Earnings Release • Sep 24, 2017
Earnings Release
Open in ViewerOpens in native device viewer
The ARYZTA full year results for the year ended 31 July 2017 are available for download from the ARYZTA website and at the following link: http://www.aryzta.com/2017-FullYear-Results
Results conference call A results call will take place today at 09:00 CET.
Dial in numbers are: Switzerland: 056 580 0007; Ireland: 01 431 9648; USA: 1 631 510 7498; UK: 0844 493 3800; International: +44 (0) 1452 555566.
Please provide the following code: 84566144 to access the call.
A printable pdf version of slides will be available to download from the ARYZTA website www.aryzta.com before the call.
ARYZTA AG ('ARYZTA') is a global food business with a leadership position in speciality bakery. ARYZTA is based in Zurich, Switzerland, with operations in North America, South America, Europe, Asia, Australia and New Zealand. ARYZTA has a primary listing on the SIX Swiss Exchange and a secondary listing on the ISE Irish Exchange (SIX: ARYN, ISE: YZA).
Paul Meade, Communications Officer, ARYZTA AG Tel: +41 (0) 44 583 42 00 [email protected]
Mark Kenny/Jonathan Neilan, FTI Consulting Tel: +353 1 765 0886/+353 86 231 4135 [email protected] / [email protected]
This document 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.
| in EUR `000 | July 2017 | July 2016 | % Change |
|---|---|---|---|
| Group revenue | 3,796,770 | 3,878,871 | (2.1)% |
| EBITDA1 | 420,307 | 609,640 | (31.1)% |
| EBITDA margin | 11.1% | 15.7% | (460) bps |
| Depreciation | (142,997) | (124,773) | (14.6)% |
| EBITA1 | 277,310 | 484,867 | (42.8)% |
| EBITA margin | 7.3% | 12.5% | (520) bps |
| Joint ventures, net of interest and tax | 21,281 | 15,682 | 35.7% |
| EBITA including joint ventures | 298,591 | 500,549 | (40.3)% |
| Finance cost, net | (58,451) | (103,180) | 43.4% |
| Hybrid instrument accrued dividend | (32,099) | (31,882) | (0.7)% |
| Pre-tax profits | 208,041 | 365,487 | (43.1)% |
| Income tax | (27,380) | (51,169) | 46.5% |
| Non-controlling interests | (1,635) | (2,776) | 41.1% |
| Underlying net profit1 | 179,026 | 311,542 | (42.5)% |
| Underlying fully diluted EPS (cent)2 | 201.6 | 350.3 | (42.4)% |
1 See glossary in section 21 for definitions of financial terms and references used in the financial and business review. See bridge from underlying net profit to reported net profit, as included on page 16.
2 The 31 July 2017 weighted average number of ordinary shares used to calculate underlying earnings per share is 88,788,494 (2016: 88,929,096).
| in EUR million | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
|---|---|---|---|---|
| Group revenue | 1,738.6 | 1,799.1 | 259.1 | 3,796.8 |
| Organic growth | 1.4% | (6.3)% | 7.2% | (2.1)% |
| Acquisitions/(disposals), net | (0.9)% | (0.9)% | – | (0.8)% |
| Currency | (1.0)% | 1.5% | 8.6% | 0.8% |
| Revenue Growth | (0.5)% | (5.7)% | 15.8% | (2.1)% |
| Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | |
|---|---|---|---|---|---|
| ARYZTA Europe | |||||
| Volume % | 1.8% | (0.1)% | 1.3% | (4.7)% | (0.6)% |
| Price/Mix % | (0.4)% | 0.7% | 3.0% | 4.0% | 2.0% |
| Organic growth % | 1.4% | 0.6% | 4.3% | (0.7)% | 1.4% |
| ARYZTA North America | |||||
| Volume % | (5.7)% | (5.5)% | (6.7)% | (16.1)% | (8.5)% |
| Price/Mix % | 1.0% | (0.3)% | 2.4% | 5.5% | 2.2% |
| Organic growth % | (4.7)% | (5.8)% | (4.3)% | (10.6)% | (6.3)% |
| ARYZTA Rest of World | |||||
| Volume % | 4.9% | 7.6% | 0.7% | 7.7% | 4.7% |
| Price/Mix % | 4.8% | 1.7% | 3.0% | (1.3)% | 2.5% |
| Organic growth % | 9.7% | 9.3% | 3.7% | 6.4% | 7.2% |
| ARYZTA Group | |||||
| Volume % | (1.7)% | (2.3)% | (2.7)% | (9.4)% | (4.2)% |
| Price/Mix % | 0.5% | 0.3% | 2.7% | 4.4% | 2.1% |
| Organic growth % | (1.2)% | (2.0)% | 0.0% | (5.0)% | (2.1)% |
| EBITDA Margin |
EBITDA Margin |
|||||
|---|---|---|---|---|---|---|
| in EUR `000 | July 2017 | July 2016 | % Change | 2017 | 2016 | Change |
| ARYZTA Europe | 211,128 | 275,099 | (23.3)% | 12.1% | 15.7% | (360) bps |
| ARYZTA North America | 170,096 | 300,132 | (43.3)% | 9.5% | 15.7% | (620) bps |
| ARYZTA Rest of World | 39,083 | 34,409 | 13.6% | 15.1% | 15.4% | (30) bps |
| ARYZTA Group EBITDA | 420,307 | 609,640 | (31.1)% | 11.1% | 15.7% | (460) bps |
| in EUR `000 | July 2017 | July 2016 | % Change | EBITA Margin 2017 |
EBITA Margin 2016 |
Change |
|---|---|---|---|---|---|---|
| ARYZTA Europe | 147,164 | 215,777 | (31.8)% | 8.5% | 12.4% | (390) bps |
| ARYZTA North America | 100,453 | 243,292 | (58.7)% | 5.6% | 12.8% | (720) bps |
| ARYZTA Rest of World | 29,693 | 25,798 | 15.1% | 11.5% | 11.5% | 0 bps |
| ARYZTA Group EBITA | 277,310 | 484,867 | (42.8)% | 7.3% | 12.5% | (520) bps |
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 Service Restaurants ('QSR') and other foodservice categories.
Total revenue decreased by (2.1)% to €3.8bn during the year ended 31 July 2017, due to an organic decline of (2.1%), consisting of volume losses of (4.2)%, partially offset by a positive price/mix impact of 2.1%. Prior year disposals, net of acquisitions, reduced revenue by (0.8)%, while there was a positive currency impact of 0.8%.
Overall organic revenues decreased during the year by (2.1)%, primarily related to an organic revenue decline of (6.3)% in ARYZTA North America, significantly related to volume declines with contract renewal customers and earlier than anticipated in-sourcing by co-pack customers. This decline in ARYZTA North America was partially offset by 1.4% organic revenue growth in ARYZTA Europe and strong organic growth of 7.2% in ARYZTA Rest of World.
Group EBITDA decreased by (31.1)% to €420.3m, while EBITDA margins declined (460) bps to 11.1%. Within ARYZTA Europe, the margin decline was primarily due to the ramp-up of new bakery capacity in Germany, as well as the currency impact of Brexit on cross-border revenues and input costs in the UK. Significant butter price inflation also impacted results during the second half of the year. Within ARYZTA North America, margins were affected by reduced operating leverage, combined with increasing labour input costs and increased spend on branding and marketing costs.
In what has been a year of significant change, ARYZTA has made considerable progress in putting the core elements of the new leadership team in place. Kevin Toland has commenced in his role of Group CEO in September 2017. ARYZTA also recently
announced the appointment of Frederic Pflanz as Group CFO, who will join in January 2018. Kevin and Frederic bring extensive expertise in global food and consumer goods industries, as well as a proven track record of managing businesses undergoing significant transformation.
ARYZTA is committed to improving revenue growth by refocusing on its core strengths as a global leader in B2B Frozen Bakery and European Food Solutions, while continuing to deliver best-in-class customer service, support and food safety to our customers. This revenue focus, when combined with bakery cost alignment, will support the financial aim of restoring operating leverage, improving EBITDA margins and enhancing cash generation.
ARYZTA Europe has leading market positions in the speciality bakery markets in Germany, Switzerland, France, Ireland, the UK, the Netherlands, Hungary, Poland, Denmark, Spain, Sweden, Romania, Czechia and other European countries.
ARYZTA Europe revenue decreased by (0.5)% to €1,738.6m during the year ended 31 July 2017. Organic revenue growth of 1.4% was a result of a (0.6)% decrease in volumes offset by a 2.0% benefit from improved price/mix. Unfavourable currency movements also impacted revenues by (1.0)% and the prior year disposal of a business in France resulted in a (0.9)% decline in year over year revenues. Excluding the previously highlighted impact of in-sourcing by a large customer in Switzerland, volume growth in the segment would have been positive during the year.
ARYZTA Europe EBITDA decreased by (23.3)% to €211.1m and EBITDA margins decreased by (360) bps to 12.1%. ARYZTA Europe has experienced considerable challenges in transferring 225 SKUs in Germany from the Fricopan facility to the new bakery capacity in Eisleben and in optimising the operations around this additional bakery capacity. There was also commodity price inflation during the year, in particular significant butter price increases in the second half of the year, which have not been fully mitigated to date. UK margins were also impacted by the increased cost of products supplied from the Eurozone, as a result of weakening Sterling.
With the exception of the challenges in Germany and the UK, most geographies in Europe performed well, with the impact of in-sourcing by a large customer in Switzerland somewhat mitigated by that transition occurring more slowly than initially anticipated.
As detailed in Section 10, during the year ARYZTA Europe recorded a goodwill impairment charge of €103.0m relating to the Germany business. In addition, ARYZTA Europe incurred €1.3m of non-cash asset write downs and €11.7m of other restructuring-related costs, primarily related to severance and staff-related costs incurred as a direct result of bakery rationalisation in Germany and consolidation of management functions across the region.
