Interim / Quarterly Report • Mar 12, 2018
Interim / Quarterly Report
Open in ViewerOpens in native device viewer
Page
Commenting on the H1 2018 results, ARYZTA AG Chief Executive Officer Kevin Toland said:
"We are actively implementing a range of measures to improve our EBITDA. We are in a multi-year turnaround programme. Under our new leadership team, we are reshaping the Group's focus on our core B2B frozen bakery customers, improving operational efficiencies and deleveraging the balance sheet."
Six month period ended 31 January 2018
| January | January | |
|---|---|---|
| 2018 | 2017 | % Change |
| (6.3)% | ||
| 161,284 | 229,017 | (29.6)% |
| 9.0% | 12.0% | (300) bps |
| (67,977) | (70,484) | 3.6% |
| 93,307 | 158,533 | (41.1)% |
| 15,928 | 16,710 | (4.7)% |
| 109,235 | 175,243 | (37.7)% |
| (36,290) | (29,622) | (22.5)% |
| (15,344) | (16,022) | 4.2% |
| 57,601 | 129,599 | (55.6)% |
| (6,668) | (18,534) | 64.0% |
| – | (1,635) | 100.0% |
| 50,933 | 109,430 | (53.5)% |
| 57.1 | 123.2 | (53.7)% |
| 1,786,549 1,906,036 |
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 and EPS to reported net profit and EPS, as included on page 15.
2 The 31 January 2018 weighted average number of ordinary shares used to calculate underlying fully diluted earnings per share is 89,224,630 (H1 2017: 88,846,838).
Six month period ended 31 January 2018
| in EUR million | ARYZTA Europe |
ARYZTA North America1 |
ARYZTA Rest of World |
ARYZTA Group |
|---|---|---|---|---|
| Group revenue | 868.3 | 786.4 | 131.9 | 1,786.6 |
| Organic growth | 1.7% | (7.5)% | 9.1% | (2.2)% |
| Acquisitions/(disposals), net | – | – | – | – |
| Currency | (1.0)% | (6.6)% | (6.9)% | (4.1)% |
| Revenue Growth | 0.7% | (14.1)% | 2.2% | (6.3)% |
1 ARYZTA North America revenues, excluding Cloverhill (Chicago/Cicero), declined by (7.4)% to €724.2m, comprised of an organic decline of (0.4)% and currency headwinds of (7.0)%.
| Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | Q1 2018 | Q2 2018 | H1 2018 | |
|---|---|---|---|---|---|---|---|
| ARYZTA Europe | |||||||
| Volume % | 1.8% | (0.1)% | 1.3% | (4.7)% | (0.7)% | (1.3)% | (1.0)% |
| Price/Mix % | (0.4)% | 0.7% | 3.0% | 4.0% | 1.3% | 4.2% | 2.7% |
| Organic growth % | 1.4% | 0.6% | 4.3% | (0.7)% | 0.6% | 2.9% | 1.7% |
| ARYZTA North America | |||||||
| Volume % | (5.7)% | (5.5)% | (6.7)% | (16.1)% | (7.1)% | (8.6)% | (7.8)% |
| Price/Mix % | 1.0% | (0.3)% | 2.4% | 5.5% | 0.1% | 0.6% | 0.3% |
| Organic growth % | (4.7)% | (5.8)% | (4.3)% | (10.6)% | (7.0)% | (8.0)% | (7.5)% |
| Organic growth % excluding Cloverhill |
(2.5)% | (2.9)% | (3.0)% | (4.7)% | 1.0% | (1.8)% | (0.4)% |
| ARYZTA Rest of World | |||||||
| Volume % | 4.9% | 7.6% | 0.7% | 7.7% | 2.7% | 7.9% | 5.9% |
| Price/Mix % | 4.8% | 1.7% | 3.0% | (1.3)% | 5.1% | 2.3% | 3.2% |
| Organic growth % | 9.7% | 9.3% | 3.7% | 6.4% | 7.8% | 10.2% | 9.1% |
| ARYZTA Group | |||||||
| Volume % | (1.7)% | (2.3)% | (2.7)% | (9.4)% | (3.6)% | (4.2)% | (3.8)% |
| Price/Mix % | 0.5% | 0.3% | 2.7% | 4.4% | 1.0% | 2.4% | 1.6% |
| Organic growth % | (1.2)% | (2.0)% | 0.0% | (5.0)% | (2.6)% | (1.8)% | (2.2)% |
| Organic growth % excluding Cloverhill1 |
0.1% | (0.4%) | 1.0% | (2.0%) | 1.3% | 1.4% | 1.3% |
1 The Group 1.3% organic revenue growth, excluding Cloverhill (Chicago/Cicero), is the result of a (0.4)% volume decline offset by a positive price/mix of 1.7%.
Six month period ended 31 January 2018
| EBITDA | EBITDA | |||||
|---|---|---|---|---|---|---|
| January | January | Margin | Margin | % | ||
| in EUR `000 | 2018 | 2017 | % Change | 2018 | 2017 | Change |
| ARYZTA Europe | 90,740 | 110,283 | (17.7)% | 10.5% | 12.8% | (230) bps |
| ARYZTA North America | 49,962 | 99,119 | (49.6)% | 6.4% | 10.8% | (440) bps |
| ARYZTA Rest of World | 20,582 | 19,615 | 4.9% | 15.6% | 15.2% | 40 bps |
| ARYZTA Group EBITDA | 161,284 | 229,017 | (29.6)% | 9.0% | 12.0% | (300) bps |
| ARYZTA Group EBITDA excluding Cloverhill |
161,284 | 201,855 | (20.1)% | 9.4% | 11.4% | (200) bps |
ARYZTA is the world's leading global, frozen B2B baking solutions provider, operating in the frozen bakery segment of the overall bakery market. ARYZTA's customer channels consist of a mix of large retail, convenience and independent retail, Quick Service Restaurants ('QSR') and other foodservice categories.
Total Group revenue decreased by (6.3)% to €1,786.6m during the period ended 31 January 2018, due to an organic revenue decline of (2.2%), consisting of volume losses of (3.8)%, partially offset by a positive price/mix impact of 1.6%. Currency headwinds reduced revenue by (4.1)% in the period.
The (2.2)% organic revenue decline primarily related to an organic revenue decline of (7.5)% in ARYZTA North America, driven by volume declines at the Cloverhill Chicago and Cicero bakeries, which were disposed of subsequent to the end of the period. Excluding Cloverhill, Group revenues would have been €1,724.4m, representing Group organic revenue growth of 1.3%, while ARYZTA North America organic revenues would have declined by (0.4%).
ARYZTA Europe revenues experienced 1.7% organic revenue growth, driven primarily by increases in price/mix, and ARYZTA Rest of World organic revenues grew by 9.1%, as a result of strong volume and price/mix growth.
