La Rousse Foods in Ireland. These transactions reflect the AFS strategy to focus on premium, higher-margin business.
Food North America revenue increased by 3.6% to €971.0m. Underlying revenue declined by (4.0)%, while there was a decrease of (1.8)% from disposals and a favourable currency impact of 9.4%.
Underlying revenue growth, although still behind expectations, continued to improve during the period, and is expected to continue to develop through H2. Revenue developed positively in the retail and food service channels.
The QSR market is proving highly competitive. As the consumer's perception of value is increasingly based on multiple variables, of which price is only one consideration, some customers are gaining share, while others are losing out. Underperformance in the QSR segment, supply chain optimisation and supply chain contract renewals were the key drivers of the volume decline in North America.
North America EBITA increased by 0.1% to €113.1m, while Food North America EBITA margins decreased by (40) bps to 11.7%, reflecting the impact of decreased operating leverage from capacity optimisation and some supply chain contract renewals.
The market response to the relaunch of La Brea Bakery and Otis Spunkmeyer branded portfolio was encouraging during the period. Developing ARYZTA's branded positon remains a key part of the North American marketing strategy in the periods ahead.
There was some price inflation during the period, due to higher ingredient costs, while labour and freight costs are also escalating.
During the period, Food North America also completed the divestment of its non-core fillings and mixes business in the United States.
Food Rest of World revenues decreased by (7.2)% to €107.3m, with underlying growth contributing 3.9%, offset by an unfavourable currency impact of (11.1)%. The underlying revenue growth relates primarily to an improved product sales mix.
Food Rest of World EBITA decreased by (6.8)% to €12.3m, primarily as a result of currency impacts, while maintaining EBITA margins at 11.5%.
Rest of World achieved continued growth, despite challenging economic conditions across these markets. The performance was adversely impacted by negative currency translation rates. ARYZTA continues to explore opportunities to expand capacity across the Rest of World segment.
During August 2015, the Group acquired a 49.5% interest in Picard, which operates an asset light business-to-consumer platform, focused on premium speciality food. Picard is located primarily in France with some international locations. ARYZTA also retains the right to exercise a call option to acquire the remaining outstanding interest in Picard between FY2019 and FY2021. Picard is separately managed and has separately funded debt structures, which are non-recourse to ARYZTA.
During January 2015, the Group acquired a 50.0% interest in Signature Flatbreads, a pioneering flatbread producer in India and the UK, producing an innovative range of authentic Indian breads, as well as high-quality international flatbreads, tortillas, pizza bases and pitas.
Associate and joint ventures had total revenues of €820m at average ARYZTA margins. The businesses performed to expectations, delivering an underlying contribution after interest and tax of €13,699,000 during the period, and continue to provide significant future growth opportunities for the Group.
As announced in September 2015, the Group expects net acquisition, disposal and restructuring related costs to decrease significantly going forward, compared to prior periods during the multi-year restructuring programme, which was aimed at integrating over 30 separately-acquired autonomous business units through replacing obsolete assets, optimising the distribution network and streamlining administrative functions.
During the period ended 31 January 2016, net acquisition, disposal and restructuring related costs primarily related to integration activities associated with recently acquired or disposed of business units in Food Europe and Food North America, as follows:
| Continuing operations in EUR `000 |
Non-cash 2016 |
Cash 2016 |
Total 2016 |
Total 2015 |
|---|---|---|---|---|
| Net gain/(loss) on disposal of businesses | 2,395 | – | 2,395 | (9,740) |
| Asset write-downs | (7,379) | – | (7,379) | (8,982) |
| Acquisition-related costs | – | (965) | (965) | (2,097) |
| Severance and other staff-related costs | – | (7,714) | (7,714) | (6,710) |
| Advisory and other costs | – | (6,094) | (6,094) | (11,195) |
| Net acquisition, disposal and restructuring related costs |
(4,984) | (14,773) | (19,757) | (38,724) |
During the period ended 31 January 2016, the Group disposed of two businesses, which historically generated approximately €100,000,000 in total annual revenues. As the €35,992,000 proceeds received, net of associated transaction costs, plus the estimated remaining proceeds receivable of €3,920,000 exceeded the €37,517,000 carrying value of the net assets disposed, a net gain on disposal of €2,395,000 has been reflected in the financial statements during the period.
During the period ended 31 January 2015, the Group agreed to exchange certain assets within the Food Europe operating segment, which historically generated approximately €100,000,000 in annual revenues, for a 50% interest in Signature Flatbreads (UK) Ltd. As the €56,256,000 total estimated fair value of the Group's 50% interest and the associated Vendor Loan Note receivable from the Joint Venture were less than the €66,099,000 carrying value of the associated net assets, an estimated loss on asset disposal and write-downs on contribution to joint venture in the amount of €9,740,000 was reflected in the financial statements during the period ended 31 January 2015, net of associated foreign exchange gains of €103,000.
The Group incurred €7,379,000 (2015: €8,982,000) of asset write-downs during the period ended 31 January 2016. These amounts relate to the write-down of certain distribution, manufacturing and administration assets, following the closure and / or reduction in activities expected to be generated from those assets. These reductions are the direct result of the Group's recent integration and rationalisation programme investments, which have replaced obsolete assets, optimised the distribution network and streamlined administrative functions.
During the period ended 31 January 2016, the Group incurred acquisition-related costs, such as share purchase tax, due diligence and other professional services fees totalling €965,000 (2015: €2,097,000). These costs primarily related to activities associated with the Group's acquisition of La Rousse Foods, a supplier of fresh, frozen and ambient goods to various restaurants, hotels and caterers in Ireland, as well as to the finalisation of the Group's associate interest investment in Picard. The costs incurred during the period ended 31 January 2015 primarily related to activities associated with the joint venture transaction with Signature Flatbreads (UK) Ltd.
The Group incurred €7,714,000 (2015: €6,710,000) in severance and other staff-related costs during the period. These primarily related to costs associated with employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group.
During the period ended 31 January 2016, the Group incurred €6,094,000 (2015: €11,195,000) in advisory and other costs related directly to the integration and rationalisation of the supply chain and distribution functions of recently acquired businesses into the Group's network, as well as costs associated with centralisation of certain administrative functions and contractual obligations due to volume transitions.
In March 2016 the Group agreed new terms for its revolving credit facility, which reduced the Group's credit capacity from CHF 1,977m to CHF 1,400m. CHF 500m of the new facility matures in March 2019, with the balance of CHF 900m maturing in 2021. The Group also has the option to extend the maturity of the CHF 500m portion of the facility to March 2021 and to increase the CHF 900m portion of the facility by up to CHF 150m. The financial covenants under the new facility remain broadly unchanged. The Group will benefit from new lower interest margins across the facility.