ARYZTA North America is a leading player in the speciality bakery markets in the United States and Canada. It has a diversified customer base, including multiple retail, restaurants, catering, hotels, leisure, hospitals, military, fundraising and QSR. ARYZTA is a leader in high-value artisan bakery via La Brea Bakery, which focuses on the premium branded bakery segment.
ARYZTA North America revenues declined by (5.7)% to €1,799.1m during the year ended 31 July 2017. Organic revenue declined by (6.3)%, due to volume declines of (8.5)% partially offset by positive price/mix of 2.2%. The disposal of a non-core, fillings and mixes business in the prior year impacted year over year revenues by (0.9)%, while currency movements supported revenues by 1.5%.
As previously announced, the decline in ARYZTA North America organic revenues during the year was initially driven by declines with contract renewal customers and was further compounded by co-pack customers in-sourcing volumes earlier than anticipated.
ARYZTA North America EBITDA declined by (43.3)% to €170.1m, while EBITDA margins declined (620) bps to 9.5%. These very significant declines are the result of negative operating leverage following an overall reduction in volume and are further impacted by increased labour input costs and additional brand marketing investment behind the business-to-consumer ('B2C') centre aisle food offering, which has not been successful and has now been stopped.
As detailed in Section 10, following the significant reduction in overall profitability during the year, and related reductions in future cash flow projections, ARYZTA North America recorded impairment charges totalling €756.9m in respect of goodwill, intangibles and fixed assets. In addition, ARYZTA North America incurred €37.6m of restructuring-related costs, including costs associated with business interruption challenges at the Cloverhill bakeries acquired in FY 2014, severance and staff-related costs, onerous leases, advisory and other restructuring-related costs.
ARYZTA's operations in the Rest of World primarily includes businesses in Brazil, Australia, New Zealand, Japan, Malaysia, Singapore and Taiwan. While representing only 7% of total Group revenue and 9% of total Group EBITDA, these locations provide attractive future growth opportunities and have importance as suppliers to our global QSR customers.
ARYZTA Rest of World revenues increased by 15.8% to €259.1m during the year ended 31 July 2017. Organic revenue increased 7.2%, as a result of 4.7% volume growth across the region, combined with additional price/mix growth of 2.5%. Favourable currency movements also supported revenues by 8.6%.
ARYZTA Rest of World EBITDA increased by 13.6% to €39.1m, while EBITDA margins declined by (30) bps to 15.1%. The continued growth in this segment relates to the ongoing support of our internal customer partnerships, as well as an expansion of the food offering within the convenience and retail channels.
During August 2015, the Group invested €450.7m in a 49% interest in Picard, which operates an asset-light B2C platform focused on premium speciality food. Picard is located primarily in France, is separately managed and has separately funded debt structures, which are non-recourse to ARYZTA.
While Picard is not considered part of ARYZTA's long-term strategy, disposal of the Group's investment is currently only possible with agreement of both joint venture partners. Therefore, as it is the Group's intention to achieve a fair market return only once all shareholders are aligned in pursuit of an exit, the Group's investment continues to be accounted on a historical cost basis using the equity method of accounting, rather than at fair value as an asset held-for-sale.
The Group also owns a 50% interest in Signature Flatbreads, a pioneering flatbread producer in the UK and India, producing an innovative range of authentic Indian breads, as well as high-quality international flatbreads, tortillas, pizza bases and pitas.
Joint ventures had combined revenues of €1,515.8m during the ARYZTA year ended 31 July 2017 and delivered an underlying contribution to ARYZTA, after interest and tax, of €21.3m. Both joint ventures performed well, growing revenues, expanding margins, and generating strong internal cash flows.
| in EUR `000 | Picard | Signature | July 2017 | July 2016 |
|---|---|---|---|---|
| Revenue | 1,398,030 | 117,819 | 1,515,849 | 1,402,987 |
| EBITDA | 203,117 | 15,902 | 219,019 | 197,851 |
| EBITDA margin | 14.5% | 13.5% | 14.4% | 14.1% |
| Depreciation | (29,580) | (6,397) | (35,977) | (32,210) |
| EBITA | 173,537 | 9,505 | 183,042 | 165,641 |
| EBITA margin | 12.4% | 8.1% | 12.1% | 11.8% |
| Finance cost, net | (95,012) | (922) | (95,934) | (89,915) |
| Pre-tax profit | 78,525 | 8,583 | 87,108 | 75,726 |
| Income tax | (41,305) | (2,250) | (43,555) | (43,616) |
| Joint venture underlying net profit | 37,220 | 6,333 | 43,553 | 32,110 |
| ARYZTA's share of JV underlying net profit | 18,115 | 3,166 | 21,281 | 15,682 |
During the year ended 31 July 2017, the Group incurred the following amounts related to impairment, integration, rationalisation and restructuring:
| Non-cash | Cash | Total | Total | |
|---|---|---|---|---|
| in EUR `000 | 2017 | 2017 | 2017 | 2016 |
| Net gain on disposal of businesses | – | – | – | 993 |
| Impairment of goodwill | (594,872) | – | (594,872) | – |
| Impairment of intangibles | (138,642) | – | (138,642) | – |
| Impairment and disposal of fixed assets | (126,202) | – | (126,202) | (14,787) |
| Acquisition-related costs | – | – | – | (2,330) |
| Labour-related business interruption | – | (16,349) | (16,349) | – |
| Severance and other staff-related costs | – | (21,367) | (21,367) | (65,447) |
| Contractual obligations | – | (7,295) | (7,295) | (6,738) |
| Advisory and other costs | – | (5,463) | (5,463) | (8,805) |
| Impairment, acquisition, disposal and restructuring-related costs |
(859,716) | (50,474) | (910,190) | (97,114) |
Following significant reductions in profitability in Germany and North America during the year ended 31 July 2017, the Group recorded goodwill impairment charges of €103.0m in Germany and €491.9m in North America.
Current year profitability associated with these locations has been significantly impacted, either by the consolidation of 225 SKUs into the new German bakery capacity in Eisleben and the ongoing commissioning and optimisation of that facility, or by the significant volume declines and increased labour costs in North America.
While profitability in each of these locations is expected to improve in the future, after considering goodwill and other assets within these locations, as well as the respective future cash flow projections, management determined it was appropriate to record these goodwill impairment charges during the current year.
Despite these impairments, the bakeries remain world-class production facilities and are expected to make significant future contributions to the group, once spare capacity across the network is optimised and other operational challenges are addressed.
Further detail on these goodwill impairments is included in note 6 of the extract from the IFRS financial statements on page 39.
As outlined above, during the year ended 31 July 2017, ARYZTA North America experienced a significant reduction in volumes, as a result of earlier than anticipated insourcing by co-pack customers.
As these customers and the related volumes were primarily associated with the Group's Cloverhill acquisition completed during FY 2014, the Group reviewed the remaining customer relationship and brand-related intangible assets obtained as part of that acquisition and, based on the associated future cash flows, recorded a €138.6m impairment of those intangible assets.
During the year, the Group incurred €126.2m of asset write-downs and impairments, primarily related to assets in ARYZTA North America, including:
Separately, an impairment loss of €1.3m was recorded in Europe primarily related to obsolete production equipment in Switzerland, while a gain of €1.5m was recorded in the Rest of World segment, primarily arising from the sale of land.
During the year, the Group encountered a significant labour-related business disruption at its Cloverhill facilities.
A substantial number of the legacy labour force at these facilities was supplied through a third-party staffing agency. A federal audit of this third-party agency revealed inadequate documentation, resulting in circa 800 experienced workers leaving the business in Q4-2017 and being progressively replaced with new hires. By merit of these employees being agency workers, ARYZTA did not have the ability to verify documentation of these workers, and the immediacy and extent of the risk that existed was not known to the board.
As these individuals had significant knowledge and experience of the baking process and represented over one-third of the workforce at these facilities, there has been a significant decrease in the labour efficiency and production volumes, as well as an impact on increased waste levels at these facilities, as a result of this disruption.
While the Cloverhill business had been profitable every month since its acquisition, following this disruption these locations incurred €16.3m of losses during June and July 2017, which is expected to continue to impact the business during FY18.
The Group provided for a total of €21.4m in severance and other staff-related costs during the year ended 31 July 2017. Of this amount €10.4m has been recognised in relation to the remaining contractual employment period and the 12-month post-contractual term non-compete agreements with four former members of Executive Management, who left the business during the year.
The remaining €11.0m of costs recognised during the year represent severance costs arising from a number of production, distribution and administrative rationalisations, as well as amounts in respect of key employee retention agreements implemented following the Executive Management departures during the year.
During financial year 2016, the Group incurred €65.4m related to costs associated with employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group, primarily in Europe.
The operational decisions made as a result of the Group's integration and rationalisation projects resulted in certain long-term operational contracts becoming onerous. During the year ended 31 July 2017, the Group incurred total costs of €7.3m (2016: €6.7m) to provide for certain long-term contracts determined to be surplus to the Group's operating requirements. The associated provision amounts have been calculated on the basis of the remaining period of the relevant lease, or an estimate to the earliest date at which the lease could be terminated or sublet, if shorter.
During the year ended 31 July 2017, the Group incurred €5.5m in advisory and other professional services costs, directly arising from the strategic and business review activities following the changes in Executive Management.