Group EBITDA decreased by (29.6)% to €161.3m, while EBITDA margins declined (300) bps to 9.0%. Excluding Cloverhill, Group EBITDA would have decreased by (20.1)%, while EBITDA margins would have declined (200) bps to 9.4%.
ARYZTA Europe has leading market positions in the frozen B2B 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 increased by 0.7% to €868.3m during the period ended 31 January 2018. Organic revenue growth of 1.7% was a result of a (1.0)% decrease in volumes driven by customer insourcing in Switzerland and Germany, offset by a 2.7% benefit from improved price/mix as a result of increased input costs partially passed through to customers. Unfavourable currency movements also impacted revenues by (1.0)%.
ARYZTA Europe EBITDA decreased by (17.7)% to €90.7m and EBITDA margins decreased by (230) bps to 10.5%, primarily in connection with the decreased margins on partial pass through of increased raw materials and input costs, and lower operating leverage following customer insourcing.
ARYZTA North America is a leading player in the frozen B2B 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 North America 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 (14.1)% to €786.4m during the period ended 31 January 2018. Unfavourable currency movements reduced revenues by (6.6)%, while organic revenue declined by (7.5)%, due to volume declines of (7.8)%, partially offset by positive price/mix of 0.3%.
Excluding Cloverhill, ARYZTA North America revenues would have been €724.2m, representing a relatively stable organic revenue decline of (0.4%), as the result of a (0.8)% volume decline and a 0.4% price/mix improvement.
ARYZTA North America EBITDA declined by (49.6)% to €50.0m, while EBITDA margins declined (440) bps to 6.4%. Excluding Cloverhill, ARYZTA North America EBITDA would have declined by (30.6)% to €50.0m, while EBITDA margins would have declined (230) bps to 6.9%. Besides Cloverhill, the remaining impacts on ARYZTA North America EBITDA and margins primarily related to negative operating leverage from cumulative volume losses and insufficient cost realignment, combined with continued increases in labour costs and industry wide increases in transport and distribution 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 13% 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 2.2% to €131.9m during the period ended 31 January 2018. While unfavourable currency movements reduced revenues by (6.9)%, organic revenue increased revenue by 9.1%, as a result of strong 5.9% volume growth with both global strategic customers as well as others across the region, combined with price/mix growth of 3.2%.
ARYZTA Rest of World EBITDA increased by 4.9% to €20.6m, while EBITDA margins increased by 40 bps to 15.6%, as a result of the improved operating leverage resulting from organic revenue growth.
During August 2015, ARYZTA acquired 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.
During the period ended 31 January 2018 ARYZTA received a cash dividend from Picard in the amount of €53.5m, after which the Group's investment carrying value in Picard totalled €453.9m.
While Picard is not considered part of ARYZTA's long-term strategy and progress continues to be made on the sale process, disposal of the Group's investment is currently only possible with agreement of both joint venture partners. Therefore, the Group's investment continues to be accounted for on a historical cost basis using the equity method of accounting, rather than at fair value as an asset held-for-sale.
As of 31 January 2018, the Group also owned a 50% interest in Signature Flatbreads, a pioneering flatbread producer, producing an innovative range of authentic Indian breads, as well as high-quality international flatbreads, tortillas, pizza bases and pitas, which had an investment carrying value of €31.8m.
During March 2018 the Group agreed to sell its 50% interest in Signature Flatbreads to its joint venture partners for net proceeds of approximately €34m. This disposal is consistent with ARYZTA's strategy to focus on its frozen B2B bakery operations and exit non-core businesses. The transaction is expected to be completed during Q3 FY18 and the associated proceeds will be used to reduce net debt.
Joint ventures had combined revenues of €870.7m during the ARYZTA six-month period ended 31 January 2018 and delivered an underlying contribution to ARYZTA of €15.9m, after interest and tax. Both joint ventures performed well, each growing revenues, EBITDA and margins, and generating strong internal cash flows.
| in EUR `000 | Picard January 2018 |
Signature January 2018 |
Total January 2018 |
Total January 2017 |
|---|---|---|---|---|
| Revenue | 810,337 | 60,402 | 870,739 | 843,352 |
| EBITDA | 130,766 | 8,343 | 139,109 | 133,442 |
| EBITDA margin | 16.1% | 13.8% | 16.0% | 15.8% |
| Depreciation | (14,980) | (2,401) | (17,381) | (17,459) |
| EBITA | 115,786 | 5,942 | 121,728 | 115,983 |
| Finance cost, net | (42,186) | (203) | (42,389) | (48,214) |
| Pre-tax profit | 73,600 | 5,739 | 79,339 | 67,769 |
| Income tax | (45,546) | (1,190) | (46,736) | (33,512) |
| Joint venture underlying net profit | 28,054 | 4,549 | 32,603 | 34,257 |
| ARYZTA's share of JV underlying net profit | 13,654 | 2,274 | 15,928 | 16,710 |
During the period ended 31 January 2018, the Group incurred the following amounts related to impairment, disposal and restructuring:
| Non-cash | Cash | Total | Total | |
|---|---|---|---|---|
| in EUR `000 | 2018 | 2018 | 2018 | 2017 |
| Loss on impairment of disposal group held-for-sale |
(151,042) | – | (151,042) | – |
| Net gain on disposal of business | 1,706 | – | 1,706 | – |
| Impairment and disposal of fixed assets | – | – | – | (2,347) |
| Labour-related business interruption | – | (38,730) | (38,730) | – |
| Severance and other staff-related costs | – | (6,695) | (6,695) | (4,190) |
| Contractual obligations | – | – | – | (4,126) |
| Advisory and other costs | – | (6,391) | (6,391) | (2,496) |
| Net impairment, disposal and | ||||
| restructuring-related costs | (149,336) | (51,816) | (201,152) | (13,159) |
During January 2018, the Group agreed to dispose of the Cloverhill Chicago and Cicero facilities in North America, which historically generated approximately €250m in annual revenues. As these facilities were available-for-sale and negotiations were at an advanced stage, management have recorded these assets as a disposal group held-for-sale as at 31 January 2018. As the agreed proceeds received during February 2018 of €57.2m, net of associated transaction costs, were less than the €208.3m carrying value of the net assets, a loss on impairment of disposal group held-for-sale of €151.0m has been recognised during the period ended 31 January 2018.
A cumulative €19m foreign currency translation gain on net investment, related to the disposal group held-for-sale, has been recognised through other comprehensive income since initial investment, and remains in foreign currency translation reserve as of 31 January 2018. This amount will be recycled from other comprehensive income into the income statement upon completion of the transactions, subsequent to period end.
During the period ended 31 January 2018, the Group disposed of a business in Europe, which historically generated approximately €45m in annual revenues. As the €46.8m proceeds received, net of associated transaction costs, exceeded the €45.1m carrying value of the net assets disposed, a net gain on disposal of €1.7m was recognised during the period ended 31 January 2018.