As of 31 January 2016, the Group's financing facilities, related capitalised upfront borrowing costs, finance leases, overdrafts and cash balances outstanding were as follows:
| Debt Funding as at January 2016 | Principal | Outstanding in EUR `000 |
|---|---|---|
| Syndicated Bank Loan | EUR 190m | (190,000) |
| Syndicated Bank Loan | USD 550m | (503,894) |
| Syndicated Bank Loan | CAD 80m | (52,209) |
| Syndicated Bank Loan | GBP 100m | (131,657) |
| Syndicated Bank Loan | CHF 230m | (207,413) |
| Private Placements | USD 1,340m | (1,227,668) |
| Private Placements | EUR 50m | (50,000) |
| Gross term debt | (2,362,841) | |
| Upfront borrowing costs | 15,741 | |
| Term debt, net of upfront borrowing costs | (2,347,100) | |
| Finance leases | (2,089) | |
| Cash and cash equivalents, net of overdrafts | 525,643 | |
| Net debt | (1,823,546) |
| Hybrid funding at 31 January 2016 exchange rates | (782,059) | |
|---|---|---|
| Hybrid funding fair value adjustment to period-end exchange rates | (61,603) | |
| Hybrid funding at historical cost, net of associated costs | (720,456) | |
| Hybrid funding - first call date April 2020 | CHF 190m | (155,679) |
| Hybrid funding - first call date March 2019 | EUR 250m | (245,335) |
| Hybrid funding - first call date April 2018 | CHF 400m | (319,442) |
| Instruments as at January 2016 |
ARYZTA intends to maintain an investment grade position in the range of 2x - 3x Net debt: EBITDA on its syndicated bank loan. As of 31 January 2016, the Group's interest cover, including hybrid interest, was 4.99x (July 2015 5.76x). The Group's key financial ratio was as follows:
| January 2016 | July 2015 | |
|---|---|---|
| Net Debt: EBITDA1 (syndicated bank loan) | 2.91x | 2.54x |
1 Calculated based on Food Group EBITDA for the 12 month period, including any dividends received, adjusted for the pro-forma full-year impact of completed acquisitions and disposals, as well as other adjustments in-line with the specific terms of the Group Syndicated Bank Loan Revolving Credit Facility.
As of 31 January 2016, the weighted average maturity of the Group's gross term debt outstanding, adjusted for the new revolving credit facility, is 4.89 years.
1 The Group term debt maturity profile is set out as at 31 January 2016, adjusted for the terms of the new revolving credit facility. Gross term debt at 31 January 2016 is €2,362.8m. Group net debt at 31 January 2016 is €1,823.5m, which also includes overdrafts and finance leases, and is net of cash and related capitalised upfront borrowing costs.
2 Incorporating the drawn amount on the Revolving Credit Facility of €1,085.2m as at 31 January 2016, which represents 46% of the Group gross term debt.
The principal euro foreign exchange currency rates used by the Group for the preparation of these Interim Financial Statements are as follows:
| Average | Average | Closing | Closing | |||
|---|---|---|---|---|---|---|
| Currency | H1 2016 | H1 2015 | % Change | H1 2016 | FY 2015 | % Change |
| CHF | 1.0862 | 1.1894 | 8.7% | 1.1089 | 1.0635 | (4.3)% |
| USD | 1.1020 | 1.2548 | 12.2% | 1.0915 | 1.1109 | 1.7% |
| CAD | 1.4806 | 1.4226 | (4.1)% | 1.5323 | 1.4446 | (6.1)% |
| GBP | 0.7276 | 0.7872 | 7.6% | 0.7596 | 0.7091 | (7.1)% |
| Cash generation - continuing operations | ||
|---|---|---|
| in EUR `000 | January 2016 | January 2015 |
| EBIT | 144,462 | 140,420 |
| Amortisation | 86,370 | 84,424 |
| EBITA | 230,832 | 224,844 |
| Depreciation | 69,025 | 64,990 |
| EBITDA | 299,857 | 289,834 |
| Working capital movement | 26,707 | (40,319) |
| Working capital movement from debtor securitisation | 39,984 | 90,699 |
| Maintenance capital expenditure | (39,615) | (46,637) |
| Segmental operating free cash generation | 326,933 | 293,577 |
| Investment capital expenditure1 | (68,777) | (172,095) |
| Acquisition and restructuring-related cash flows | (26,971) | (39,705) |
| Segmental operating free cash generation, after investment capital expenditure and integration costs |
231,185 | 81,777 |
| Dividends received from Origin - discontinued operations | – | 17,056 |
| Hybrid dividend | – | (16,815) |
| Interest and tax | (53,456) | (54,397) |
| Other non-cash income2 | (4,688) | (1,533) |
| Cash flow generated from activities | 173,041 | 26,088 |
| in EUR `000 | January 2016 | January 2015 |
|---|---|---|
| Opening net debt as at 1 August | (1,725,103) | (1,642,079) |
| Cash flow generated from activities | 173,041 | 26,088 |
| Disposal of businesses, net of cash and finance leases | 35,992 | – |
| Proceeds from disposal of interest in Origin | 225,101 | – |
| Investment in associate | (450,732) | – |
| Net debt cost of acquisitions | (26,917) | – |
| Contingent consideration | (42,118) | (3,280) |
| Hybrid instrument proceeds | – | 69,334 |
| Dividends paid | (4,603) | (4,330) |
| Foreign exchange movement3 | (5,566) | (305,292) |
| Other4 | (2,641) | (1,740) |
| Closing net debt as at 31 January | (1,823,546) | (1,861,299) |
1 Includes expenditure on intangible assets.
2 Other non-cash income comprises primarily amortisation of deferred income from government grants.
3 Foreign exchange movement for the period ended 31 January 2016 is primarily attributable to the fluctuation in the US Dollar to euro rate from July 2015 (1.1109) to January 2016 (1.0915), partially offset by fluctuations in other currency rates. Foreign exchange movement for the period ended 31 January 2015 was primarily attributable to the fluctuation in the US Dollar to euro rate from July 2014 (1.3430) to January 2015 (1.1358) and in the Swiss Franc to euro rate from July 2014 (1.2169) to January 2015 (1.0519).
4 Other comprises primarily amortisation of financing costs.
| Group Consolidated Balance Sheet in EUR `000 |
January 2016 | July 2015 |
|---|---|---|
| Property, plant and equipment | 1,566,682 | 1,543,263 |
| Investment properties | 25,015 | 25,916 |
| Goodwill and intangible assets | 3,694,663 | 3,797,269 |
| Deferred tax on acquired intangibles | (229,976) | (246,116) |
| Working capital | (360,774) | (218,669) |
| Other segmental liabilities | (104,456) | (132,849) |
| Segmental net assets | 4,591,154 | 4,768,814 |
| Associate held-for-sale | – | 270,870 |
| Associate and joint ventures | 520,716 | 60,711 |
| Net debt | (1,823,546) | (1,725,103) |
| Deferred tax, net | (94,620) | (95,423) |
| Income tax | (61,807) | (45,813) |
| Derivative financial instruments | (6,934) | (12,113) |
| Net assets | 3,124,963 | 3,221,943 |
ROIC is calculated using a pro-forma trailing twelve months segmental EBITA ('TTM EBITA') reflecting the full twelve months contribution from acquisitions and full twelve months deductions from disposals, divided by the respective Segmental Net Assets as of the end of each respective period.
| Food | Food | |
|---|---|---|
| North | Rest of | Total |
| America | World | Group |
| 2,528 | 189 | 4,591 |
| 274 | 26 | 520 |
| 10.8% | 13.7% | 11.3% |
| 2,602 | 204 | 4,769 |
| 275 | 27 | 522 |
| 10.6% | 13.2% | 10.9% |
1 See glossary in section 18 for definitions of financial terms and references used.
2 The Food Group WACC on a pre-tax basis is currently 7.8% (2015: 7.4%).
Underlying revenue growth was positive in the period and this momentum is expected to continue to develop in H2. Margins will remain under pressure, as in H1, due to supply chain contract renewals, bakery commissioning and increased brand support investment. The short-term focus is on underlying revenue growth and free cash flow, which will be the best investment barometer until the business has reported several periods of underlying growth in both revenue and earnings. For FY16 underlying fully diluted EPS should be in line with previous guidance, once adjusted for disposals during the period. The mediumterm focus and target profile post 2020 is unchanged.
The Board and senior management have invested significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. The Board considers the risks and uncertainties disclosed on page 57 of the ARYZTA AG 2015 Annual Report and Accounts to continue to reflect the principal risks and uncertainties of the Group over the remaining six months of the financial year.
This report contains forward looking statements, which reflect management's current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.