During the year ended 31 July 2016, the Group incurred €8.8m in advisory and other costs related directly to the rationalisation of certain bakery assets, integration of the supply chain and distribution functions of recently acquired businesses into the Group's network and costs associated with centralisation of certain administrative functions.
| in EUR `000 | July 2017 | July 2016 |
|---|---|---|
| EBITA | 277,310 | 484,867 |
| Depreciation | 142,997 | 124,773 |
| EBITDA | 420,307 | 609,640 |
| Working capital movement | 5,613 | 40,586 |
| Working capital movement from debtor securitisation1 | 16,766 | 54,258 |
| Capital expenditure | (102,577) | (213,935) |
| Proceeds from sale of fixed assets and investment property | 36,218 | 1,030 |
| Acquisition and restructuring-related cash flows | (63,451) | (81,702) |
| Segmental operating free cash generation | 312,876 | 409,877 |
| Hybrid dividend | (32,115) | (31,788) |
| Interest and income tax | (74,628) | (113,972) |
| Grants received, net of deferred income recognition | (5,665) | 6,947 |
| Other | (4,315) | (4,332) |
| Cash flow generated from activities | 196,153 | 266,732 |
1 Total debtor balances securitised as of 31 July 2017 is €219m (2016: €208m).
| in EUR `000 | FY 2017 | FY 2016 |
|---|---|---|
| Opening net debt as at 1 August | (1,719,617) | (1,725,103) |
| Cash flow generated from activities | 196,153 | 266,732 |
| Disposal of businesses, net of cash and finance leases | – | 42,060 |
| Proceeds from disposal of Origin, net of cash disposed | – | 225,101 |
| Investment in joint venture | – | (450,732) |
| Net debt cost of acquisitions | – | (26,917) |
| Purchase of non-controlling interests | (14,485) | – |
| Collection of receivables from joint ventures | 3,277 | 21,509 |
| Contingent consideration | (896) | (46,916) |
| Private placement early redemption and related costs | (182,513) | – |
| Dividends paid | (50,945) | (57,313) |
| Foreign exchange movement1 | 38,952 | 36,038 |
| Other2 | (3,796) | (4,076) |
| Closing net debt as at 31 July | (1,733,870) | (1,719,617) |
1 Foreign exchange movement for the year ended 31 July 2017 primarily attributable to the fluctuation in the USD to euro rate from July 2016 (1.1162) to July 2017 (1.1756). Foreign exchange movement for the year ended 31 July 2016 primarily attributable to the fluctuation in the GBP to euro rate from July 2015 (0.7091) to July 2016 (0.8399).
2 Other comprises primarily amortisation of upfront financing costs.
During September 2016, the Group utilised its available financing facilities and existing cash resources to redeem all of its outstanding Private Placements, which totalled €1,209.5m at the time of redemption. In connection with this early redemption the Group incurred €182.5m of costs, including a make-whole costs of €169.4m, other redemptionrelated cash costs of €6.2m and also wrote-off €6.9m of existing private placement capitalised borrowing costs.
During December 2016, the Group issued a number of Schuldschein tranches totalling €386m, which have maturities between three and seven years. These proceeds were used to reduce the amount outstanding on the Group's term loan facility.
As of 31 July 2017, the Group's financing facilities, related capitalised upfront borrowing costs, finance leases, overdrafts and cash balances outstanding were as follows:
| in EUR `000 | 31 July 2017 |
|---|---|
| Syndicated Bank RCF | (1,193,912) |
| Term loan facility | (590,000) |
| Schuldschein | (384,289) |
| Gross term debt | (2,168,201) |
| Upfront borrowing costs | 13,916 |
| Term debt, net of upfront borrowing costs | (2,154,285) |
| Finance leases | (1,525) |
| Cash and cash equivalents, net of overdrafts | 421,940 |
| Net debt | (1,733,870) |
As of 31 July 2017, the weighted average interest cost of the Group debt financing facilities was 2.2% (2016: 4.5%). The Group's interest cover including hybrid interest was 4.64x (2016: 4.50x).
The Group's key financial ratio was as follows:
| July 2017 | July 2016 | |
|---|---|---|
| Net Debt: EBITDA (Syndicated Bank RCF) | 4.15x | 2.90x |
During July 2017, the Group agreed to the terms of a new five-year unsecured €1,800m refinancing of its Syndicated Bank RCF and term loan facility comprising a €1,000m amortising term loan and a €800m revolving credit facility.
The new financing was utilised on 22 September 2017 to repay in full the revolving credit and term loan facilities put in place last year.
The refinancing is underwritten by four of the Group's key relationship banks, with general syndication to take place over the next two months.
In order to provide enhanced financial flexibility, the Group has increased the covenant to a maximum 4.75x Net Debt: EBITDA at 31 July 2017 and 31 January 2018, reducing to a maximum of 4.00x at 31 July 2018 and a maximum of 3.50x from 31 July 2019. The Group has also reduced the interest cover covenant to 3.0x EBITDA: Interest. The new facility extends the maturity profile of the Group's debt to just over 4 years.
As of 31 July 2017, the Group has €770m of Hybrid funding outstanding, which is accounted for as equity under IFRS, as the instruments have no maturity date and repayment is at the option of ARYZTA. In the event repayment not made at the first-call dates, the instruments include a provision for a coupon step-up as included below.
| Subordinated Instruments | Coupon | Step-up if not called | in EUR `000 | |
|---|---|---|---|---|
| First call April 2018 | CHF 400m | 4.0% | 6.045% +3 Month Swiss Libor | (352,740) |
| First call March 2019 | EUR 250m | 4.5% | 6.77% +5 Year Euro Swap Rate (250,000) | |
| First call April 2020 | CHF 190m | 3.5% | 4.213% +3 Month Swiss Libor | (167,551) |
| Hybrid funding at 31 July 2017 exchange rates | (770,291) |
The principal euro foreign exchange currency rates used by the Group for the preparation of these Financial Statements are as follows:
| Currency | Average 2017 |
Average 2016 |
% Change | Closing 2017 |
Closing 2016 |
% Change |
|---|---|---|---|---|---|---|
| CHF | 1.0818 | 1.0905 | 0.8% | 1.1340 | 1.0855 | (4.5)% |
| USD | 1.0938 | 1.1106 | 1.5% | 1.1756 | 1.1162 | (5.3)% |
| CAD | 1.4483 | 1.4748 | 1.8% | 1.4674 | 1.4562 | (0.8)% |
| GBP | 0.8633 | 0.7602 | (13.6)% | 0.8933 | 0.8399 | (6.4)% |
| ARYZTA | ARYZTA | |||
|---|---|---|---|---|
| ARYZTA | North | Rest of | ARYZTA | |
| in EUR million | Europe | America | World | Group |
| 2017 | ||||
| Segmental net assets | 1,676 | 1,710 | 194 | 3,580 |
| TTM EBITA | 147 | 100 | 30 | 277 |
| ROIC1 | 8.8% | 5.9% | 15.3% | 7.7% |
| 2016 | ||||
| Segmental net assets | 1,903 | 2,488 | 198 | 4,589 |
| TTM EBITA | 215 | 243 | 26 | 484 |
| ROIC1 | 11.3% | 9.8% | 13.0% | 10.5% |
1 See glossary in section 21 for definitions of financial terms and references used.
2 Group WACC on a pre-tax basis is currently 8.1% (2016: 8.0%).
| July | July | |
|---|---|---|
| in EUR `000 | 2017 | 2016 |
| Property, plant and equipment | 1,386,294 | 1,594,885 |
| Investment properties | 19,952 | 24,787 |
| Goodwill and intangible assets | 2,651,937 | 3,617,194 |
| Deferred tax on goodwill and intangibles | (82,534) | (210,635) |
| Working capital | (334,078) | (361,307) |
| Other segmental liabilities | (61,202) | (76,109) |
| Segmental net assets | 3,580,369 | 4,588,815 |
| Joint ventures and related receivables | 528,188 | 495,402 |
| Net debt | (1,733,870) | (1,719,617) |
| Deferred tax, net | (111,863) | (113,823) |
| Income tax | (63,283) | (49,118) |
| Derivative financial instruments | 2,111 | (13,888) |
| Net assets | 2,201,652 | 3,187,771 |
At the Annual General Meeting on 7 December 2017, shareholders will be invited to approve a proposed dividend of CHF 0.3489 (€0.3024) per share, to be settled as a scrip dividend via newly issued share capital. If approved, the dividend will be issued to shareholders on 1 February 2018. A dividend of CHF 0.5731 per share was paid during the year, as approved by shareholders at the Annual General Meeting on 13 December 2016.
During July 2017, the Group agreed to the terms of a new five-year unsecured €1,800m refinancing of its Syndicated Bank RCF and term loan facility comprising a €1,000m amortising term loan and a €800m revolving credit facility.
The new financing was utilised on 22 September 2017 to repay in full the revolving credit and term loan facilities put in place last year.
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 17 to continue to reflect the principal risks and uncertainties of the Group.
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.
'Joint ventures, net of interest and tax' – presented as profit from joint ventures, net of interest and tax, 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 impairment, acquisition, disposal and restructuring-related costs and related tax credits.
'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation; before impairment, 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.
'Segmental Net Assets' – Excludes joint ventures, all bank debt, cash and cash equivalents and tax balances, with the exception of deferred tax liabilities associated with acquired goodwill and intangible assets, as those deferred tax liabilities represent a notional non-cash tax impact directly linked to segmental goodwill and intangible assets recorded as part of a business combination, rather than an actual cash tax obligation.
'ROIC' – Return On Invested Capital is calculated using a pro-forma trailing twelve month segmental EBITA ('TTM EBITA') reflecting the full twelve month contribution from acquisitions and full twelve month deductions from disposals, divided by the respective Segmental Net Assets, as of the end of each period.
'Underlying net profit' – presented as reported net profit, adjusted to include the Hybrid instrument accrued dividend as a finance cost; before non-ERP related intangible amortisation; before private placement early redemption-related costs; and before impairment, acquisition, disposal and restructuring-related costs, net of related income tax impacts.