There were no business disposals during the period ended 31 January 2017.
There were no fixed asset impairments during the period ended 31 January 2018.
The Group incurred €2.3m on impairment and disposal of fixed assets during the period ended 31 January 2017, which related 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.
The €16.3m of labour-related business interruption costs experienced in the North America Cloverhill facilities during the last three months of the financial year ended 31 July 2017 continued into the six month period ended 31 January 2018, during which the Group incurred €38.7m of further losses.
As indicated above, these facilities were disposed of subsequent to period end, during February 2018, for proceeds of €57.2m, net of associated transaction costs.
The Group incurred €6.7m (2017: €4.2m) in severance and other staff-related costs during the period. These costs primarily related to employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group.
There were no contractual obligation costs incurred during the period ended 31 January 2018.
During the period ended 31 January 2017, the Group incurred €4.1m related primarily to ongoing contractual obligations for closed facilities in both Europe and North America.
During the period ended 31 January 2018, the Group incurred €6.4m (2017: €2.5m) in costs related to the reorganisation of the North America business and a group-wide strategic business review.
| in EUR `000 | January 2018 | January 2017 |
|---|---|---|
| EBITDA | 161,284 | 229,017 |
| Working capital movement | (32,594) | (17,551) |
| Working capital movement from debtor securitisation1 | 10,315 | 25,252 |
| Capital expenditure | (41,959) | (62,751) |
| Proceeds from sale of fixed assets and investment property | 772 | 15,748 |
| Restructuring-related cash flows | (54,129) | (28,323) |
| Segmental operating free cash generation | 43,689 | 161,392 |
| Dividends received from joint venture | 53,540 | – |
| Interest and income tax | (52,490) | (55,675) |
| Recognition of deferred income from government grants | (1,936) | (2,864) |
| Other | (3,048) | (3,441) |
| Cash flow generated from activities | 39,755 | 99,412 |
1 Total debtor balances securitised as of 31 January 2018 is €224m (31 July 2017: €219m).
4%
2019
| in EUR `000 | January 2018 | January 2017 |
|---|---|---|
| Opening net debt as at 1 August | (1,733,870) | (1,719,617) |
| Cash flow generated from activities | 39,755 | 99,412 |
| Disposal of business, net | 46,781 | – |
| Contingent consideration paid | – | (896) |
| Private Placement and RCF early redemption costs | (12,415) | (182,513) |
| Dividends paid to non-controlling interests | – | (3,350) |
| Foreign exchange movement1 | 39,524 | (42,856) |
| Other2 | (2,840) | (1,677) |
| Closing net debt as at 31 January | (1,623,065) | (1,851,497) |
1 Foreign exchange movement for the period ended 31 January 2018 is primarily attributable to the fluctuation in the US Dollar to euro closing rate from July 2017 (1.1756) to January 2018 (1.2425). Foreign exchange movement for the period ended 31 January 2017 was primarily attributable to the fluctuation in the US Dollar to euro closing rate from July 2016 (1.1162) to January 2017 (1.0674).
2 Other is comprised primarily of non-cash amortisation of upfront borrowing costs.
The Group's new five-year unsecured €1,800m refinancing, comprising a €1,000m amortising term loan and a €800m revolving credit facility, was utilised on 22 September 2017 to repay in full the revolving credit and term loan facilities put in place in September 2016 and all amounts outstanding as of 31 January 2018 have been classified between current and long-term, in accordance with the terms of this new financing agreement.
The refinancing was underwritten by four of the Group's key relationship banks and general syndication was successfully completed during the period ended 31 January 2018.
In order to provide enhanced financial flexibility, the Group has increased the covenant to a maximum 4.75x Net Debt: EBITDA at 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.
| Syndicated Bank RCF & Term Loan | January 2018 | July 2017 |
|---|---|---|
| Net Debt: EBITDA | 4.21x | 4.15x |
| Interest Cover (including Hybrid interest) | 4.16x | 4.64x |
As of 31 January 2018, the Group's financing facilities, related capitalised upfront borrowing costs, finance leases, overdrafts and cash balances outstanding were as follows:
| in EUR `000 | 31 January 2018 |
|---|---|
| Syndicated Bank RCF | (686,951) |
| Syndicated Bank Term loan | (983,662) |
| Schuldschein | (383,304) |
| Gross term debt | (2,053,917) |
| Upfront borrowing costs | 26,394 |
| Term debt, net of upfront borrowing costs | (2,027,523) |
| Finance leases | (977) |
| Cash and cash equivalents, net of overdrafts | 405,435 |
| Net debt | (1,623,065) |
As of 31 January 2018, the weighted average interest cost of the Group debt financing facilities was 3.2% (July 2017: 2.2%) and the weighted average maturity of the Group's gross term debt is 3.65 years.
As of 31 January 2018, the Group has €755m 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. The Group currently does not intend to call the CHF 400m Hybrid on its first call date in April 2018. In the event repayment is not made at the first-call dates, the instruments include a provision for a coupon step-up, as included below.
| First call date | Coupon | Step-up if not called | Principal | in EUR `000 |
|---|---|---|---|---|
| April 2018 | 4.0% | 6.045% +3 Month Swiss Libor | CHF 400m | (342,654) |
| March 2019 | 4.5% | 6.77% +5 Year Euro Swap Rate | EUR 250m | (250,000) |
| April 2020 | 3.5% | 4.213% +3 Month Swiss Libor | CHF 190m | (162,760) |
| Hybrid funding at 31 January 2018 exchange rates |
The principal euro foreign exchange currency rates used by the Group for the preparation of these Interim Financial Statements are as follows:
| Currency | Average H1 2018 |
Average H1 2017 |
% Change | Closing H1 2018 |
Closing FY 2017 |
% Change |
|---|---|---|---|---|---|---|
| CHF | 1.1573 | 1.0820 | (7.0)% | 1.1674 | 1.1340 | (2.9)% |
| USD | 1.1862 | 1.0910 | (8.7)% | 1.2425 | 1.1756 | (5.7)% |
| CAD | 1.4923 | 1.4422 | (3.5)% | 1.5350 | 1.4674 | (4.6)% |
| GBP | 0.8923 | 0.8625 | (3.5)% | 0.8760 | 0.8933 | 1.9% |
| ARYZTA | ARYZTA | |||
|---|---|---|---|---|
| ARYZTA | North | Rest of | ARYZTA | |
| in EUR million | Europe | America | World | Group |
| 31 January 2018 | ||||
| Segmental net assets1 | 1,618 | 1,377 | 190 | 3,185 |
| TTM EBITA1 | 122 | 50 | 30 | 202 |
| ROIC1 | 7.5% | 3.6% | 15.8% | 6.3% |
| 31 July 2017 | ||||
| Segmental net assets1 | 1,676 | 1,710 | 194 | 3,580 |
| TTM EBITA1 | 147 | 100 | 30 | 277 |
| ROIC1 | 8.8% | 5.9% | 15.3% | 7.7% |
1 See glossary in section 21 for definitions of financial terms and references used.
2 Group WACC on a pre-tax basis is currently 8.0% (2017: 8.1%).
| in EUR `000 | January 2018 | July 2017 |
|---|---|---|
| Property, plant and equipment | 1,287,091 | 1,386,294 |
| Investment properties | 20,249 | 19,952 |
| Goodwill and intangible assets | 2,301,445 | 2,651,937 |
| Deferred tax on goodwill and intangibles | (40,778) | (82,534) |
| Working capital | (327,199) | (334,078) |
| Other segmental liabilities | (55,719) | (61,202) |
| Segmental net assets | 3,185,089 | 3,580,369 |
| Investments in joint ventures | 485,695 | 528,188 |
| Disposal group held-for-sale | 57,220 | – |
| Net debt | (1,623,065) | (1,733,870) |
| Deferred tax, net | (105,945) | (111,863) |
| Income tax | (58,701) | (63,283) |
| Derivative financial instruments | (1,191) | 2,111 |
| Net assets | 1,939,102 | 2,201,652 |
The dividend for the year ended 31 July 2017 was proposed to be settled as a scrip dividend via newly issued share capital, based on a ratio of one new share for every 80 shares held, and was approved at the Annual General Meeting held on 7 December 2017. Accordingly, a total of 1,110,253 new shares, with a par value of CHF 0.02 per share, were issued to shareholders holding shares in ARYZTA AG on 29 January 2018, resulting in €34.0m being recognised within equity, based on the market price of the shares at the date of approval.
The approved dividend covering the prior year ended 31 July 2016 of CHF 0.5731, resulted in a dividend of €47.6m, which was paid cash on 1 February 2017.
During February 2018, the Group completed the disposal of its Cloverhill Chicago and Cicero facilities in North America for proceeds of €57m, net of associated transaction costs.
During March 2018, the Group agreed to sell its 50% interest in Signature Flatbreads to its joint venture partners for net proceeds of approximately €34m.
These disposals are consistent with ARYZTA's strategy to focus on its frozen B2B bakery operations and exit non-core businesses. The associated proceeds from these transactions will be used to reduce net debt.
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 60 of the ARYZTA AG 2017 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.
'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, disposal and restructuring-related costs and related tax credits.
'EBITDA' – presented as earnings before interest, taxation, depreciation and amortisation; before impairment, 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 and RCF early redemption-related costs; and before impairment, 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.
for the six months ended 31 January 2018
| in EUR `000 | January 2018 January 2017 | |
|---|---|---|
| Underlying net profit | 50,933 | 109,430 |
| Amortisation of non-ERP intangible assets | (86,186) | (87,460) |
| Tax on amortisation of non-ERP intangible assets | 41,548 | 16,072 |
| Share of JV intangible amortisation and restructuring costs, net of tax | (5,058) | (2,229) |
| Hybrid instrument accrued dividend | 15,344 | 16,022 |
| Private Placement and RCF early redemption costs | (12,415) | (182,513) |
| Loss on impairment of disposal group held-for-sale | (151,042) | – |
| Net gain on disposal of business | 1,706 | – |
| Impairment and disposal of fixed assets | – | (2,347) |
| Restructuring-related costs | (51,816) | (10,812) |
| Tax on net impairment, disposal and restructuring-related costs | 37 | 2,804 |
| Reported net loss attributable to equity shareholders | (196,949) | (141,033) |
| Diluted loss per share (cent) | (239.1) | (176.9) |
for the six months ended 31 January 2018
| Six months ended 31 January |
|||
|---|---|---|---|
| 2018 | 2017 | ||
| in EUR `000 | Notes | Unaudited | Unaudited |
| Revenue | 3 | 1,786,549 | 1,906,036 |
| Cost of sales | (1,332,533) | (1,340,592) | |
| Distribution expenses | (207,620) | (208,910) | |
| Gross profit | 246,396 | 356,534 | |
| Selling expenses | (92,220) | (103,135) | |
| Administration expenses | (197,165) | (195,485) | |
| Loss on impairment of disposal group held-for-sale | 4 | (151,042) | – |
| Operating (loss)/profit | 3 | (194,031) | 57,914 |
| Share of profit after interest and tax of joint ventures | 10,870 | 14,481 | |
| (Loss)/profit before financing income, financing costs and income tax | (183,161) | 72,395 | |
| Financing income | 1,350 | 1,903 | |
| Financing costs | (37,640) | (31,525) | |
| Private Placement and RCF early redemption costs | (12,415) | (182,513) | |
| Loss before income tax | (231,866) | (139,740) | |
| Income tax credit | 34,917 | 342 | |
| Loss for the period | (196,949) | (139,398) | |
| Attributable as follows: | |||
| Equity shareholders | (196,949) | (141,033) | |
| Non-controlling interests | – | 1,635 | |
| Loss for the period | (196,949) | (139,398) | |
| Six months ended 31 January |
|||
| 2018 | 2017 | ||
| Loss per share | Notes | euro cent | euro cent |
| Basic loss per share | 7 | (239.1) cent | (176.9) cent |
| Diluted loss per share | 7 | (239.1) cent | (176.9) cent |
| Six months ended 31 January |
|||
|---|---|---|---|
| in EUR `000 | 2018 Unaudited |
2017 Unaudited |
|
| Loss for the period | (196,949) | (139,398) | |
| Other comprehensive (loss)/income | |||
| Items that may be reclassified subsequently to profit or loss: | |||
| Foreign exchange translation effects on net investments | (49,982) | 62,826 | |
| Cash flow hedges | |||
| – Effective portion of changes in fair value of cash flow hedges | (2,343) | 8,539 | |
| – Fair value of cash flow hedges transferred to income statement | (834) | 2,611 | |
| – Deferred tax effect of cash flow hedges | 461 | (1,219) | |
| Share of joint ventures' other comprehensive (loss)/income | (21) | 190 | |
| Total of items that may be reclassified subsequently to profit or loss | (52,719) | 72,947 | |
| Items that will not be reclassified to profit or loss: | |||
| Defined benefit plans | |||
| – Actuarial gain on Group defined benefit pension plans | 1,662 | 3,707 | |
| – Deferred tax expense of actuarial gain | (242) | (473) | |