'Associate and JVs, net' – presented as profit from associate and JVs, net of taxes and interest, before non-ERP amortisation and the impact of associated non-recurring items.
'EBITA' – presented as earnings before interest, taxation, non-ERP related intangible amortisation; before net acquisition, disposal and restructuring-related costs and related tax credits.
'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation; before net acquisition, disposal and restructuring-related costs and related tax credits.
'ERP' – Enterprise Resource Planning intangible assets include the Group SAP system.
'Hybrid instrument' – presented as Perpetual Callable Subordinated Instrument in the Financial Statements.
'Segmental Net Assets' – Based on segmental net assets, which excludes associate and JVs, bank debt, cash and cash equivalents and tax balances, with the exception of deferred tax liabilities associated with non-ERP intangible assets, as those deferred tax liabilities represent a notional non-cash tax impact directly linked to segmental intangible assets recorded as part of a business combination, rather than an actual cash tax obligation.
'ROIC' is calculated using a pro-forma trailing twelve months segmental EBITA ('TTM EBITA') reflecting the full twelve months contribution from acquisitions and full twelve months deductions from disposals, divided by the Segmental Net Assets, as of the end of each respective period.
'Underlying earnings' – presented as reported net profit, adjusted to include the Hybrid instrument accrued dividend as finance cost; before non-ERP related intangible amortisation; before net acquisition, disposal and restructuring-related costs and before any non-controlling interest allocation of those adjustments, net of related tax impacts.
The Group utilises the Underlying earnings measure to enable comparability of the results from period to period, without the impact of transactions that do not relate to the underlying business. It is also the Group's policy to declare dividends based on underlying fully diluted earnings per share, as this provides a more consistent basis for returning dividends to shareholders.
for the six months ended 31 January 2016
| in EUR `000 | January 2016 | January 2015 |
|---|---|---|
| Underlying fully diluted net profit - continuing operations | 141,074 | 138,313 |
| Intangible amortisation | (86,370) | (84,424) |
| Tax on amortisation | 17,817 | 17,919 |
| Share of joint venture intangible amortisation, net of tax | (1,873) | – |
| Hybrid instrument accrued dividend | 15,876 | 14,359 |
| Net acquisition, disposal and restructuring-related costs | (19,757) | (38,724) |
| Tax on net acquisition, disposal and restructuring-related costs | 3,512 | 8,765 |
| Reported net profit - continuing operations | 70,279 | 56,208 |
| Underlying fully diluted net profit - discontinued operations | – | 6,214 |
| Intangible amortisation, non-recurring and other - discontinued operations |
– | (4,819) |
| Profit for the period - discontinued operations | – | 1,395 |
| Underlying contribution associate held-for-sale | 48 | – |
| Loss on disposal of associate held-for-sale | (45,769) | – |
| Reported net (loss)/profit - discontinued operations | (45,721) | 1,395 |
| Reported net profit attributable to equity shareholders | 24,558 | 57,603 |
for the six months ended 31 January 2016
| Six months ended 31 January |
||||
|---|---|---|---|---|
| in EUR `000 | Notes | 2016 Unaudited |
Represented 2015 Unaudited |
|
| Continuing Operations | ||||
| Revenue | 3 | 1,960,014 | 1,857,870 | |
| Cost of sales | (1,349,410) | (1,294,658) | ||
| Distribution expenses | (208,299) | (200,840) | ||
| Gross profit | 402,305 | 362,372 | ||
| Selling expenses | (93,544) | (76,529) | ||
| Administration expenses | (184,056) | (184,147) | ||
| Operating profit | 5 | 124,705 | 101,696 | |
| Share of profit/(loss) after tax of associate and joint ventures | 9 | 11,826 | (554) | |
| Profit before financing income, financing costs and income tax expense | 5 | 136,531 | 101,142 | |
| Financing income | 1,356 | 689 | ||
| Financing costs | (57,296) | (42,031) | ||
| Profit before income tax | 80,591 | 59,800 | ||
| Income tax expense | (8,019) | (1,206) | ||
| Profit for the period from continuing operations | 72,572 | 58,594 | ||
| Discontinued operations | ||||
| (Loss)/profit for the period from discontinued operations | 4 | (45,721) | 2,048 | |
| Profit for the period | 26,851 | 60,642 | ||
| Attributable as follows: | ||||
| Equity shareholders - continuing operations | 70,279 | 56,208 | ||
| Equity shareholders - discontinued operations | 4 | (45,721) | 1,395 | |
| Equity shareholders - total | 24,558 | 57,603 | ||
| Non-controlling interests - continuing operations | 2,293 | 2,386 | ||
| Non-controlling interests - discontinued operations | 4 | – | 653 | |
| Non-controlling interests - total | 2,293 | 3,039 | ||
| Profit for the period | 26,851 | 60,642 | ||
| Six months ended 31 January |
||||
| 2016 | 2015 | |||
| Basic earnings per share | Notes | euro cent | euro cent | |
| From continuing operations | 8 | 61.3 cent | 47.2 cent | |
| From discontinued operations | 8 8 |
(51.5) cent 9.8 cent |
1.6 cent 48.8 cent |
|
| Diluted earnings per share | Notes | 2016 euro cent |
2015 euro cent |
|
| From continuing operations | 8 | 61.1 cent | 46.7 cent | |
| From discontinued operations | 8 | (51.3) cent | 1.6 cent | |
| 8 | 9.8 cent | 48.3 cent |
| Six months ended | 31 January | ||
|---|---|---|---|
| in EUR `000 | Notes | 2016 Unaudited |
Represented 2015 Unaudited |
| Profit for the period | 26,851 | 60,642 | |
| Other comprehensive (loss)/income | |||
| Items that may be reclassified subsequently to profit or loss: | |||
| Foreign exchange translation effects | |||
| – Foreign currency net investments | (41,880) | 344,990 | |
| – Foreign currency borrowings | 10 | (7,498) | (312,070) |
| – Foreign exchange translation effects related to discontinued operations | – | 6,745 | |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | 9,449 | (21,058) | |
| – Fair value of cash flow hedges transferred to income statement | (4,558) | 2,603 | |
| – Deferred tax effect of cash flow hedges | (833) | 1,510 | |
| – Cash flow hedges gain related to discontinued operations, net of tax | – | 3,352 | |
| Total of items that may be reclassified subsequently to profit or loss | (45,320) | 26,072 | |
| Items that will not be reclassified to profit or loss: | |||
| Defined benefit plans | |||
| – Actuarial loss on Group defined benefit pension plans | (6,421) | (9,652) | |
| – Deferred tax effect of actuarial loss | 1,099 | 1,979 | |
| – Discontinued operations loss on defined benefit plans, net of tax | – | (12,638) | |
| Total of items that will not be reclassified to profit or loss | (5,322) | (20,311) | |
| Total other comprehensive (loss)/income | (50,642) | 5,761 | |
| Total comprehensive (loss)/income for the period | (23,791) | 66,403 | |
| Attributable as follows: | |||
| Equity shareholders of the Company | (24,351) | 61,983 | |
| Non-controlling interests | 560 | 4,420 | |
| Total comprehensive (loss)/income for the period | (23,791) | 66,403 | |
as at 31 January 2016
| 31 January | 31 July | ||
|---|---|---|---|
| in EUR `000 | Notes | 2016 Unaudited |
2015 Audited |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 1,566,682 | 1,543,263 | |
| Investment properties | 25,015 | 25,916 | |
| Goodwill and intangible assets | 3,694,663 | 3,797,269 | |
| Investments in associate and joint ventures | 9 | 492,813 | 32,067 |