The Group utilises the underlying net profit 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.
| in EUR `000 | ARYZTA Group July 2017 |
ARYZTA Group July 2016 |
||||
|---|---|---|---|---|---|---|
| Underlying net profit - continuing operations | 179,026 | 311,542 | ||||
| Intangible amortisation | (174,640) | (176,241) | ||||
| Tax on amortisation | 32,997 | 36,715 | ||||
| Share of JV intangible amortisation and restructuring costs, net of tax | 17,099 | (3,966) | ||||
| Hybrid instrument accrued dividend | 32,099 | 31,882 | ||||
| Private placement early redemption | (182,513) | – | ||||
| Impairment of goodwill | (594,872) | – | ||||
| Impairment of intangibles | (138,642) | – | ||||
| Impairment and disposal of fixed assets | (126,202) | (13,794) | ||||
| Acquisition and restructuring-related costs | (50,474) | (83,320) | ||||
| Tax on impairment, acquisition, disposal and restructuring | 98,349 | 9,911 | ||||
| Reported net (loss)/profit - continuing operations | (907,773) – – – |
|||||
| Underlying net profit - discontinued operations | – | |||||
| Underlying contribution associate held-for-sale | 48 | |||||
| Profit for the year - discontinued operations | 48 | |||||
| Loss on disposal of associate held-for-sale | – | (45,769) | ||||
| Reported net loss - discontinued operations | – | (45,721) | ||||
| Reported net (loss)/profit attributable to equity shareholders | (907,773) | 67,008 |
The Board and senior management continue to invest significant time and resources in identifying specific risks across the Group, and in developing a culture of balanced risk minimisation. The Group has formal risk assessment processes in place through which risks are identified and associated mitigating controls are evaluated. These processes are driven by local management, who are best placed to identify the significant ongoing and emerging risks facing the business. The outputs of these risk assessment processes are subject to various levels of review by Group management and Internal Audit, and a consolidated Risk Map denoting the potential frequency, severity and velocity of identified risks is reviewed by the Board of Directors on at least an annual basis. Risks identified, and associated mitigating controls, are also subject to audit as part of various operational, financial, health and safety audit programmes.
Company law requires the directors to prepare Group consolidated and Company financial statements for each financial year. The directors are required to prepare the Group consolidated financial statements in accordance with International Financial Reporting Standards ('IFRS') and the requirements of Swiss law and to prepare the Company financial statements in accordance with Swiss law and the Company's Articles of Association.
This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of the Group consolidated and Company financial statements that are free from material misstatement, whether due to fraud or error.
In preparing each of the Group consolidated and Company financial statements, the directors are required to:
The directors are responsible for keeping proper books of account that present, with reasonable accuracy at any time, the financial position of the Group and Company and enable them to ensure that its financial statements comply with IFRS, the requirements of Swiss law and the Company's Articles of Association.
They are also responsible for taking such steps as are reasonably available to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website.
On behalf of the Board
Gary McGann Annette Flynn Chairman, Board of Directors Chair, Audit Committee
Member of the Board of Directors
21 September 2017
for the year ended 31 July 2017
| in EUR `000 | Notes | 2017 | 2016 |
|---|---|---|---|
| Continuing Operations | |||
| Revenue | 2 | 3,796,770 | 3,878,871 |
| Cost of sales | (2,766,136) | (2,654,228) | |
| Distribution expenses | (411,702) | (414,410) | |
| Gross profit | 618,932 | 810,233 | |
| Selling expenses | (202,747) | (188,656) | |
| Administration expenses | (628,833) | (410,065) | |
| Impairment of goodwill | 6 | (594,872) | – |
| Operating (loss)/profit | 2 | (807,520) | 211,512 |
| Share of profit after interest and tax of joint ventures | 38,380 | 11,716 | |
| (Loss)/profit before financing income, financing costs and income tax | 3 | (769,140) | 223,228 |
| Financing income | 3,821 | 3,526 | |
| Financing costs | (62,272) | (106,706) | |
| Private placement early redemption | 7 | (182,513) | – |
| (Loss)/profit before income tax | (1,010,104) | 120,048 | |
| Income tax | 103,966 | (4,543) | |
| (Loss)/profit for the year from continuing operations (906,138) |
|||
| Discontinued operations Loss for the year from discontinued operations (Loss)/profit for the year |
– (906,138) |
(45,721) 69,784 |
|
| Attributable as follows: | |||
| Equity shareholders - continuing operations | (907,773) | 112,729 | |
| Equity shareholders - discontinued operations | – | (45,721) | |
| Equity shareholders - total | (907,773) | 67,008 | |
| Non-controlling interests - continuing operations | 1,635 | 2,776 | |
| (Loss)/profit for the year | (906,138) | 69,784 | |
| 2017 | 2016 | ||
| Basic (loss)/earnings per share | Notes | euro cent | euro cent |
| From continuing operations | 5 | (1,058.9) | 91.1 |
| From discontinued operations | 5 | – | (51.5) |
| 5 | (1,058.9) | 39.6 | |
| Diluted (loss)/earnings per share | Notes | 2017 euro cent |
2016 euro cent |
| From continuing operations | 5 | (1,058.9) | 90.9 |
| From discontinued operations | 5 | – | (51.4) |
| 5 | (1,058.9) | 39.5 | |
| in EUR `000 | Notes | 2017 | 2016 |
|---|---|---|---|
| (Loss)/profit for the year | (906,138) | 69,784 | |
| Other comprehensive (loss)/income | |||
| Items that may be reclassified subsequently to profit or loss: | |||
| Foreign exchange translation effects | |||
| – Foreign currency net investments | (76,617) | (49,548) | |
| – Foreign currency borrowings | 7 | 59,716 | 36,027 |
| – Taxation effect of foreign exchange translation movements | (1,532) | 198 | |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | 9,036 | 5,747 | |
| – Fair value of cash flow hedges transferred to income statement | 6,991 | (7,380) | |
| – Deferred tax effect of cash flow hedges | (1,647) | 376 | |
| Share of joint ventures' other comprehensive income | 180 | 304 | |
| Total of items that may be reclassified subsequently to profit or loss | (3,873) | (14,276) | |
| Items that will not be reclassified to profit or loss: | |||
| Defined benefit plans | |||
| – Actuarial gain/(loss) on Group defined benefit pension plans | 6,135 | (462) | |
| – Deferred tax effect of actuarial (gain)/loss | (1,204) | (23) | |
| Total of items that will not be reclassified to profit or loss | 4,931 | (485) | |
| Total other comprehensive income/(loss) | 1,058 | (14,761) | |
| Total comprehensive (loss)/income for the year | (905,080) | 55,023 | |
| Attributable as follows: | |||
| Equity shareholders | (907,313) | 53,757 | |
| Non-controlling interests | 2,233 | 1,266 | |
| Total comprehensive (loss)/income for the year | (905,080) | 55,023 |
as at 31 July 2017
| in EUR `000 | Notes | 2017 | 2016 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 1,386,294 | 1,594,885 | |
| Investment properties | 19,952 | 24,787 | |
| Goodwill and intangible assets | 6 | 2,651,937 | 3,617,194 |
| Investments in joint ventures | 528,188 | 491,446 | |
| Receivables from joint ventures | – | 3,956 | |
| Deferred income tax assets | 158,767 | 133,176 | |
| Total non-current assets | 4,745,138 | 5,865,444 | |
| Current assets | |||
| Inventory | 252,162 | 248,719 | |
| Trade and other receivables | 164,271 | 168,595 | |
| Derivative financial instruments | 4,311 | 669 | |
| Cash and cash equivalents | 7 | 535,570 | 647,724 |
| Total current assets | 956,314 | 1,065,707 | |
| Total assets | 5,701,452 | 6,931,151 |
| Notes in EUR `000 |
2017 | 2016 |
|---|---|---|
| Equity | ||
| Called up share capital | 1,172 | 1,172 |
| Share premium | 774,040 | 774,040 |
| Retained earnings and other reserves | 1,426,440 | 2,397,460 |
| Total equity attributable to equity shareholders | 2,201,652 | 3,172,672 |
| Non-controlling interests | – | 15,099 |
| Total equity | 2,201,652 | 3,187,771 |
| Liabilities | ||
| Non-current liabilities | ||
| Interest-bearing loans and borrowings 7 |
383,242 | 1,963,709 |
| Employee benefits | 6,644 | 13,470 |
| Deferred income from government grants | 18,280 | 23,945 |
| Other payables | 36,278 | 37,678 |
| Deferred income tax liabilities | 353,164 | 457,634 |
| Derivative financial instruments | 704 | 4,618 |
| Total non-current liabilities | 798,312 | 2,501,054 |
| Current liabilities | ||
| Interest-bearing loans and borrowings 7 |
1,886,198 | 403,632 |
| Trade and other payables | 750,511 | 778,621 |
| Income tax payable | 63,283 | 49,118 |
| Derivative financial instruments | 1,496 | 9,939 |
| Contingent consideration | – | 1,016 |
| Total current liabilities | 2,701,488 | 1,242,326 |
| Total liabilities | 3,499,800 | 3,743,380 |
| Total equity and liabilities | 5,701,452 | 6,931,151 |
| Foreign | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash | Share | currency | Total | ||||||||
| Other | flow | based | trans | share | Non | ||||||
| 31 July 2017 | Share capital |
Share premium |
Treasury shares |
equity reserve |
hedge reserve |
payment reserve |
lation reserve |
Retained earnings |
holders equity |
controlling interests |
Total |
| in EUR `000 At 1 August 2016 |
1,172 | 774,040 | (47) | 720,456 | (11,521) | – | (18,114) | 1,706,686 | 3,172,672 | 15,099 | 3,187,771 |
| Loss for the year | – | – | – | – | – | – | – | (907,773) | (907,773) | 1,635 | (906,138) |
| Other comprehensive income/(loss) | – | – | – | – | 14,380 | – | (18,503) | 4,583 | 460 | 598 | 1,058 |
| Total comprehensive income/(loss) | – | – | – | – | 14,380 | – | (18,503) | (903,190) | (907,313) | 2,233 | (905,080) |
| Share-based payments | – | – | – | – | – | 2,005 | – | – | 2,005 | – | 2,005 |
| Equity dividends (note 4) | – | – | – | – | – | – | – | (47,595) | (47,595) | – | (47,595) |
| Dividends to non-controlling interests | – | – | – | – | – | – | – | – | – | (3,350) | (3,350) |