| Total of items that will not be reclassified to profit or loss | 1,420 | 3,234 | |
| Total other comprehensive (loss)/income | (51,299) | 76,181 | |
| Total comprehensive loss for the period | (248,248) | (63,217) | |
| Attributable as follows: | |||
| Equity shareholders | (248,248) | (65,450) | |
| Non-controlling interests | – | 2,233 | |
| Total comprehensive loss for the period | (248,248) | (63,217) |
as at 31 January 2018
| 31 January | 31 July | ||
|---|---|---|---|
| in EUR `000 | Notes | 2018 Unaudited |
2017 Audited |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 1,287,091 | 1,386,294 | |
| Investment properties | 20,249 | 19,952 | |
| Goodwill and intangible assets | 8 | 2,301,445 | 2,651,937 |
| Investments in joint ventures | 485,695 | 528,188 | |
| Deferred income tax assets | 149,910 | 158,767 | |
| Total non-current assets | 4,244,390 | 4,745,138 | |
| Current assets | |||
| Inventory | 257,762 | 252,162 | |
| Trade and other receivables | 129,991 | 164,271 | |
| Derivative financial instruments | 1,019 | 4,311 | |
| Cash and cash equivalents | 9 | 535,750 | 535,570 |
| 924,522 | 956,314 | ||
| Assets of disposal group held-for-sale | 4 | 57,220 | – |
| Total current assets | 981,742 | 956,314 | |
| Total assets | 5,226,132 | 5,701,452 |
as at 31 January 2018 (continued)
| 31 January | 31 July | ||
|---|---|---|---|
| in EUR `000 | Notes | 2018 Unaudited |
2017 Audited |
| Equity | |||
| Called up share capital | 1,191 | 1,172 | |
| Share premium | 807,512 | 774,040 | |
| Retained earnings and other reserves | 1,130,399 | 1,426,440 | |
| Total equity | 1,939,102 | 2,201,652 | |
| Liabilities | |||
| Non-current liabilities | |||
| Interest-bearing loans and borrowings | 9 | 1,895,809 | 383,242 |
| Employee benefits | 6,263 | 6,644 | |
| Deferred income from government grants | 16,344 | 18,280 | |
| Other payables | 33,112 | 36,278 | |
| Deferred income tax liabilities | 296,633 | 353,164 | |
| Derivative financial instruments | 7 | 704 | |
| Total non-current liabilities | 2,248,168 | 798,312 | |
| Current liabilities | |||
| Interest-bearing loans and borrowings | 9 | 263,006 | 1,886,198 |
| Trade and other payables | 714,952 | 750,511 | |
| Income tax payable | 58,701 | 63,283 | |
| Derivative financial instruments | 2,203 | 1,496 | |
| Total current liabilities | 1,038,862 | 2,701,488 | |
| Total liabilities | 3,287,030 | 3,499,800 | |
| Total equity and liabilities | 5,226,132 | 5,701,452 |
| for the six months ended 31 January 2018 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 |
|---|---|---|---|---|---|---|---|---|---|
| At 1 August 2017 | 1,172 | 774,040 | (47) | 720,456 | 2,859 | 2,005 | (36,617) | 737,784 | 2,201,652 |
| Loss for the period | – | – | – | – | – | – | – | (196,949) | (196,949) |
| Other comprehensive (loss)/income | – | – | – | – | (2,716) | – | (49,982) | 1,399 | (51,299) |
| Total comprehensive loss | – | – | – | – | (2,716) | – | (49,982) | (195,550) | (248,248) |
| Release of treasury shares upon vesting of Restricted Stock Unit Plan awards |
– | (1) | 1 | – | – | – | – | – | – |
| Share-based payments | – | – | – | – | – | 1,512 | – | – | 1,512 |
| Transfer of share-based payment reserve to retained earnings |
– | – | – | – | – | (1,711) | – | 1,711 | – |
| Equity dividends (note 6) | 19 | 33,473 | – | – | – | – | – | (33,962) | (470) |
| Dividend accrued on perpetual callable subordinated instruments |
– | – | – | – | – | – | – | (15,344) | (15,344) |
| Total transactions with owners recognised directly in equity |
19 | 33,472 | 1 | – | – | (199) | – | (47,595) | (14,302) |
| At 31 January 2018 | 1,191 | 807,512 | (46) | 720,456 | 143 | 1,806 | (86,599) | 494,639 | 1,939,102 |
| for the six months ended 31 January 2017 |
Share | Share | Treasury | Other equity |
Cash flow hedge |
Foreign currency translation |
Retained | Total shareholders |
Non controlling |
|
|---|---|---|---|---|---|---|---|---|---|---|
| in EUR `000 | capital | premium | shares | reserve | reserve | reserve | earnings | equity | interests | Total |
| 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)/profit for the period | – | – | – | – | – | – | (141,033) | (141,033) | 1,635 | (139,398) |
| Other comprehensive income | – | – | – | – | 9,931 | 62,756 | 2,896 | 75,583 | 598 | 76,181 |
| Total comprehensive (loss)/income | – | – | – | – | 9,931 | 62,756 | (138,137) | (65,450) | 2,233 | (63,217) |
| Equity dividends (note 6) | – | – | – | – | – | – | (47,595) | (47,595) | – | (47,595) |
| Dividends to non-controlling interests | – | – | – | – | – | – | – | – | (3,350) | (3,350) |
| Dividend accrued on perpetual callable subordinated instruments |
– | – | – | – | – | – | (16,022) | (16,022) | – | (16,022) |
| Total contributions by and distributions to owners |
– | – | – | – | – | – | (63,617) | (63,617) | (3,350) | (66,967) |
| Acquisition of non-controlling interests |
– | – | – | – | – | – | 13,982 | 13,982 | (13,982) | – |
| Total transactions with owners recognised directly in equity |
– | – | – | – | – | – | (49,635) | (49,635) | (17,332) | (66,967) |
| At 31 January 2017 | 1,172 | 774,040 | (47) | 720,456 | (1,590) | 44,642 1,518,914 | 3,057,587 | – 3,057,587 |
for the six months ended 31 January 2018
| Six months ended 31 January |
|||
|---|---|---|---|
| in EUR `000 | Notes | 2018 Unaudited |
2017 Unaudited |
| Cash flows from operating activities | |||
| Loss for the period | (196,949) | (139,398) | |
| Income tax credit | (34,917) | (342) | |
| Financing income | (1,350) | (1,903) | |
| Financing costs | 37,640 | 31,525 | |
| Private Placement and RCF early redemption costs | 12,415 | 182,513 | |
| Share of profit after interest and tax of joint ventures | (10,870) | (14,481) | |
| Loss on impairment of disposal group held for sale | 4 | 151,042 | – |
| Net gain on disposal of business | 5 | (1,706) | – |
| Impairment and disposal of fixed assets | 5 | – | 2,347 |
| Other restructuring-related payments in excess of current-period costs | (3,825) | (17,511) | |
| Depreciation of property, plant and equipment | 59,283 | 61,801 | |
| Amortisation of intangible assets | 8 | 94,880 | 96,143 |
| Recognition of deferred income from government grants | (1,936) | (2,864) | |
| Share-based payments | 1,512 | – | |
| Other | (3,048) | (3,441) | |
| Cash flows from operating activities before changes in working capital | 102,171 | 194,389 | |
| Increase in inventory | (33,734) | (25,776) | |
| Decrease in trade and other receivables | 23,125 | 30,106 | |
| (Decrease)/increase in trade and other payables | (11,670) | 3,371 | |
| Cash generated from operating activities | 79,892 | 202,090 | |
| Income tax paid | (8,787) | (8,474) | |
| Net cash flows from operating activities | 71,105 | 193,616 |
for the six months ended 31 January 2018
| Six months ended 31 January |
|||
|---|---|---|---|
| 2018 | 2017 | ||
| in EUR `000 | Notes | Unaudited | Unaudited |
| Cash flows from investing activities | |||