| Receivables from associate and joint ventures | 27,903 | 28,644 | |
| Deferred income tax assets | 107,004 | 105,579 | |
| Total non-current assets | 5,914,080 | 5,532,738 | |
| Current assets | |||
| Inventory | 253,266 | 259,855 | |
| Trade and other receivables | 197,494 | 264,036 | |
| Derivative financial instruments | 4,600 | 653 | |
| Cash and cash equivalents | 10 | 544,836 | 316,867 |
| Total current assets | 1,000,196 | 841,411 | |
| Associate held-for-sale | 4 | – | 270,870 |
| Total assets | 6,914,276 | 6,645,019 |
as at 31 January 2016 (continued)
| 31 January | 31 July | ||
|---|---|---|---|
| in EUR `000 | Notes | 2016 Unaudited |
2015 Audited |
| Equity | |||
| Called up share capital | 1,172 | 1,172 | |
| Share premium | 774,040 | 774,040 | |
| Retained earnings and other reserves | 2,335,358 | 2,428,295 | |
| Total equity attributable to equity shareholders | 3,110,570 | 3,203,507 | |
| Non-controlling interests | 14,393 | 18,436 | |
| Total equity | 3,124,963 | 3,221,943 | |
| Liabilities | |||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 10 | 2,312,317 | 1,937,176 |
| Employee benefits | 21,504 | 15,274 | |
| Deferred income from government grants | 25,181 | 16,998 | |
| Other payables | 51,250 | 51,917 | |
| Deferred income tax liabilities | 431,600 | 447,118 | |
| Derivative financial instruments | 5,496 | 5,401 | |
| Total non-current liabilities | 2,847,348 | 2,473,884 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 10 | 56,065 | 104,794 |
| Trade and other payables | 811,534 | 742,560 | |
| Income tax payable | 61,807 | 45,813 | |
| Derivative financial instruments | 6,038 | 7,365 | |
| Contingent consideration | 6,521 | 48,660 | |
| Total current liabilities | 941,965 | 949,192 | |
| Total liabilities | 3,789,313 | 3,423,076 | |
| Total equity and liabilities | 6,914,276 | 6,645,019 | |
| for the six months ended 31 January 2016 in EUR `000 |
Share capital |
Share premium |
Treasury shares |
Other equity reserve |
Cash flow hedge reserve |
Share based payment reserve |
Foreign currency translation reserve |
Retained earnings |
Total share holders equity |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2015 | 1,172 | 774,040 | (47) | 720,456 | (10,264) | – | (5,153) 1,723,303 3,203,507 | 18,436 3,221,943 | |||
| Profit for the period | – | – | – | – | – | – | – | 24,558 | 24,558 | 2,293 | 26,851 |
| Other comprehensive (loss)/income |
– | – | – | – | 4,058 | – | (48,710) | (4,257) | (48,909) | (1,733) | (50,642) |
| Total comprehensive (loss)/income |
– | – | – | – | 4,058 | – | (48,710) | 20,301 | (24,351) | 560 | (23,791) |
| Equity dividends | – | – | – | – | – | – | – | (52,710) | (52,710) | – | (52,710) |
| Dividends to non-controlling interests |
– | – | – | – | – | – | – | – | – | (4,603) | (4,603) |
| Dividend on perpetual callable subordinated instruments |
– | – | – | – | – | – | – | (15,876) | (15,876) | – | (15,876) |
| Total transactions with owners recognised directly in equity |
– | – | – | – | – | – | – | (68,586) | (68,586) | (4,603) | (73,189) |
| At 31 January 2016 | 1,172 | 774,040 | (47) | 720,456 | (6,206) | – | (53,863) 1,675,018 3,110,570 | 14,393 3,124,963 |
| for the six months ended 31 January 2015 in EUR `000 |
Share capital |
Share premium |
Treasury shares |
Other equity reserve |
Cash flow hedge reserve |
Revalua tion reserve |
Share based payment reserve |
Foreign currency trans lation reserve |
Retained earnings |
Total share holders equity |
Non controlling interests |
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2014 | 1,172 | 773,735 | (55) | 604,446 | (3,616) | 13,322 | 19,454 (29,045) 1,324,2922,703,705 | 87,752 2,791,457 | ||||
| Profit for the period | – | – | – | – | – | – | – | – | 57,603 | 57,603 | 3,039 | 60,642 |
| Other comprehensive income/(loss) |
– | – | – | – | (14,661) | – | – | 35,326 | (16,285) | 4,380 | 1,381 | 5,761 |
| Total comprehensive income/(loss) |
– | – | – | – (14,661) | – | – | 35,326 | 41,318 | 61,983 | 4,420 | 66,403 | |
| Issue of perpetual callable subordinated instruments |
– | – | – | 401,014 | – | – | – | – | – | 401,014 | – | 401,014 |
| Redemption of perpetual callable subordinated instrument |
– | – | – (285,004) | – | – | – | – | (46,676) (331,680) | – (331,680) | |||
| Release of treasury shares due to exercise of LTIP |
– | – | 7 | – | – | – | – | – | – | 7 | – | 7 |
| Share-based payments | – | – | – | – | – | – | 2,777 | – | – | 2,777 | – | 2,777 |
| Transfer of share-based payment reserve to retained earnings |
– | – | – | – | – | – | (19,919) | – | 19,919 | – | – | – |
| Equity dividends | – | – | – | – | – | – | – | – | (65,034) | (65,034) | – | (65,034) |
| Dividends to non-controlling interests |
– | – | – | – | – | – | – | – | – | – | (12,307) | (12,307) |
| Dividend on perpetual callable subordinated instruments |
– | – | – | – | – | – | – | – | (14,359) | (14,359) | – | (14,359) |
| Total contributions by and distributions to owners of the company |
– | – | 7 | 116,010 | – | – (17,142) | – (106,150) | (7,275) (12,307) (19,582) | ||||
| Non-controlling interests acquired |
– | – | – | – | – | – | – | – | (59) | (59) | (134) | (193) |
| Total transactions with owners of the company recognised directly in |
||||||||||||
| equity | – | – | 7 | 116,010 | – | – (17,142) | – (106,209) | (7,334) (12,441) (19,775) | ||||
| At 31 January 2015 | 1,172 | 773,735 | (48) | 720,456 (18,277) | 13,322 | 2,312 | 6,2811,259,4012,758,354 | 79,7312,838,085 |
for the six months ended 31 January 2016
| Six months ended 31 January |
||||
|---|---|---|---|---|
| in EUR `000 | Notes | 2016 Unaudited |
Represented 2015 Unaudited |
|
| Cash flows from operating activities | ||||
| Profit for the period from continuing operations | 72,572 | 58,594 | ||
| Income tax expense | 8,019 | 1,206 | ||
| Financing income | (1,356) | (689) | ||
| Financing costs | 57,296 | 42,031 | ||
| Share of (profit)/loss after tax of associate / joint ventures | 9 | (11,826) | 554 | |
| Net (gain)/loss on disposal of businesses | 5 | (2,395) | 9,740 | |
| Asset write-downs | 5 | 7,379 | 8,982 | |
| Other restructuring-related payments in excess of current-period costs | (12,198) | (19,865) | ||
| Depreciation of property, plant and equipment | 62,672 | 56,654 | ||
| Amortisation of intangible assets | 92,723 | 92,760 | ||
| Recognition of deferred income from government grants | (1,835) | (1,643) | ||
| Share-based payments | 6 | – | 2,524 | |
| Other | (2,853) | (2,252) | ||
| Cash flows from operating activities before changes in working capital | 268,198 | 248,596 | ||
| Increase in inventory | (7,825) | (15,025) | ||
| Decrease in trade and other receivables | 61,369 | 86,497 | ||
| Increase/(decrease)in trade and other payables | 13,147 | (21,092) | ||
| Cash generated from operating activities | 334,889 | 298,976 | ||
| Interest paid, net | (44,062) | (38,473) | ||
| Income tax paid | (9,394) | (15,924) | ||
| Net cash flows from operating activities - continuing operations | 281,433 | 244,579 | ||
| Net cash flows from operating activities - discontinued operations | – | (115,774) | ||
| Net cash flows from operating activities | 281,433 | 128,805 |
for the six months ended 31 January 2016
| Six months ended 31 January |
||||
|---|---|---|---|---|
| Represented | ||||
| 2016 | 2015 | |||
| in EUR `000 | Notes | Unaudited | Unaudited | |
| Cash flows from investing activities | ||||
| Proceeds from sale of property, plant and equipment | 549 | 198 | ||
| Purchase of property, plant and equipment | ||||
| – maintenance capital expenditure | (39,615) | (46,637) | ||