| Dividends on perpetual callable subordinated instruments |
– | – | – | – | – | – | – | (32,099) | (32,099) | – | (32,099) |
| Total contributions by and distributions to owners |
– | – | – | – | – | 2,005 | – | (79,694) | (77,689) | (3,350) | (81,039) |
| Acquisition of non-controlling interests | – | – | – | – | – | – | – | 13,982 | 13,982 | (13,982) | – |
| Total transactions with owners recognised directly in equity |
– | – | – | – | – | 2,005 | – | (65,712) | (63,707) | (17,332) | (81,039) |
| At 31 July 2017 | 1,172 | 774,040 | (47) | 720,456 | 2,859 | 2,005 | (36,617) | 737,784 | 2,201,652 | – | 2,201,652 |
| 31 July 2016 in EUR `000 |
Share capital |
Share premium |
Treasury shares |
Other equity reserve |
Cash flow hedge reserve |
Share based payment reserve |
Foreign currency trans lation 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 year | – | – | – | – | – | – | – | 67,008 | 67,008 | 2,776 | 69,784 |
| Other comprehensive (loss)/income |
– | – | – | – | (1,257) | – | (12,961) | 967 | (13,251) | (1,510) | (14,761) |
| Total comprehensive (loss)/ income |
– | – | – | – | (1,257) | – | (12,961) | 67,975 | 53,757 | 1,266 | 55,023 |
| Equity dividends | – | – | – | – | – | – | – | (52,710) | (52,710) | – | (52,710) |
| Dividends to non-controlling interests |
– | – | – | – | – | – | – | – | – | (4,603) | (4,603) |
| Dividends on perpetual callable subordinated instruments |
– | – | – | – | – | – | – | (31,882) | (31,882) | – | (31,882) |
| Total transactions with owners recognised directly in equity |
– | – | – | – | – | – | – | (84,592) | (84,592) | (4,603) | (89,195) |
| At 31 July 2016 | 1,172 | 774,040 | (47) | 720,456 | (11,521) | – | (18,114) | 1,706,686 | 3,172,672 | 15,099 | 3,187,771 |
| in EUR `000 | Notes | 2017 | 2016 |
|---|---|---|---|
| Cash flows from operating activities | |||
| (Loss)/profit for the year from continuing operations | (906,138) | 115,505 | |
| Income tax (credit)/expense | (103,966) | 4,543 | |
| Financing income | (3,821) | (3,526) | |
| Financing costs | 62,272 | 106,706 | |
| Private placement early redemption | 7 | 182,513 | – |
| Share of profit after interest and tax of joint ventures | (38,380) | (11,716) | |
| Asset disposals and impairments | 3 | 859,716 | 13,794 |
| Other restructuring-related payments (in excess of) / less than current year costs | (14,982) | 1,618 | |
| Depreciation of property, plant and equipment | 2 | 126,308 | 112,030 |
| Amortisation of intangible assets | 2 | 191,329 | 188,984 |
| Recognition of deferred income from government grants | (5,665) | (3,098) | |
| Share-based payments | 2,005 | – | |
| Other | (4,315) | (4,332) | |
| Cash flows from operating activities before changes in working capital | 346,876 | 520,508 | |
| Increase in inventory | (18,038) | (16,223) | |
| Decrease in trade and other receivables | 2,172 | 80,902 | |
| Increase in trade and other payables | 38,245 | 30,165 | |
| Cash generated from operating activities | 369,255 | 615,352 | |
| Income tax paid | (13,381) | (18,369) | |
| Net cash flows from operating activities | 355,874 | 596,983 |
| in EUR `000 | Notes | 2017 | 2016 |
|---|---|---|---|
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 21,696 | 1,030 | |
| Proceeds from sale of investment property | 14,522 | – | |
| Purchase of property, plant and equipment | (91,552) | (184,019) | |
| Grants received | – | 10,045 | |
| Investment in joint venture | – | (450,732) | |
| Acquisitions of businesses, net of cash acquired | – | (26,447) | |
| Proceeds from disposal of Origin, net of cash disposed | – | 225,101 | |
| Disposal of businesses, net of cash disposed | 3 | – | 42,060 |
| Purchase of intangible assets | (11,025) | (29,916) | |
| Net receipts from joint ventures | 3,277 | 21,509 | |
| Contingent consideration paid | (896) | (46,916) | |
| Net cash flows from investing activities | (63,978) | (438,285) | |
| Cash flows from financing activities | |||
| Gross drawdown of loan capital | 7 | 1,226,778 | 290,887 |
| Gross repayment of loan capital | 7 | (1,209,472) | (43,903) |
| Private placement early redemption and related cash costs | 7 | (175,647) | – |
| Interest paid | (65,635) | (98,934) | |
| Interest received | 4,388 | 3,331 | |
| Capital element of finance lease liabilities | 7 | (1,022) | (26) |
| Purchase of non-controlling interests | (14,485) | – | |
| Dividends paid to non-controlling interests | (3,350) | (4,603) | |
| Dividends paid on perpetual callable subordinated instruments | (32,115) | (31,788) | |
| Dividends paid to equity shareholders | (47,595) | (52,710) | |
| Net cash flows from financing activities | (318,155) | 62,254 | |
| Net (decrease)/increase in cash and cash equivalents | 7 | (26,259) | 220,952 |
| Translation adjustment | 7 | (20,774) | (12) |
| Net cash and cash equivalents at start of year | 7 | 468,973 | 248,033 |
| Net cash and cash equivalents at end of year | 7 | 421,940 | 468,973 |
ARYZTA AG (the 'Company') is domiciled and incorporated in Zurich, Switzerland. The consolidated financial statements for the year ended 31 July 2017 consolidate the individual financial statements of the Company and its subsidiaries (together referred to as the 'Group'), and show the Group's interest in joint ventures using the equity method of accounting.
The Group consolidated financial statements are presented in euro, rounded to the nearest thousand, unless otherwise stated.
The financial information included on pages 19 to 43 of this News Release has been extracted from the ARYZTA Group consolidated financial statements for the year ended 31 July 2017, which are subject to approval by the shareholders at the Annual General Meeting on 7 December 2017.
The Group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS'). These policies have been consistently applied to all years presented, unless otherwise stated.
In the preparation of these Group consolidated financial statements, the Group has applied all standards that were required for accounting periods beginning on or before 1 August 2016. The following standards and interpretations, issued by the International Accounting Standards Board ('IASB') and the IFRS Interpretations Committee, are effective for the first time in the current financial year and have been adopted by the Group:
While the above standards and interpretations adopted by the Group modify certain presentation and disclosure requirements, these requirements are not significantly different than information presented as part of the 31 July 2016 year-end financial statements and have no material impact on the consolidated results or financial position of the Group. The Group has not applied early adoption of any standards which are not yet effective.
As of 31 July 2017, all outstanding amounts on the Group's Syndicated Bank RCF and Term Loan borrowings have been presented as current liabilities within the Group Consolidated Balance Sheet, reflecting the Group's obligation to repay those facilities within the next 12 months.
While this results in total current liabilities of €2,701,488,000 being greater than total current assets of €956,314,000 as of 31 July 2017, during September 2017 the Group
utilised its new five-year unsecured €1,800,000,000 banking agreement to settle all amounts outstanding on the Group's previous Syndicated Bank RCF and Term Loan, resulting in current liabilities decreasing to less than current assets. Therefore, the Group's 31 July 2017 financial statements have continued to be prepared on a going concern basis.
In accordance with IAS 1, 'Presentation of Financial Statements', the Group Consolidated Income Statement is presented by function of expense, with the exception of impairment of goodwill. In accordance with IAS 1.85, impairment of goodwill has been presented separately on the basis of materiality and to distinguish it from other elements of financial performance.
Management has also identified certain impairment, acquisition, disposal and restructuringrelated 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, in order to enable comparability of the Group's underlying results from period to period, these items have been presented as separate components of EBITDA as defined in note 2, and have been excluded from the calculation of underlying net profit in note 5.
The Group has historically recorded net interest cash flows within 'Net cash flows from operating activities' on the Group Consolidated Cash Flow Statement. During the current year, the Group has reviewed this accounting policy to ensure it best represents the function of interest cost within the entity and that the Group's accounting policies are aligned with companies within its peer group. As a result, the Group believes net interest cash flows more appropriately represent the cost of obtaining financial resources utilised within the business and therefore, in accordance with IAS 7, Statement of Cash Flows, has elected to report net interest cash flows within 'Net cash flows from financing activities'.
As the change in accounting policy must be reported retrospectively, the Group has adjusted all prior year comparative amounts impacted by this change in accounting policy and a comparison of the impact of this change is summarised as follows:
| in EUR `000 | After accounting policy change 2016 |
Before accounting policy change 2016 |
|---|---|---|
| Net cash flows from operating activities | 596,983 | 501,380 |
| Net cash flows from investing activities | (438,285) | (438,285) |
| Net cash flows from financing activities | 62,254 | 157,857 |
| Net increase in cash and cash equivalents | 220,952 | 220,952 |
| Translation adjustment | (12) | (12) |
| Net cash and cash equivalents at start of year | 248,033 | 248,033 |
| Net cash and cash equivalents at end of year | 468,973 | 468,973 |
Certain other amounts in the 31 July 2016 Group consolidated financial statement figures and related notes have been reclassified or adjusted to conform to the 31 July 2017 presentation. These other reclassifications or adjustments 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/(loss) for the year, total assets, total liabilities, total equity or total cash flow classifications as previously reported.