| Proceeds from sale of property, plant and equipment | 772 | 11,514 | |
| Proceeds from sale of investment property | – | 4,234 | |
| Purchase of property, plant and equipment | (40,030) | (57,485) | |
| Purchase of intangible assets | (1,929) | (5,266) | |
| Dividend received from joint venture | 53,540 | – | |
| Disposal of business, net | 5 | 46,781 | – |
| Contingent consideration paid | – | (896) | |
| Net cash flows from investing activities | 59,134 | (47,899) | |
| Cash flows from financing activities | |||
| Gross drawdown of loan capital | 9 | 1,696,685 | 1,031,095 |
| Gross repayment of loan capital | 9 | (1,793,059) | (1,209,472) |
| Private Placement early redemption and related costs | – | (175,647) | |
| Interest paid | (45,053) | (49,598) | |
| Interest received | 1,350 | 2,397 | |
| Capital element of finance lease liabilities | 9 | (405) | (500) |
| Dividends paid to non-controlling interests | – | (3,350) | |
| Net cash flows from financing activities | (140,482) | (405,075) | |
| Net decrease in cash and cash equivalents | 9 | (10,243) | (259,358) |
| Translation adjustment | 9 | (6,262) | 3,218 |
| Net cash and cash equivalents at start of period | 421,940 | 468,973 | |
| 9 | |||
| Net cash and cash equivalents at end of period | 9 | 405,435 | 212,833 |
for the six months ended 31 January 2018
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 2017, which have been prepared in accordance with International Financial Reporting Standards ('IFRS').
These Interim Financial Statements for the six months ended 31 January 2018 and the comparative figures for the six months ended 31 January 2017 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 2017 represent an abbreviated version of the Group's full accounts for that year, on which the auditors issued an unqualified audit report.
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 2018 | H1 2017 | % Change | H1 2018 | FY 2017 | % Change |
| CHF | 1.1573 | 1.0820 | (7.0)% | 1.1674 | 1.1340 | (2.9)% |
| USD | 1.1862 | 1.0910 | (8.7)% | 1.2425 | 1.1756 | (5.7)% |
| CAD | 1.4923 | 1.4422 | (3.5)% | 1.5350 | 1.4674 | (4.6)% |
| GBP | 0.8923 | 0.8625 | (3.5)% | 0.8760 | 0.8933 | 1.9% |
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 76 to 91 of the ARYZTA AG 2017 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 2017. 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:
– Amendments to IAS 7 – Disclosure initiative
– Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
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 2017 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.
Certain amounts in the 31 January 2017 and 31 July 2017 comparative financial statement figures and related notes have been reclassified to conform to the 31 January 2018 presentation. These 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 total cash flow classifications as previously reported.
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
|||||
|---|---|---|---|---|---|---|---|---|
| I) Segment revenue and result | Six months ended 31 January |
Six months ended 31 January |
Six months ended 31 January |
Six months ended 31 January |
||||
| in EUR `000 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Segment revenue1 | 868,257 | 861,819 | 786,424 | 915,166 | 131,868 | 129,051 1,786,549 1,906,036 | ||
| EBITDA2 | 90,740 | 110,283 | 49,962 | 99,119 | 20,582 | 19,615 | 161,284 | 229,017 |
| Depreciation | (28,156) | (26,986) | (26,213) | (30,177) | (4,914) | (4,638) | (59,283) | (61,801) |
| ERP Amortisation | (5,549) | (5,212) | (3,138) | (3,471) | (7) | – | (8,694) | (8,683) |
| EBITA | 57,035 | 78,085 | 20,611 | 65,471 | 15,661 | 14,977 | 93,307 | 158,533 |
| Amortisation of other intangible assets | (35,786) | (29,129) | (46,619) | (54,363) | (3,781) | (3,968) | (86,186) | (87,460) |
| Loss on impairment of disposal group held-for-sale |
– | – | (151,042) | – | – | – | (151,042) | – |
| Net gain on disposal of business | 1,706 | – | – | – | – | – | 1,706 | – |
| Impairment and disposal of fixed assets | – | (2,013) | – | (334) | – | – | – | (2,347) |
| Restructuring-related costs | (2,024) | (2,888) | (49,625) | (7,235) | (167) | (689) | (51,816) | (10,812) |
| Operating profit/(loss)2 | 20,931 | 44,055 | (226,675) | 3,539 | 11,713 | 10,320 | (194,031) | 57,914 |
| Share of profit after tax of joint ventures3 |
10,870 | 14,481 | ||||||
| Financing income3 | 1,350 | 1,903 | ||||||
| Financing costs3 | (37,640) | (31,525) | ||||||
| Private Placement and RCF early redemption costs | (12,415) | (182,513) | ||||||
| Loss before income tax as reported in Group Consolidated Income Statement |
(231,866) | (139,740) |
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 Joint ventures, financing 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.
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
|||||
|---|---|---|---|---|---|---|---|---|
| II) Segment assets in EUR `000 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
| Segment assets | 2,075,319 2,172,161 1,759,631 2,125,089 | 250,310 | 266,088 4,085,260 4,563,338 | |||||
| Reconciliation to total assets as reported in the Group Consolidated Balance Sheet |
||||||||
| Investments in joint ventures | 485,695 | 528,188 | ||||||
| Deferred income tax assets | 61,188 | 70,045 | ||||||
| Derivative financial instruments | 1,019 | 4,311 | ||||||
| Cash and cash equivalents | 535,750 | 535,570 | ||||||
| Assets of disposal group held-for-sale (note 4) | 57,220 | – | ||||||
| Total assets as reported in Group Consolidated Balance Sheet |
5,226,132 5,701,452 | |||||||
| ARYZTA Europe |
ARYZTA North America |
ARYZTA Rest of World |
ARYZTA Group |
|||||
| III) Segment liabilities in EUR `000 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
as at 31 Jan 2018 |
as at 31 Jul 2017 |
| Segment liabilities | 457,205 | 495,550 | 383,017 | 415,041 | 59,949 | 72,378 | 900,171 | 982,969 |
| Reconciliation to total liabilities as reported in the Group Consolidated Balance Sheet Interest-bearing loans and borrowings |
2,158,815 2,269,440 | |||||||
Derivative financial instruments 2,210 2,200 Current and deferred income tax liabilities 225,834 245,191 Total liabilities as reported in Group
Consolidated Balance Sheet 3,287,030 3,499,800
During January 2018, the Group agreed to dispose of the Cloverhill Chicago and Cicero facilities in North America, which historically generated approximately €250,000,000 in annual revenues. As these facilities were available-for-sale and negotiations were at an advanced stage, management have recorded these assets as a disposal group held-for-sale as at 31 January 2018. As the agreed proceeds received during February 2018 of €57,220,000, net of associated transaction costs, were less than the €208,262,000 carrying value of the net assets, a loss on impairment of disposal group held-for-sale of €151,042,000 has been recognised during the period ended 31 January 2018.