| – investment capital expenditure | (53,546) | (134,574) | ||
| Investment in associate | 9 | (450,732) | – | |
| Acquisitions of subsidiaries and businesses, net of cash acquired | 11 | (26,447) | – | |
| Proceeds from disposal of Origin, net of cash disposed | 4 | 225,101 | – | |
| Disposal of subsidiaries and business, net of cash disposed | 5 | 35,992 | – | |
| Purchase of intangible assets | (15,231) | (37,521) | ||
| Movement in receivables from associate and joint ventures | (964) | – | ||
| Contingent consideration paid | (42,118) | (3,280) | ||
| Investing cash flows from discontinued operations | – | (1,991) | ||
| Net cash flows from investing activities | (367,011) | (223,805) | ||
| Cash flows from financing activities | ||||
| Issue of perpetual callable subordinated instrument | – | 401,014 | ||
| Repayment of perpetual callable subordinated instrument | – | (331,680) | ||
| Gross drawdown of loan capital | 10 | 366,223 | – | |
| Gross repayment of loan capital | 10 | – | (59,610) | |
| Capital element of finance lease liabilities | 10 | (328) | (5) | |
| Dividends paid on perpetual callable subordinated instruments | – | (16,815) | ||
| Repurchase of non-controlling interests | – | (193) | ||
| Dividends paid to non-controlling interests | (4,603) | (4,330) | ||
| Financing cash flows from discontinued operations | – | 79,508 | ||
| Net cash flows from financing activities | 361,292 | 67,889 | ||
| Net increase in cash and cash equivalents | 10 | 275,714 | (27,111) | |
| Translation adjustment | 10 | 1,896 | 10,129 | |
| Net cash and cash equivalents at start of period | 10 | 248,033 | 438,807 | |
| Net cash and cash equivalents at end of period | 10 | 525,643 | 421,825 |
for the six months ended 31 January 2016
The Group Condensed Consolidated Interim Financial Statements (hereafter the 'Interim Financial Statements') have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ('IAS 34').
These Interim Financial Statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's most recent Annual Financial Statements in respect of the year ended 31 July 2015, which have been prepared in accordance with International Financial Reporting Standards ('IFRS').
These Interim Financial Statements for the six months ended 31 January 2016 and the comparative figures for the six months ended 31 January 2015 are unaudited and have not been reviewed by the auditors. The extracts from the Group's Annual Financial Statements for the year ended 31 July 2015 represent an abbreviated version of the Group's full accounts for that year, on which the auditors issued an unqualified audit report.
Following the reduction in the Group's ownership interest in Origin Enterprises plc ('Origin') from 68.1% to 29.0% in March 2015, and the classification of the remaining investment in Origin as an associate held-for-sale, the corresponding amounts included in the 31 January 2015 Group Consolidated Income Statement, Consolidated Statement of Comprehensive Income and Consolidated Cash Flow Statement related to Origin have been represented, in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations", and presented as a single Discontinued Operations amount within each of these respective statements and the related notes.
Certain other amounts in the 31 January 2015 and 31 July 2015 comparative financial statement figures and related notes have been reclassified to conform to the 31 January 2016 presentation. The reclassifications were made for presentation purposes to better align the Group's financial statement presentation to a more commonly used approach and have no effect on total revenues, expenses, profit for the period, total assets, total liabilities, total equity or cash flow classifications as previously reported.
Income tax expense is recognised based upon the best estimate of the average annual income tax rate expected for the full year.
The principal euro foreign exchange currency rates used by the Group for the preparation of these Interim Financial Statements are as follows:
| Average | Average | % | Closing | Closing | % | |
|---|---|---|---|---|---|---|
| Currency | H1 2016 | H1 2015 | Change | H1 2016 | FY 2015 | Change |
| CHF | 1.0862 | 1.1894 | 8.7% | 1.1089 | 1.0635 | (4.3)% |
| USD | 1.1020 | 1.2548 | 12.2% | 1.0915 | 1.1109 | 1.7% |
| CAD | 1.4806 | 1.4226 | (4.1)% | 1.5323 | 1.4446 | (6.1)% |
| GBP | 0.7276 | 0.7872 | 7.6% | 0.7596 | 0.7091 | (7.1)% |
Except as described below, the Interim Financial Statements have been prepared on the basis of the accounting policies, significant judgements, key assumptions and estimates, as set out on pages 74 to 88 of the ARYZTA AG 2015 Annual Report and Accounts.
The IFRS applied by the Group in preparation of these financial statements are those that were effective for accounting periods beginning on or before 1 August 2015. There are no new standards and interpretations, issued by the International Accounting Standards Board ('IASB') and the IFRS Interpretations Committee, which are effective for the first time in the current financial period.
The Group has not applied early adoption of any standards which are not yet effective.
3 Analysis by business segment
1 There were no significant intercompany revenues between business segments.
2 Certain central executive and support costs have been allocated against the operating results of each business segment.
3 Share of profit/(loss) after tax of associate / joint ventures, finance income/(costs) and income tax expense are managed on a centralised basis. Therefore, these items are not allocated between business segments for the purposes of presenting information to the Chief Operating Decision Maker.
in EUR `000
| II) Segment assets | Food Europe |
Food North America |
Food Rest of World |
Total Continuing Operations |
||||
|---|---|---|---|---|---|---|---|---|
| as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
|
| in EUR `000 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Segment assets | 2,430,622 2,513,401 3,050,617 3,107,704 | 255,881 | 269,234 5,737,120 5,890,339 | |||||
| Reconciliation to total assets as reported in the Group Consolidated Balance Sheet |
||||||||
| Investments in associate / joint ventures and related financial assets |
520,716 | 60,711 | ||||||
| Associate held-for-sale | – | 270,870 | ||||||
| Derivative financial instruments | 4,600 | 653 | ||||||
| Cash and cash equivalents | 544,836 | 316,867 | ||||||
| Deferred income tax assets | 107,004 | 105,579 | ||||||
| Total assets as reported in Group Consolidated Balance Sheet |
6,914,276 6,645,019 | |||||||
| III) Segment liabilities | Food Europe |
Food North America |
Food Rest of World |
Total Continuing Operations |
||||
| as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
as at 31 Jan |
as at 31 Jul |
| 556,905 | 550,965 | 522,850 | 505,284 | 66,211 | ||
|---|---|---|---|---|---|---|
| Reconciliation to total liabilities as reported in the | ||||||
| 2,368,382 2,041,970 | ||||||
| 11,534 | 12,766 | |||||
| 263,431 | 246,815 | |||||
| 3,789,313 3,423,076 | ||||||
| 65,276 1,145,966 1,121,525 |
2016
2015
2016
2015
2016
2015
2015
2016
During March 2015, ARYZTA announced the completion of its offering of 49 million ordinary shares of Origin for €8.25 per share, which raised net proceeds for ARYZTA of €398,108,000. Following the March placing, the Group's investment in Origin was reduced from 68.1% to 29.0% and Origin was accounted for as an associate held-for-sale, recorded at fair value, less costs to sell, rather than as a fully-consolidated subsidiary.