| I) Segment revenue and result | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Segment revenue1 | 1,738,593 1,747,045 1,799,059 1,908,147 | 259,118 | 223,679 3,796,770 3,878,871 | |||||
| EBITDA2 | 211,128 | 275,099 | 170,096 | 300,132 | 39,083 | 34,409 | 420,307 | 609,640 |
| Depreciation | (54,009) | (50,143) | (62,909) | (53,276) | (9,390) | (8,611) | (126,308) | (112,030) |
| ERP Amortisation | (9,955) | (9,179) | (6,734) | (3,564) | – | – | (16,689) | (12,743) |
| EBITA | 147,164 | 215,777 | 100,453 | 243,292 | 29,693 | 25,798 | 277,310 | 484,867 |
| Amortisation of other intangible assets | (57,816) | (78,192) | (108,765) | (90,114) | (8,059) | (7,935) | (174,640) | (176,241) |
| Gain/(loss) on disposal of businesses | – | (4,987) | – | 5,980 | – | – | – | 993 |
| Impairment of goodwill | (103,000) | – | (491,872) | – | – | – | (594,872) | – |
| Impairment of intangible assets | – | – | (138,642) | – | – | – | (138,642) | – |
| Impairment and disposal of fixed assets | (1,320) | (5,040) | (126,414) | (9,747) | 1,532 | – | (126,202) | (14,787) |
| Acquisition and restructuring costs | (11,682) | (57,115) | (37,639) | (24,457) | (1,153) | (1,748) | (50,474) | (83,320) |
| Operating (loss)/profit3 | (26,654) | 70,443 | (802,879) | 124,954 | 22,013 | 16,115 | (807,520) | 211,512 |
| Share of profit after interest and tax of joint ventures4 |
38,380 | 11,716 | ||||||
| Financing income4 | 3,821 | 3,526 | ||||||
| Financing costs4 | (62,272) | (106,706) | ||||||
| Private placement early redemption4 | (182,513) | – | ||||||
| (Loss)/profit before income tax as reported in Group Consolidated Income Statement |
(1,010,104) | 120,048 |
1 Revenues from external customers attributed to the Group's country of domicile, Switzerland, are 6.7% (2016: 7.0%) of total Group revenues. Revenues from external customers attributed to material foreign countries are United States 38.6% (2016: 40.0%), Germany 15.5% (2016: 15.0%) and Canada 8.8% (2016: 9.2%). For the purposes of this analysis, customer revenues are allocated based on geographic location of vendor. As is common in this industry, the Group has a large number of customers, of which one customer accounted for 10% of total Group revenues across all ARYZTA operating segments during the year ended 31 July 2017.
2 'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation; before impairment, acquisition, disposal and restructuring-related costs and related tax credits.
3 Certain central executive and support costs have been allocated against the operating results of each business segment.
4 Joint ventures, finance income/(costs) and income tax 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.
| II) Segment assets | ARYZTA ARYZTA ARYZTA Rest of World |
Europe North America |
ARYZTA Group |
|||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Segment assets | 2,172,161 2,411,081 2,125,089 2,967,117 | 266,088 | 275,982 4,563,338 5,654,180 | |||||
| Reconciliation to total assets as reported in the Group Consolidated Balance Sheet |
||||||||
| Investments in joint ventures and related financial assets |
528,188 | 495,402 | ||||||
| Derivative financial instruments | 4,311 | 669 | ||||||
| Cash and cash equivalents | 535,570 | 647,724 | ||||||
| Deferred income tax assets | 70,045 | 133,176 | ||||||
| Total assets as reported in Group Consolidated Balance Sheet |
5,701,452 6,931,151 | |||||||
| III) Segment liabilities | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
||||
| in EUR `000 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Segment liabilities | 495,550 | 508,256 | 415,041 | 479,005 | 72,378 | 78,104 | 982,969 1,065,365 | |
| Reconciliation to total liabilities as reported in Group Consolidated Balance Sheet |
||||||||
| Interest-bearing loans and borrowings | 2,269,440 2,367,341 | |||||||
| Derivative financial instruments | 2,200 | 14,557 | ||||||
| Current and deferred income tax liabilities |
245,191 | 296,117 | ||||||
| Total liabilities as reported in Group Consolidated Balance Sheet |
3,499,800 3,743,380 |
| IV) Other segment information | ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Capital expenditure | ||||||||
| – Property, plant and equipment | 49,352 | 108,420 | 33,253 | 64,976 | 10,348 | 10,916 | 92,953 | 184,312 |
| – Intangibles | 4,417 | 14,273 | 3,180 | 16,364 | 730 | 65 | 8,327 | 30,702 |
| Total capital expenditure | 53,769 | 122,693 | 36,433 | 81,340 | 11,078 | 10,981 | 101,280 | 215,014 |
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
|||||
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| IFRS 8 non-current assets1 | 2,505,768 2,750,410 1,851,671 2,737,659 | 228,932 | 244,199 4,586,371 5,732,268 |
1 Non-current assets as reported under IFRS 8, Operating Segments, include all non-current assets as presented in the Group Consolidated Balance Sheet, with the exception of deferred taxes and derivative financial instruments. Non-current assets attributed to the Group's country of domicile, Switzerland, are 6.4% of total Group non-current assets (2016: 5.9%). Non-current assets attributed to material foreign countries are: United States 25.7% (2016: 35.9%), Germany 15.8% (2016: 13.9%) and Canada 14.7% (2016: 11.8%).
In accordance with IAS 1, 'Presentation of Financial Statements', the Group Consolidated Income Statement is presented by function of expense.
Management has also identified certain impairment, acquisition, disposal and restructuringrelated costs within each functional area, which are presented separately within the Financial Business Review. In order to enable comparability of the Group's underlying results and performance from period to period, the following reconciliation between the IFRS income statement and the amounts presented within the Financial Business Review is provided.
| IFRS Income Statement |
Impairment, acquisition, disposal and restructuring related costs |
Intangible amortisation |
Financial Business Review |
IFRS Income Statement |
Impairment, acquisition, disposal and restructuring related costs |
Intangible amortisation |
Financial Business Review |
|
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2017 | 2017 | 2017 | 2017 | 2016 | 2016 | 2016 | 2016 |
| Revenue | 3,796,770 | – | – | 3,796,770 | 3,878,871 | – | – | 3,878,871 |
| Cost of sales | (2,766,136) | 71,391 | – (2,694,745) | (2,654,228) | 32,484 | – (2,621,744) | ||
| Distribution expenses | (411,702) | 18 | – | (411,684) | (414,410) | 3,983 | – | (410,427) |
| Gross profit | 618,932 | 71,409 | – | 690,341 | 810,233 | 36,467 | – | 846,700 |
| Selling expenses | (202,747) | 1,336 | – | (201,411) | (188,656) | 5,040 | – | (183,616) |
| Administration expenses | (628,833) | 242,573 | 174,640 | (211,620) | (410,065) | 55,607 | 176,241 | (178,217) |
| Impairment of goodwill (note 6) | (594,872) | 594,872 | – | – | – | – | – | – |
| Operating (loss)/profit / EBITA as per Financial Business Review |
(807,520) | 910,190 | 174,640 | 277,310 | 211,512 | 97,114 | 176,241 | 484,867 |
| Joint Ventures | 38,380 | (20,660) | 3,561 | 21,281 | 11,716 | 804 | 3,162 | 15,682 |
| (Loss)/profit before financing income, financing costs and income tax |
(769,140) | 889,530 | 178,201 | 298,591 | 223,228 | 97,918 | 179,403 | 500,549 |
During the year ended 31 July 2017, the Group incurred the following impairment, acquisition, disposal and restructuring-related costs, which are presented separately when providing information to the Chief Operating Decision Maker, as reflected within the presentation of segmental EBITDA within note 2. Furthermore, this metric forms the basis for Trailing Twelve Month EBITDA utilised in calculating the Net Debt: EBITDA ratio for banking covenant compliance.
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
||||||
|---|---|---|---|---|---|---|---|---|---|
| in EUR `000 | Notes | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Net gain/(loss) on disposal of businesses |
3.1 | – | (4,987) | – | 5,980 | – | – | – | 993 |
| Impairment of goodwill (note 6) | 3.2 | (103,000) | – | (491,872) | – | – | – | (594,872) | – |
| Impairment of intangibles | 3.3 | – | – | (138,642) | – | – | – | (138,642) | – |
| Impairment and disposal of fixed assets | 3.4 | (1,320) | (5,040) | (126,414) | (9,747) | 1,532 | – | (126,202) | (14,787) |
| Total net gain/(loss) on disposal of businesses and asset write-downs |
(104,320) | (10,027) | (756,928) | (3,767) | 1,532 | – | (859,716) | (13,794) | |
| Acquisition-related costs | – | (2,330) | – | – | – | – | – | (2,330) | |
| Labour-related business interruption | – | – | (16,349) | – | – | (16,349) | – | ||
| Severance and other staff-related costs | (9,423) | (48,314) | (10,791) | (15,614) | (1,153) | (1,519) | (21,367) | (65,447) | |
| Contractual obligations | (762) | (1,402) | (6,533) | (5,305) | – | (31) | (7,295) | (6,738) | |
| Advisory and other costs | (1,497) | (5,069) | (3,966) | (3,538) | – | (198) | (5,463) | (8,805) | |
| Total acquisition and restructuring-related costs |
3.5 | (11,682) | (57,115) | (37,639) | (24,457) | (1,153) | (1,748) | (50,474) | (83,320) |
| Total impairment, acquisition, disposal and restructuring-related costs |
(116,002) | (67,142) | (794,567) | (28,224) | 379 | (1,748) | (910,190) | (97,114) |
During the year ended 31 July 2016, the Group disposed of two businesses, which historically generated approximately €100,000,000 in total annual revenues. As the €42,060,000 proceeds received, net of associated transaction costs, exceeded the €41,067,000 carrying value of the net assets disposed (including €20,573,000 of goodwill), a net gain on disposal of €993,000 was reflected in the financial statements.
Following significant reductions in profitability in Germany and North America during the year ended 31 July 2017, the Group recorded goodwill impairment charges of €103,000,000 in Germany and €491,872,000 in North America.
Current year profitability associated with these locations has been significantly impacted, either by the consolidation of 225 SKUs into the new German bakery capacity in Eisleben and the ongoing commissioning and optimisation of that facility, or by the significant volume declines and increased labour costs in North America.