In accordance with IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', the assets of the disposal group classified as held for sale are presented separately from other assets in the Group Consolidated Balance Sheet as at 31 January 2018. The liabilities relating to these businesses as at 31 January 2018 did not form part of the transactions and remain within the Group.
Analysis of the disposal group held-for-sale, including the loss recognised on the re-measurement of the assets of the disposal group to fair value less costs to sell, is as follows:
| in EUR '000 | January 2018 |
|---|---|
| Carrying value of net assets transferred to disposal group held-for-sale | 208,262 |
| Loss on impairment of disposal group held-for-sale | (151,042) |
| Disposal group held-for-sale at fair value less costs to sell | 57,220 |
The assets of the disposal group held-for-sale are as follows:
| in EUR '000 | January 2018 |
|---|---|
| Property, plant and equipment | 41,846 |
| Inventory | 15,374 |
| Disposal group held-for-sale at fair value less costs to sell | 57,220 |
The fair value has been measured using inputs not observable within the market, being the agreed consideration of the transactions, and is therefore within level 3 of the fair value hierarchy. The transactions closed subsequent to period end, during February 2018.
A cumulative €19m foreign currency translation gain on net investment, related to the disposal group held-for-sale, has been recognised through other comprehensive income since initial investment, and remains in foreign currency translation reserve as of 31 January 2018. This amount will be recycled from other comprehensive income into the income statement upon completion of the transactions, subsequent to period end.
In accordance with IAS 1, the Group Consolidated Income Statement is presented by function of expense.
Management has also identified certain impairment, acquisition, disposal and restructuring-related 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 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, disposal and restructuring related costs |
Intangible amortisation |
Financial Business Review |
IFRS Income Statement |
Impairment, disposal and restructuring related costs |
Intangible amortisation |
Financial Business Review |
|
|---|---|---|---|---|---|---|---|---|
| in EUR `000 | 2018 | 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | 2017 |
| Revenue | 1,786,549 | – | – 1,786,549 | 1,906,036 | – | – | 1,906,036 | |
| Cost of sales | (1,332,533) | 38,980 | – (1,293,553) | (1,340,592) | 4,115 | – (1,336,477) | ||
| Distribution expenses | (207,620) | – | – | (207,620) | (208,910) | (30) | – | (208,940) |
| Gross profit | 246,396 | 38,980 | – | 285,376 | 356,534 | 4,085 | – | 360,619 |
| Selling expenses | (92,220) | – | – | (92,220) | (103,135) | 177 | – | (102,958) |
| Administration expenses | (197,165) | 11,130 | 86,186 | (99,849) | (195,485) | 8,897 | 87,460 | (99,128) |
| Loss on impairment of disposal group held-for-sale |
(151,042) | 151,042 | – | – | – | – | – | – |
| Operating (loss)/profit EBITA as per Financial Business Review |
(194,031) | 201,152 | 86,186 | 93,307 | 57,914 | 13,159 | 87,460 | 158,533 |
During the period ended 31 January 2018, the Group incurred the following impairment, 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 3. 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 |
||||||
|---|---|---|---|---|---|---|---|---|---|
| Six months ended 31 January |
Six months ended 31 January |
Six months ended 31 January |
Six months ended 31 January |
||||||
| in EUR `000 | Notes | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 |
| Loss on impairment of disposal group held-for-sale |
4 | – | – | (151,042) | – | – | – | (151,042) | – |
| Net gain on disposal of business | 5.1 | 1,706 | – | – | – | – | – | 1,706 | – |
| Impairment and disposal of fixed assets | 5.2 | – | (2,013) | – | (334) | – | – | – | (2,347) |
| Total net gain/(loss) on disposal of businesses and asset impairments |
1,706 | (2,013) | (151,042) | (334) | – | – | (149,336) | (2,347) | |
| Labour-related business interruption | – | – | (38,730) | – | – | – | (38,730) | – | |
| Severance and other staff-related costs | (959) | (1,149) | (5,569) | (2,490) | (167) | (551) | (6,695) | (4,190) | |
| Contractual obligations | – | (1,400) | – | (2,726) | – | – | – | (4,126) | |
| Advisory and other costs | (1,065) | (339) | (5,326) | (2,019) | – | (138) | (6,391) | (2,496) | |
| Total restructuring-related costs | 5.3 | (2,024) | (2,888) | (49,625) | (7,235) | (167) | (689) | (51,816) | (10,812) |
| Total impairment, disposal and restructuring-related costs |
(318) | (4,901) | (200,667) | (7,569) | (167) | (689) | (201,152) | (13,159) |
During the period ended 31 January 2018, the Group disposed of a business in Europe, which historically generated approximately €45,000,000 in annual revenues. As the €46,781,000 proceeds received, net of associated transaction costs, exceeded the €45,075,000 carrying value of the net assets disposed, a net gain on disposal of €1,706,000 was recognised during the period ended 31 January 2018.
There were no business disposals during the period ended 31 January 2017.
There were no fixed asset impairments during the period ended 31 January 2018.
The Group incurred €2,347,000 on impairment and disposal of fixed assets during the period ended 31 January 2017, which related 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.
The €16,349,000 of labour-related business interruption costs experienced in the North America Cloverhill facilities during the last three months of the financial year ended 31 July 2017 continued into the six month period ended 31 January 2018, during which the Group incurred €38,730,000 of further losses.
As indicated in note 4, these facilities were disposed of subsequent to period end, during February 2018, for proceeds of €57,220,000, net of associated transaction costs.
The Group incurred €6,695,000 (2017: €4,190,000) in severance and other staff-related costs during the period. These costs primarily related to employees whose service was discontinued following certain rationalisation decisions across the various business locations of the Group.
There were no contractual obligation costs incurred during the period ended 31 January 2018.
During the period ended 31 January 2017, the Group incurred €4,126,000 related primarily to ongoing contractual obligations for closed facilities in both Europe and North America.
During the period ended 31 January 2018, the Group incurred €6,391,000 (2017: €2,496,000) in costs related to the reorganisation of the North America business and a group wide strategic business review.