In accordance with IFRS 5, as Origin previously represented a significant component and separately reported segment of the Group, Origin's results have been separately presented in the Group Financial Statements as Discontinued Operations, in both the current and prior periods.
During September 2015, ARYZTA announced the completion of its offering of its remaining 36.3 million ordinary shares of Origin for €6.30 per share, which raised net proceeds for ARYZTA of €225,101,000. As the fair value of the 29.0% investment in associate held-for-sale at 31 July 2015 was €270,870,000, this resulted in a net loss on disposal in the current period of €45,769,000. This divestment simplifies the reporting structure and transforms ARYZTA into a business fully focused on speciality food.
Analysis of the result of discontinued operations in both periods, including the loss recognised on the disposal of the associate held-for-sale, is as follows:
| Six months ended 31 January |
||
|---|---|---|
| in EUR `000 | 2016 | 2015 |
| Revenue | – | 531,599 |
| Cost of sales | – | (458,871) |
| Distribution expenses | – | (13,336) |
| Gross profit | – | 59,392 |
| Selling expenses | – | (23,050) |
| Administration expenses | – | (36,460) |
| Operating profit | – | (118) |
| Share of profit after tax of associate and joint venture | – | 4,628 |
| Profit before financing income, financing costs and income tax | – | 4,510 |
| Financing costs, net | – | (2,789) |
| Profit before income tax | – | 1,721 |
| Income tax credit | – | 327 |
| Profit after tax from discontinued operations | – | 2,048 |
| Underlying contribution associate held-for-sale | 48 | – |
| Cash received, net of transaction costs | 225,101 | – |
| Carrying value of 29% interest disposed | (270,870) | – |
| (Loss)/profit for the period from discontinued operations | (45,721) | 2,048 |
| Attributable as follows: | ||
| Equity shareholders - discontinued operations | (45,721) | 1,395 |
| Non-controlling interests - discontinued operations | – | 653 |
| (Loss)/profit for the period from discontinued operations | (45,721) | 2,048 |
Management has also identified certain acquisition, disposal and restructuring-related costs within each functional area that do not relate to the underlying business of the Group. Due to the relative size or nature of these items, they have been presented as separate components of operating profit in the table below, in order to enable comparability of the Group's underlying results from period to period, and have been excluded from the calculation of underlying fully diluted net profit in note 8.
| IFRS Income Statement |
Net acquisition, disposal, restructuring related costs |
Intangible amortisation |
Financial Business Review |
IFRS Income Statement |
Net acquisition, disposal, restructuring related costs |
Intangible amortisation |
Financial Business Review |
|
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2016 | 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | 2015 |
| Revenue | 1,960,014 | – | – 1,960,014 | 1,857,870 | – | – | 1,857,870 | |
| Cost of sales | (1,349,410) | 13,158 | – (1,336,252) | (1,294,658) | 14,565 | – (1,280,093) | ||
| Distribution expenses | (208,299) | 1,959 | – | (206,340) | (200,840) | 3,226 | – | (197,614) |
| Gross profit | 402,305 | 15,117 | – | 417,422 | 362,372 | 17,791 | – | 380,163 |
| Selling expenses | (93,544) | 1,456 | – | (92,088) | (76,529) | 129 | – | (76,400) |
| Administration expenses | (184,056) | 3,184 | 86,370 | (94,502) | (184,147) | 20,804 | 84,424 | (78,919) |
| Operating profit of continuing operations | 124,705 | 19,757 | 86,370 | 230,832 | 101,696 | 38,724 | 84,424 | 224,844 |
| Associate and joint ventures | 11,826 | – | 1,873 | 13,699 | (554) | – | – | (554) |
| Profit of continuing operations before financing income, financing costs and income tax expense |
136,531 | 19,757 | 88,243 | 244,531 | 101,142 | 38,724 | 84,424 | 224,290 |
| Food Europe Six months ended |
31 January | Food North America Six months ended |
31 January | Food Rest of World Six months ended 31 January |
Total Continuing Operations Six months ended |
31 January | |||
|---|---|---|---|---|---|---|---|---|---|
| in EUR `000 | Notes | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 |
| Net gain/(loss) on disposal of businesses |
5.1 | (3,291) | (9,740) | 5,686 | – | – | – | 2,395 | (9,740) |
| Asset write-downs | 5.2 | (301) | – | (7,078) | (8,982) | – | – | (7,379) | (8,982) |
| Total net loss on disposal of businesses and asset write-downs |
(3,592) | (9,740) | (1,392) | (8,982) | – | – | (4,984) | (18,722) | |
| Acquisition-related costs | (965) | (1,942) | – | (155) | – | – | (965) | (2,097) | |
| Severance and other staff-related costs |
(4,000) | (3,768) | (3,330) | (2,924) | (384) | (18) | (7,714) | (6,710) | |
| Advisory and other costs | (1,776) | (4,045) | (4,318) | (4,892) | – | (2,258) | (6,094) | (11,195) | |
| Total acquisition and restructuring related costs |
5.3 | (6,741) | (9,755) | (7,648) | (7,971) | (384) | (2,276) | (14,773) | (20,002) |
| Total acquisition, disposal and restructuring-related costs |
(10,333) | (19,495) | (9,040) | (16,953) | (384) | (2,276) | (19,757) | (38,724) |
During the period ended 31 January 2016, the Group disposed of two businesses, which historically generated approximately €100,000,000 in total annual revenues. As the €35,992,000 proceeds received, net of associated transaction costs, plus the estimated remaining proceeds receivable of €3,920,000 exceeded the €37,517,000 carrying value of the net assets disposed (including €20,573,000 of goodwill), a net gain on disposal of €2,395,000 has been reflected in the financial statements during the period.
During the period ended 31 January 2015, the Group agreed to exchange certain assets within the Food Europe operating segment, which historically generated approximately €100,000,000 in annual revenues, for a 50% interest in Signature Flatbreads (UK) Ltd. As the €56,256,000 total estimated fair value of the Group's 50% interest and the associated Vendor Loan Note receivable from the Joint Venture were less than the €66,099,000 carrying value of the associated net assets, an estimated loss on asset disposal and write-downs on contribution to joint venture in the amount of €9,740,000 was reflected in the financial statements during the period ended 31 January 2015, net of associated foreign exchange gains of €103,000.
The Group incurred €7,379,000 (2015: €8,982,000) of asset write-downs during the period. These amounts relate to the write-down of certain distribution, manufacturing and administration assets, following the closure and / or reduction in activities expected to be generated from those assets. These reductions are the direct result of the Group's recent integration and rationalisation programme investments, which have replaced obsolete assets, optimised the distribution network and streamlined administrative functions.
During the period ended 31 January 2016, the Group completed its associate interest investment in 49.5% of Picard, as well as a bolt-on acquisition in Ireland. During the period ended 31 January 2015, progress continued on integrating recent acquisitions and aligning the operational processes of those businesses to the Group's existing network. As a result of these investments, the Group has recognised costs, including providing for amounts as required by IAS 37, 'Provisions, Contingent Liabilities and Contingent Assets', in the Group Consolidated Income Statement as follows:
During the period ended 31 January 2016, the Group incurred acquisition-related costs such as share purchase tax, due diligence and other professional services fees totalling €965,000 (2015: €2,097,000). These costs primarily related to activities associated with the Group's acquisition of La Rousse Foods, a supplier of fresh, frozen and ambient goods to various restaurants, hotels and caterers in Ireland, as well as to the finalisation of the Group's associate interest investment in Picard. The costs incurred during the period ended 31 January 2015 primarily related to activities associated with the joint venture transaction with Signature Flatbreads (UK) Ltd.