While profitability in each of these locations is expected to improve in the future, after considering goodwill and other assets within these locations, as well as the respective future cash flow projections, management determined it was appropriate to record these goodwill impairment charges during the current year.
Despite these impairments, the bakeries remain world class production facilities and are expected to make significant future contributions to the group, once spare capacity across the network is optimised and other operational challenges are addressed.
Further detail on these goodwill impairments is included in note 6 on page 39.
As outlined in section 3.2 above, during the year ended 31 July 2017, ARYZTA North America experienced a significant reduction in volumes, as a result of earlier than anticipated in-sourcing by co-pack customers.
As these customers and the related volumes were primarily associated with the Group's Cloverhill acquisition completed during FY 2014, the Group reviewed the remaining customer relationship and brand-related intangible assets obtained as part of that acquisition and, based on the associated future cash flows, recorded a €138,642,000 impairment of those intangible assets (see note 6) within administration expenses in the Group Consolidated Income Statement.
The value-in-use models used to determine the recoverable amounts of these intangible assets were based on management's expectations of the respective future revenues from the acquired customer relationships and brands and applied a discount rate consistent with the rate used in the North America CGU goodwill impairment testing, as disclosed in note 6.
As of 31 July 2017, the remaining net book values of these specific intangible assets are: €17,013,000 for Cloverhill customer relationships and €6,805,000 for Cloverhill brands.
During the year ended 31 July 2017, the Group incurred €126,202,000 (2016: €14,787,000) on impairment and disposal of fixed assets.
These amounts primarily related to the impairment of various distribution, manufacturing, and administration assets within the ARYZTA North America segment, including:
Separately, an impairment loss of €1,320,000 was recorded in Europe, primarily related to obsolete production equipment in Switzerland, while a gain of €1,532,000 was recorded in the Rest of World segment, primarily arising from the sale of land.
Of these amounts, €46,824,000 has been reflected within Cost of Sales.
While there were no acquisitions during the year ended 31 July 2017, the Group underwent considerable restructuring-related activity during the year, following the significant reductions in profitability in Germany and North America and departure of four members of Group Executive management.
As a result of these activities, 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 year ended 31 July 2016, the Group incurred acquisition-related costs such as share purchase tax, due diligence and other professional services fees totalling €2,330,000, 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 and the finalisation of the Group's joint venture investment in Picard.
During the year, the Group encountered a significant labour-related business disruption at its Cloverhill facilities.
A substantial number of the legacy labour force at these facilities was supplied through a third-party staffing agency. A federal audit of this third-party agency revealed inadequate documentation, resulting in circa 800 experienced workers leaving the business in Q4-2017 and being progressively replaced with new hires. By merit of these employees being agency workers, ARYZTA did not have the ability to verify documentation of these workers, and the immediacy and extent of the risk that existed was not known to the board.
As these individuals had significant knowledge and experience of the baking process and represented over one-third of the workforce at these facilities, there has been a significant decrease in the labour efficiency and production volumes, as well as an impact on increased waste levels at these facilities, as a result of this disruption.
While the Cloverhill business had been profitable every month since its acquisition, following this disruption these locations incurred €16,349,000 of losses within Cost of Sales during June and July 2017, which is also expected to continue to impact the business during FY18.
The Group provided for a total of €21,367,000 in severance and other staff- related costs during the year ended 31 July 2017. Of this amount €10,368,000 has been recognised in relation to the remaining contractual employment period and the 12-month post contractual term non-compete agreements with four former members of Executive Management, who left the business during the year.
The remaining €10,999,000 of costs recognised during the year represent severance costs arising from a number of production, distribution and administrative rationalisations, as well as amounts in respect of key employee retention agreements implemented following the Executive Management departures during the year.
During financial year 2016, the Group incurred €65,447,000 related to costs associated with employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group, primarily in Europe.
The operational decisions made as a result of the Group's integration and rationalisation projects resulted in certain long-term operational contracts becoming onerous. During the year ended 31 July 2017, the Group incurred total costs of €7,295,000 (2016: €6,738,000) to provide for certain long-term contracts determined to be surplus to the Group's operating requirements. Of these amounts, €6,424,000 has been reflected within Cost of Sales. The associated provision amounts have been calculated on the basis of the remaining period of the relevant lease, or an estimate to the earliest date at which the lease could be terminated or sublet, if shorter.
During the year ended 31 July 2017, the Group incurred €5,463,000 in advisory and other professional services costs, directly arising from the strategic and business review activities following the changes in Executive Management.
During the year ended 31 July 2016, the Group incurred €8,805,000 in advisory and other costs related directly to the rationalisation of certain bakery assets, integration of the supply chain and distribution functions of recently acquired businesses into the Group's network and costs associated with centralisation of certain administrative functions.
At the Annual General Meeting on 7 December 2017, shareholders will be invited to approve a proposed dividend of CHF 0.3489 (€0.3024) per share, to be settled as a scrip dividend via newly issued share capital. If approved, the dividend will be issued to shareholders on 1 February 2018. A dividend of CHF 0.5731 per share was paid during the year, as approved by shareholders at the Annual General Meeting on 13 December 2016.
| 2017 | 2016 | |
|---|---|---|
| Basic (loss)/earnings per share | in EUR '000 | in EUR '000 |
| (Loss)/profit attributable to equity shareholders – continuing operations |
(907,773) | 112,729 |
| Perpetual callable subordinated instrument accrued dividend | (32,099) | (31,882) |
| (Loss)/profit used to determine basic EPS – continuing operations | (939,872) | 80,847 |
| Loss used to determine basic EPS – discontinued operations | – | (45,721) |
| (Loss)/profit used to determine basic EPS – total | (939,872) | 35,126 |
| Weighted average number of ordinary shares | '000 | '000 |
| Ordinary shares outstanding at 1 August1 | 88,759 | 88,759 |
| Effect of exercise of equity instruments during the year | – | – |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,759 |
| Basic (loss)/earnings per share from continuing operations | (1,058.9) cent | 91.1 cent |
| Basic loss per share from discontinued operations | – | (51.5) cent |
| Basic (loss)/earnings per share | (1,058.9) cent | 39.6 cent |
| 2017 | 2016 | |
|---|---|---|
| Diluted (loss)/earnings per share | in EUR '000 | in EUR '000 |
| (Loss)/profit used to determine basic EPS – continuing operations | (939,872) | 80,847 |
| Loss used to determine basic EPS – discontinued operations | – | (45,721) |
| (Loss)/profit used to determine basic EPS – total | (939,872) | 35,126 |
| Weighted average number of ordinary shares (diluted) | '000 | '000 |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,759 |
| Effect of equity-based incentives with a dilutive impact2 | – | 170 |
| Weighted average ordinary shares used to determine diluted EPS | 88,759 | 88,929 |
| Diluted (loss)/earnings per share from continuing operations | (1,058.9) cent | 90.9 cent |
| Diluted loss per share from discontinued operations | – | (51.4) cent |
| Diluted (loss)/earnings per share | (1,058.9) cent | 39.5 cent |
1 Issued share capital excludes treasury shares.
2 In accordance with IAS 33, potential ordinary shares are treated as dilutive only when their conversion would decrease profit per share or increase loss per share from continuing operations. As the impact related to the conversion of equity-based incentives would decrease the loss per share for the year ended 31 July 2017, no dilutive effect was given to outstanding equity based incentives during that period.
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 shown below, for purposes of calculating this measure, the Group adjusts reported net profit/(loss) by the following items and their related tax impacts:
| 2017 | 2016 | |
|---|---|---|
| Underlying fully diluted earnings per share | in EUR '000 | in EUR '000 |
| (Loss)/profit used to determine basic EPS - continuing operations | (939,872) | 80,847 |
| Amortisation of non-ERP intangible assets (note 2) | 174,640 | 176,241 |
| Tax on amortisation of non-ERP intangible assets | (32,997) | (36,715) |
| Share of JV intangible amortisation and restructuring costs, net of tax | (17,099) | 3,966 |
| Private placement early redemption (note 7) | 182,513 | – |
| Impairment of goodwill (note 3) | 594,872 | – |
| Impairment of intangibles (note 3) | 138,642 | – |
| Impairment and disposal of fixed assets (note 3) | 126,202 | 13,794 |
| Acquisition and restructuring-related costs (note 3) | 50,474 | 83,320 |
| Tax on impairment, acquisition, disposal and restructuring | (98,349) | (9,911) |
| Underlying net profit - continuing operations | 179,026 | 311,542 |
| Loss used to determine basic EPS – discontinued operations | – | (45,721) |
| Underlying contribution as associate – discontinuing operations | – | (48) |
| Loss on disposal of discontinued operations | – | 45,769 |
| Underlying net profit – discontinued operations | – | – |
| Underlying net profit – total | 179,026 | 311,542 |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,759 |
| Underlying basic earnings per share – total | 201.7 cent 351.0 cent | |
| Weighted average ordinary shares used to determine basic EPS | 88,759 | 88,759 |
| Effect of equity-based incentives with a dilutive impact | 29 | 170 |
| Weighted average ordinary shares used to determine underlying fully | ||
| diluted EPS | 88,788 | 88,929 |
| Underlying fully diluted earnings per share – total | 201.6 cent 350.3 cent |
| 31 July 2017 in EUR '000 |
Goodwill | Customer Relationships |
Brands | Computer related |
ERP-related intangibles |
Patents and other |
Total |
|---|---|---|---|---|---|---|---|
| Net Book Value At 1 August 2016 | 2,403,671 | 827,196 | 147,098 | 19,124 | 186,546 | 33,559 | 3,617,194 |
| Additions | – | – | – | 6,625 | 1,702 | – | 8,327 |
| Impairment of goodwill (note 3) | (594,872) | – | – | – | – | – | (594,872) |
| Impairment of intangibles (note 3) | – | (133,221) | (5,421) | – | – | – | (138,642) |
| Asset write-downs / disposals | – | – | – | (2,057) | (526) | – | (2,583) |
| Amortisation charge for the year | – | (130,635) | (29,089) | (4,137) | (16,689) | (10,779) | (191,329) |
| Translation adjustments | (33,799) | (7,047) | (4,135) | (834) | (37) | (306) | (46,158) |
| Net Book Value At 31 July 2017 | 1,775,000 | 556,293 | 108,453 | 18,721 | 170,996 | 22,474 | 2,651,937 |
| At 31 July 2017 | |||||||
| Cost | 1,775,000 | 1,315,611 | 300,318 | 38,437 | 214,454 | 59,481 | 3,703,301 |
| Accumulated amortisation | – | (759,318) | (191,865) | (19,716) | (43,458) | (37,007) (1,051,364) | |
| Net Book Value At 31 July 2017 | 1,775,000 | 556,293 | 108,453 | 18,721 | 170,996 | 22,474 | 2,651,937 |
Goodwill acquired through business combinations is allocated at acquisition to the cash-generating units ('CGUs'), or groups of CGUs, that are expected to benefit from the synergies of the business combination.
The business units shown in the following table represent the lowest level at which goodwill is monitored for internal management purposes. Accordingly, this is also the level at which the 2017 goodwill impairment testing was performed. The carrying amount of goodwill allocated to the relevant CGUs, as well as the key assumptions used in the 2017 impairment testing, are summarised as follows:
| in EUR '000 | Pre-tax discount rate 2017 |
Projection period |
Terminal growth rate |
Carrying Value 2017 |
Carrying Value 2016 |
|---|---|---|---|---|---|
| UK, Ireland and Netherlands | 8.0% | 3 years | 1.9% | 209,478 | 211,409 |
| Germany | 8.4% | 3 years | 1.9% | 204,906 | 307,906 |
| Switzerland | 7.4% | 3 years | 1.0% | 234,069 | 244,529 |
| France | 8.8% | 3 years | 1.8% | 85,354 | 85,354 |
| Other Europe1 | 8.0% | 3 years | 1.9% | 62,835 | 62,024 |
| ARYZTA Europe | 796,642 | 911,222 | |||
| ARYZTA North America | 8.9% | 3 years | 2.2% | 922,496 1,435,709 | |
| ARYZTA Rest of World | 11.4% | 3 years | 3.0% | 55,862 | 56,740 |
| 1,775,000 2,403,671 |
1 Other Europe comprises goodwill in a number of CGUs which are individually insignificant.
The Group tests goodwill for impairment annually, during the last quarter of the financial year, or more frequently if changes in circumstances indicate a potential impairment.
The recoverable amounts of CGUs are based on value-in-use calculations. These calculations use pre-tax cash flow projections based on expected future operating results and related cash flows at the time the impairment test is performed. These projections are based on current operating results of the individual CGU and an assumption regarding future organic growth. For the purposes of the calculation of value-in-use, the cash flows are projected based on current financial budgets, with additional cash flows in subsequent years calculated using a terminal value methodology and discounted using the relevant rate, as disclosed in the table above.
As a result of significant reductions in profitability in Germany and North America during the year ended 31 July 2017, the Group recorded goodwill impairment charges of €103,000,000 in Germany, within the ARYZTA Europe operating segment, and €491,872,000 in North America. The recoverable amounts of Germany and North America goodwill after these charges are €204,906,000 and €922,496,000, respectively, as outlined in the table above.
The impairment charges are the result of current year profitability associated with these locations having been significantly impacted, either by the consolidation of 225 SKUs into the new German bakery capacity in Eisleben and the ongoing commissioning and optimisation of that facility, or by the significant volume declines and increased labour costs in North America.
While profitability in each of these locations is expected to improve in the future, after considering goodwill and other assets within these locations, as well as the respective future cash flow projections, management determined it was appropriate to record these goodwill impairment charges during the current year.
The key inputs to the value-in-use models used to determine the recoverable amounts are as disclosed in the table above, including a pre-tax discount rate of 8.4% for Germany and 8.9% for North America, as well as a terminal value growth rate beyond the initial three year projection period of 1.9% for Germany and 2.2% for North America.
The amount of these goodwill impairments were determined after taking into account the impact of the impairment of intangibles and fixed asset impairments/disposals, discussed in note 3, on the overall CGU carrying values tested.
A significant adverse change in the expected future operational results and cash flows may result in the value-in-use being less than the carrying amount of a CGU, which would result in an impairment. Key assumptions include management's estimates of future profitability, specifically the terminal growth rate, as well as the discount rate.
The terminal growth rates used approximate relevant long-term inflation rates and industry growth trends within each CGU. The discount rates used are based on the relevant riskfree rates, adjusted to reflect the risk associated with the respective future cash flows of that CGU.
Based on the results of the impairment testing undertaken, with the exception of the North America and Germany CGUs, sufficient headroom exists for the other CGUs, such that any reasonably possible movement in any of the underlying assumptions, including a reduction in the terminal growth rate by 1%, or increasing the discount rate by 1%, would not give rise to an impairment charge.
As the goodwill in the North America and Germany CGUs was written down to recoverable value during FY 2017, the value in use of these CGUs are sensitive to changes in the key assumptions used. An illustration of the sensitivities to reasonably possible changes in key assumptions at 31 July 2017, in isolation, are as follows:
| North America | Germany | ||||
|---|---|---|---|---|---|
| in EUR million | Increase by 1% | Decrease by 1% | Increase by 1% | Decrease by 1% | |
| Pre-tax discount rate | (196) | 265 | (71) | 96 | |
| Terminal growth rate | 437 | (286) | 155 | (100) |
As outlined above, during the year ended 31 July 2017, ARYZTA North America experienced a significant reduction in volumes, as a result of earlier than anticipated in-sourcing by co-pack customers.
As these customers and the related volumes were primarily associated with the Group's Cloverhill acquisition completed during FY 2014, the Group reviewed the remaining customer relationship and brand-related intangible assets obtained as part of that acquisition and, based on the associated future cash flows, recorded a €138,642,000 impairment of those intangible assets within administration expenses in the Group Consolidated Income Statement.
The value-in-use models used to determine the recoverable amounts of these intangible assets were based on management's expectations of the respective future revenues from the acquired customer relationships and brands and applied a discount rate consistent with the rate used in the North America CGU goodwill impairment testing above.
As of 31 July 2017, the remaining net book value of these specific intangible assets are: €17,013,000 for the Cloverhill customer relationships and €6,805,000 for the Cloverhill brands.
Details of the Group's interest bearing loans and borrowings are outlined below.
| in EUR `000 | 2017 | 2016 |
|---|---|---|
| Included in non-current liabilities | ||
| Loans | 382,551 | 1,962,339 |
| Finance leases | 691 | 1,370 |
| Non-current interest-bearing loans and borrowings | 383,242 | 1,963,709 |
| Included in current liabilities | ||
| Loans | 1,771,734 | 223,974 |
| Bank overdrafts | 113,630 | 178,751 |
| Total bank loans and overdrafts | 1,885,364 | 402,725 |
| Finance leases | 834 | 907 |
| Current interest-bearing loans and borrowings | 1,886,198 | 403,632 |
| Total bank loans and overdrafts | 2,267,915 | 2,365,064 |
| Total finance leases | 1,525 | 2,277 |
| Total interest-bearing loans and borrowings | 2,269,440 | 2,367,341 |
| Analysis of net debt in EUR `000 |
1 August 2016 |
Cash flows | Non-cash movements |
Translation adjustment |
31 July 2017 |
|---|---|---|---|---|---|
| Cash | 647,724 | (88,971) | – | (23,183) | 535,570 |
| Overdrafts | (178,751) | 62,712 | – | 2,409 | (113,630) |
| Cash and cash equivalents | 468,973 | (26,259) | – | (20,774) | 421,940 |
| Loans | (2,186,313) | (17,306) | (10,382) | 59,716 (2,154,285) | |
| Finance leases | (2,277) | 1,022 | (280) | 10 | (1,525) |
| Net debt | (1,719,617) | (42,543) | (10,662) | 38,952 (1,733,870) |
During August 2016, the Group exercised its option to increase its Syndicated Bank RCF by CHF 150m, to a total available capacity of CHF 1,550m.
During August 2016, the Group also signed a new €1,000m term loan facility, with substantially similar financial terms to the Syndicated Bank RCF.
During September 2016, the Group utilised the available capacity of the Syndicated Bank RCF, the term loan facility and existing cash resources to redeem all of its outstanding Private Placements, which totalled €1,209.5m at the time of redemption. In connection with this early redemption the Group incurred €182.5m of costs, including a make-whole cost of €169.4m, other redemption-related cash costs of €6.2m and also wrote-off €6.9m of existing private placement capitalised borrowing costs.
During December 2016, the Group issued a number of Schuldschein tranches totalling €386m, which have maturities between three and seven years. These proceeds were used to reduce the amount outstanding on the Group's term loan facility.
As of 31 July 2017, all outstanding amounts on the Group's Syndicated Bank RCF and Term Loan borrowings have been presented as current liabilities within the Group Consolidated Balance Sheet, reflecting the Group's obligation to repay those facilities within the next 12 months.
During July 2017, the Group agreed to the terms of a new five-year unsecured €1,800m refinancing of its Syndicated Bank RCF and term loan facility comprising a €1,000m amortising term loan and a €800m revolving credit facility.
The new financing was utilised on 22 September 2017 to repay in full the revolving credit and term loan facilities put in place last year.
The refinancing is underwritten by four of the Group's key relationship banks, with general syndication to take place over the next two months.
In order to provide enhanced financial flexibility, the Group has increased the covenant to a maximum 4.75x Net Debt: EBITDA at 31 July 2017 and 31 January 2018, reducing to a maximum of 4.00x at 31 July 2018 and a maximum of 3.50x from 31 July 2019. The Group has also reduced the interest cover covenant to 3.0x EBITDA: Interest. The new facility extends the maturity profile of the Group's debt to just over 4 years.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.