The Group incurred and provided for €7,714,000 (2015: €6,710,000) in severance and other staff-related costs during the period. These primarily related to costs associated with employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group.
During the period ended 31 January 2016, the Group incurred €6,094,000 (2015: €11,195,000) in advisory and other costs related directly to the integration and rationalisation of the supply chain and distribution functions of recently acquired businesses into the Group's network, as well as costs associated with centralisation of certain administrative functions and contractual obligations due to volume transitions.
The Group had outstanding grants of equity-based incentives under the ARYZTA Option Equivalent Plan LTIP during the period ended 31 January 2016.
The total cost reported in the Group consolidated financial statements in the current period in relation to equity settled share-based payments was €Nil (2015: €2,777,000), of which €Nil (2015: €2,524,000) was reported in the Group Consolidated Income Statement.
Analysis of movements within the LTIP plan during the period are as follows:
| Weighted conversion |
Number of equity |
|
|---|---|---|
| price 2016 | entitlements | |
| Option Equivalent Plan awards | in CHF | 2016 |
| Outstanding at beginning of the period | 55.21 | 2,574,500 |
| Issued during the period | 44.28 | 2,172,500 |
| Exercised during the period | – | – |
| Forfeited during the period | 44.28 | (150,000) |
| Outstanding at the end of the period | 50.40 | 4,597,000 |
| Vested at end of the period | 39.36 | 1,594,500 |
| Option Equivalent Plan awards outstanding by | Conversion price |
Number of equity |
Actual remaining life |
|---|---|---|---|
| conversion price | in CHF | entitlements | (years) |
| Issued during financial year 2010 | 37.23 | 550,000 | 3.6 |
| Issued during financial year 2012 | 39.95 | 962,500 | 5.7 |
| Issued during financial year 2013 | 46.70 | 82,000 | 6.9 |
| Issued during financial year 2015 | 81.00 | 980,000 | 8.7 |
| Issued during financial year 2016 | 44.28 | 2,022,500 | 9.7 |
| As of 31 January 2016 | 50.40 | 4,597,000 | 7.8 |
The equity instruments granted under the ARYZTA Option Equivalent Plan LTIP are equity-settled share-based payments, as defined in IFRS 2, 'Share-based Payment'. The Group has no legal or constructive obligation to repurchase or settle the Option Equivalent awards in cash.
Vesting of the awards under the Option Equivalent Plan is conditional on compound annual growth in underlying fully diluted EPS (including the associated cost of any awards expected to vest) in three consecutive accounting periods exceeding the compound growth in the Euro-zone Core Consumer Price Index, plus 5%, on an annualised basis.
Awards under the Option Equivalent Plan are subject to additional conditions, including notably:
The Option Equivalent Plan awards granted in the periods before financial year 2015 can be exercised as of the time the performance conditions described above have been met, but no longer than ten years after grant date. Awards granted during financial year 2015 and thereafter, which meet the conditions for vesting after the three year performance period, are subject to additional conditions, including notably an additional two year holding period before they can be exercised.
The weighted average fair value assigned to the 2,172,500 share option equivalents granted during the period ended 31 January 2016 was CHF 6.80, which was determined using the Black-Scholes valuation model. The significant inputs into the model were the price of the shares as at the grant date, an expected option life of 5.0 years, expected share price volatility of 23.11%, the exercise price of CHF 44.28 or €40.56, the expected dividend yield of 1.5% and the risk-free rate of (0.54)%.
There were no Option Equivalent Plan awards exercised during the period ended 31 January 2016.
The weighted average exercise price of all 1,594,500 Option Equivalent Plan awards that remain outstanding, and for which the vesting conditions have been met, is CHF 39.36.
The proposed dividend covering the year ended 31 July 2015 of CHF 0.6555 (31 July 2014: CHF 0.7646) per registered share was approved at the annual general meeting held on 8 December 2015. The total resulting dividend of €52,710,000 (2015: €65,034,000) was paid in February 2016 to those shareholders holding shares in ARYZTA AG on 27 January 2016.
| Six months ended 31 January |
||
|---|---|---|
| 2016 | 2015 | |
| Basic earnings per share | in EUR '000 | in EUR '000 |
| Profit attributable to equity shareholders - continuing operations | 70,279 | 56,208 |
| (Loss)/profit attributable to equity shareholders - discontinued | ||
| operations | (45,721) | 1,395 |
| Profit attributable to equity shareholders - total | 24,558 | 57,603 |
| Profit attributable to equity shareholders - continuing operations | 70,279 | 56,208 |
| Perpetual callable subordinated instrument accrued dividend | (15,876) | (14,359) |
| Profit used to determine basic EPS - continuing operations | 54,403 | 41,849 |
| (Loss)/profit used to determine basic EPS - discontinued operations | (45,721) | 1,395 |
| Profit used to determine basic EPS - total | 8,682 | 43,244 |
| Weighted average number of ordinary shares | '000 | '000 |
| Ordinary shares outstanding at 1 August1 | 88,759 | 88,175 |
| Effect of exercise of equity instruments during the period | – | 380 |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,555 |
| Basic earnings per share from continuing operations | 61.3 cent | 47.2 cent |
| Basic (loss)/earnings per share from discontinued operations | (51.5) cent | 1.6 cent |
| Basic earnings per share | 9.8 cent | 48.8 cent |
| 2016 | 2015 | |
| Diluted earnings per share | in EUR '000 | in EUR '000 |
| Profit used to determine diluted EPS - continuing operations | 54,403 | 41,849 |
| (Loss)/profit used to determine basic EPS - discontinued operations | (45,721) | 1,395 |
| Effect on non-controlling interests share of reported profits, due to dilutive impact of Origin management equity entitlements |
– | (6) |
| (Loss)/profit used to determine diluted EPS - discontinued operations | (45,721) | 1,389 |
| Profit used to determine diluted EPS - total | 8,682 | 43,238 |
| Weighted average number of ordinary shares (diluted) | '000 | '000 |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,555 |
| Effect of equity-based incentives with a dilutive impact | 280 | 998 |
| Weighted average ordinary shares used to determine diluted EPS | 89,039 | 89,553 |
| Diluted earnings per share from continuing operations | 61.1 cent | 46.7 cent |
| Diluted (loss)/earnings per share from discontinued operations | (51.3) cent | 1.6 cent |
| Diluted earnings per share | 9.8 cent | 48.3 cent |
1 Issued share capital excludes treasury shares.
In addition to the basic and diluted earnings per share measures required by IAS 33, 'Earnings Per Share', as calculated above, the Group also presents an underlying fully diluted earnings per share measure, in accordance with IAS 33 paragraph 73. This additional measure enables comparability of the Group's underlying results from period to period, without the impact of transactions that do not relate to the underlying business. It is also the Group's policy to declare dividends based on underlying fully diluted earnings per share, as this provides a more consistent basis for returning dividends to shareholders.
As shown below, for purposes of calculating this measure, the Group adjusts reported net profit by the following items and their related tax impacts:
| Six months ended 31 January |
||
|---|---|---|
| 2016 | 2015 | |
| Underlying fully diluted earnings per share | in EUR '000 | in EUR '000 |
| Profit used to determine basic EPS - continuing operations | 54,403 | 41,849 |
| Amortisation of non-ERP intangible assets | 86,370 | 84,424 |
| Tax on amortisation of non-ERP intangible assets | (17,817) | (17,919) |
| Share of associate intangible amortisation, net of tax (note 9) | 1,873 | – |
| Net acquisition, disposal and restructuring-related costs (note 5) | 19,757 | 38,724 |
| Tax on net acquisition, disposal and restructuring-related costs | (3,512) | (8,765) |
| Underlying net profit - continuing operations | 141,074 | 138,313 |
| (Loss)/profit used to determine basic EPS - discontinued operations | (45,721) | 1,395 |
| Underlying contribution as associate - discontinuing operations | (48) | – |
| Amortisation, non-recurring and other - discontinued operations | – | 4,819 |
| Loss on disposal of discontinued operations | 45,769 | – |
| Underlying fully diluted net profit - discontinued operations | – | 6,214 |
| Underlying fully diluted net profit - total | 141,074 | 144,527 |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,555 |
| Underlying basic earnings per share - continuing operations | 158.9 cent 156.2 cent | |
| Underlying basic earnings per share - discontinued operations | – cent | 7.0 cent |
| Underlying basic earnings per share - total | 158.9 cent 163.2 cent | |
| Weighted average ordinary shares used to determine fully diluted EPS | 89,039 | 89,553 |
| Underlying fully diluted earnings per share - continuing operations | 158.4 cent 154.5 cent | |
| Underlying fully diluted earnings per share - discontinued operations | – cent | 6.9 cent |
| Underlying fully diluted earnings per share - total | 158.4 cent 161.4 cent |
| Share of associate | |
|---|---|
| Continuing operations in EUR '000 |
and joint ventures net assets |
| At 1 August 2015 | 32,067 |
| Share of profit after tax and before intangible amortisation | 13,699 |
| Group share of intangible amortisation | (1,873) |
| Investment in associate | 450,732 |
| Translation adjustments | (1,812) |
| At 31 January 2016 | 492,813 |
During August 2015, the Group acquired a 49.5% interest in Picard, which operates an asset light business-to-consumer platform, focused on premium speciality food. Picard is located primarily in France, but is also capable of transferring internationally. ARYZTA also retains the right to exercise a call option to acquire the remaining outstanding interest in Picard between 2018 and 2020. Picard remains separately managed and have separately funded debt structures, which is non-recourse to ARYZTA.
During January 2015, the Group acquired a 50.0% interest in Signature Flatbreads, a pioneering flatbread producer in India and the UK, producing an innovative range of authentic Indian breads, as well as high-quality international flatbreads, tortillas, pizza bases and pittas.
The share of continuing operations revenues and results of associate and joint ventures is as follows:
| Six months ended 31 January |
||
|---|---|---|
| 2016 | 2015 | |
| in EUR '000 | in EUR '000 | |
| 406,240 | 4,115 | |
| 13,699 | (554) | |
| (1,873) | – | |
| 11,826 | (554) | |
| 10 | Analysis of net debt | |||||
|---|---|---|---|---|---|---|
| Analysis of net debt of continuing operations in EUR `000 |
1 August 2015 |
Cash flows | Arising on business combination / disposal |
Non-cash movements |
Translation adjustment |
31 January 2016 |
| Cash | 316,867 | 218,784 | 9,545 | – | (360) | 544,836 |
| Overdrafts | (68,834) | 47,385 | – | – | 2,256 | (19,193) |
| Cash and cash equivalents | 248,033 | 266,169 | 9,545 | – | 1,896 | 525,643 |
| Loans | (1,971,711) | (366,223) | – | (1,668) | (7,498) | (2,347,100) |
| Finance leases | (1,425) | 328 | (470) | (558) | 36 | (2,089) |
| Net debt | (1,725,103) | (99,726) | 9,075 | (2,226) | (5,566) | (1,823,546) |
During the period, the Group completed the acquisition of La Rousse Foods, a supplier of fresh, frozen and ambient goods to various restaurants, hotels and caterers across Ireland. The details of the net assets acquired and goodwill arising from this business combination are set out below. The goodwill arising on this business combination is attributable to the skills and talent of the in-place work-force and the synergies expected to be achieved from integrating the acquired operations into the Group's existing businesses.
| in EUR `000 | Provisional fair values |
|---|---|
| Provisional fair value of net assets acquired: | |
| Property, plant and equipment | 4,451 |
| Intangible assets | 19,300 |
| Inventory | 2,068 |
| Trade and other receivables | 5,641 |
| Trade and other payables | (7,884) |
| Finance leases | (470) |
| Deferred tax | (2,413) |
| Income tax payable | (592) |
| Net assets acquired | 20,101 |
| Goodwill arising on acquisitions | 6,918 |
| Consideration | 27,019 |
| Satisfied by: | |
| Cash consideration | 26,772 |
| Cash acquired | (325) |
| Net cash consideration | 26,447 |
|---|---|
| Contingent consideration | 572 |
| Total consideration | 27,019 |
36
The net cash outflow on this acquisition during the period ended 31 January 2016 is disclosed in the Group Consolidated Cash Flow Statement as follows:
| in EUR `000 | Total |
|---|---|
| Cash flows from investing activities | |
| Cash consideration | 26,772 |
| Cash acquired | (325) |
| Net cash consideration within investment activities | 26,447 |
| Finance leases acquired within net debt | 470 |
| Net debt consideration | 26,917 |
Acquisition-related costs of €965,000 (2015: €2,097,000) were charged to net acquisition, disposal and restructuring-related costs in the Group Consolidated Income Statement related to these transactions during the period ended 31 January 2016.
No material difference exists between the consolidated revenue reported and the consolidated revenue that would have been reported if this acquisition had occurred on 1 August 2015. In making this determination, management has assumed that the fair value adjustments that arose on the date of the acquisition would have been the same if the acquisition had occurred on 1 August 2015.
The identified intangibles associated with this acquisition primarily includes the fair value of customer relationships. The income approach method was the basis for the fair value of these intangibles.
The fair values presented in this note are based on provisional valuations due to the complexity of the transaction.
Other than the movements reflected above, the impact of disposals as included in note 5, and the results of foreign currency translation adjustments, there were no adjustments to goodwill during the period. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. No indication of impairment has been identified during the period ended 31 January 2016.
There were no acquisitions completed by the Group during the period ended 31 January 2015.
The Group is not aware of any significant changes with regard to contingent liabilities, in comparison with the situation as of 31 July 2015.
During March 2016, the Group agreed new terms for its revolving credit facility, which reduces the Group's revolving credit facility capacity from CHF 1,977m to CHF 1,400m. The new facility has a maturity in March 2019 for CHF 500m and March 2021 for the remaining CHF 900m, with an option to extend the entire facility to March 2021. The Group also has the option to increase the facility by up to CHF 150m. The new facility has substantially unchanged financial covenants, but is expected to reduce future finance costs due to lower facility commitment fees and interest rate margins.
There have been no significant changes in related party transactions other than those described in the ARYZTA AG 2015 Annual Report and Accounts, which could have a material impact on the financial position or performance of the Group in the six months to 31 January 2016.
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.
In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those risks outlined on page 143 of the ARYZTA AG 2015 Annual Report and Accounts.
During the period ended 31 January 2016:
The Board and senior management have invested significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. There have been no changes in the risk management department or any risk management policies since the year-end. The Board considers the risks and uncertainties disclosed on page 57 of the ARYZTA AG 2015 Annual Report and Accounts to continue to reflect the principal risks and uncertainties of the Group over the remaining six months of the financial year.
The Annual Report and Accounts, Interim Management Statements, Interim Report and Accounts and other useful information about the Company, such as the current share price, is available on our website www.aryzta.com.
We confirm our responsibility for the half-year interim results and that to the best of our knowledge:
The Group's auditor has not audited these half-year interim results.
On behalf of the Board
Denis Lucey Owen Killian Chairman, Board of Directors CEO, Member of the Board
14 March 2016
of Directors
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