The dividend for the year ended 31 July 2017 was proposed to be settled as a scrip dividend via newly issued share capital, based on a ratio of one new share for every 80 shares held, and was approved at the Annual General Meeting held on 7 December 2017. Accordingly, a total of 1,110,253 new shares, with a par value of CHF 0.02 per share, were issued to shareholders holding shares in ARYZTA AG on 29 January 2018, resulting in €33,962,000 being recognised within equity, based on the market price of the shares at the date of approval.
The approved dividend covering the prior year ended 31 July 2016 of CHF 0.5731, resulted in a dividend of €47,595,000, which was paid cash on 1 February 2017.
| Six months ended 31 January |
|||
|---|---|---|---|
| 2018 | 2017 | ||
| Basic loss per share | in EUR '000 | in EUR '000 | |
| Loss attributable to equity shareholders | (196,949) | (141,033) | |
| Perpetual callable subordinated instrument accrued dividend | (15,344) | (16,022) | |
| Loss used to determine basic EPS | (212,293) | (157,055) | |
| 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 period | 40 | – | |
| Weighted average ordinary shares used to determine basic EPS | 88,799 | 88,759 | |
| Basic loss per share | (239.1) cent (176.9) cent | ||
| 2018 | 2017 | ||
| Diluted loss per share | in EUR '000 | in EUR '000 | |
| Loss used to determine basic EPS | (212,293) | (157,055) | |
| Weighted average number of ordinary shares (diluted) | '000 | '000 | |
| Weighted average ordinary shares used to determine basic EPS | 88,799 | 88,759 | |
| Effect of equity-based incentives with a dilutive impact2 | – | – | |
| Effect of ordinary shares issued as scrip dividend2 | – | – | |
| Weighted average ordinary shares used to determine diluted EPS | 88,799 | 88,759 | |
| Diluted loss per share | (239.1) cent (176.9) 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 and shares issued as scrip dividend would decrease the loss per share for the periods ended 31 January 2018 and 31 January 2017, no dilutive effect was given to outstanding equity based incentives or shares issued as scrip dividend.
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:
| Six months ended 31 January |
||
|---|---|---|
| 2018 | 2017 | |
| Underlying fully diluted earnings per share | in EUR '000 | in EUR '000 |
| Loss used to determine basic EPS | (212,293) (157,055) | |
| Amortisation of non-ERP intangible assets | 86,186 | 87,460 |
| Tax on amortisation of non-ERP intangible assets | (41,548) | (16,072) |
| Share of JV intangible amortisation and restructuring costs, net of tax | 5,058 | 2,229 |
| Private Placement and RCF early redemption costs | 12,415 | 182,513 |
| Loss on impairment of disposal group held-for-sale | 151,042 | – |
| Net gain on disposal of business | (1,706) | – |
| Impairment and disposal of fixed assets | – | 2,347 |
| Restructuring-related costs | 51,816 | 10,812 |
| Tax on net impairment, disposal and restructuring-related costs | (37) | (2,804) |
| Underlying net profit | 50,933 | 109,430 |
| Weighted average ordinary shares used to determine basic EPS | 88,799 | 88,759 |
| Underlying basic earnings per share | 57.4 cent 123.3 cent | |
| Weighted average ordinary shares used to determine basic EPS | 88,799 | 88,759 |
| Effect of equity-based incentives with a dilutive impact | 88 | 88 |
| Effect of ordinary shares issued as scrip dividend | 338 | – |
| Weighted average ordinary shares used to determine underlying fully diluted EPS |
89,225 | 88,847 |
| Underlying fully diluted earnings per share | 57.1 cent 123.2 cent |
| 31 January 2018 in EUR '000 |
Goodwill | Customer Relationships |
Brands | Computer related |
ERP-related intangibles |
Patents and other |
Total |
|---|---|---|---|---|---|---|---|
| Net Book Value At 31 July 2017 | 1,775,000 | 556,293 | 108,453 | 18,721 | 170,996 | 22,474 2,651,937 | |
| Additions | – | – | – | 785 | 1,009 | – | 1,794 |
| Transfer to disposal group held-for-sale (note 4) |
(120,724) | (8,049) | (3,219) | (261) | (7,541) | (3,334) | (143,128) |
| Arising on business disposals (note 5) | (22,200) | (13,221) | (2,132) | – | – | – | (37,553) |
| Amortisation charge for the period | – | (58,622) | (18,262) | (1,642) | (8,694) | (7,660) | (94,880) |
| Translation adjustments | (54,179) | (17,129) | (3,538) | (1,100) | (199) | (580) | (76,725) |
| Net Book Value At 31 January 2018 | 1,577,897 | 459,272 | 81,302 | 16,503 | 155,571 | 10,900 2,301,445 | |
| At 31 January 2018 | |||||||
| Cost | 1,577,897 | 1,032,933 | 273,606 | 37,863 | 205,083 | 44,087 3,171,469 | |
| Accumulated amortisation | – | (573,661) | (192,304) | (21,360) | (49,512) (33,187) | (870,024) | |
| Net Book Value At 31 January 2018 | 1,577,897 | 459,272 | 81,302 | 16,503 | 155,571 | 10,900 2,301,445 |
As set out in note 4, during the period, €208,262,000 of assets related to the Cloverhill legacy Chicago and Cicero facilities in the North America business segment were transferred to disposal group held-for-sale. These included €143,128,000 of intangible assets, of which €120,724,000 related to goodwill, and €22,404,000 related to customer relationships, brands and trademarks, software and other intangibles.
As set out in note 5.1, during the period ended 31 January 2018, the Group disposed of a business in Europe resulting in the disposal of €37,553,000 of intangible assets, of which €22,200,000 related to goodwill and €15,353,000 related to customer relationships and brands.
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. Following the write down of goodwill to recoverable value in the Germany and North America cash generating units ('CGUs') in July 2017, the value in use of these CGUs at year end was sensitive to further changes to key assumptions. Given the sensitivities in these CGUs at July 2017, the Directors and management have deemed it appropriate to conduct impairment tests on Germany and North America at January 2018.
The carrying amount of goodwill allocated to the two CGUs where the impairment calculations were updated at 31 January 2018, as well as the key assumptions used, are summarised as follows:
| Goodwill Carrying value |
Pre-tax discount rate |
Terminal growth rate |
||||
|---|---|---|---|---|---|---|
| in EUR '000 | 2018 January |
2017 July |
2018 January |
2017 July |
2018 January |
2017 July |
| Germany | 204,906 | 204,906 | 8.4% | 8.4% | 1.9% | 1.9% |
| North America | 755,933 | 922,496 | 8.9% | 8.9% | 2.2% | 2.2% |
The recoverable amount of the two CGUs was determined based on value-in-use calculations using three year projection periods of future operating results and related cash flows, consistent with the methods used as at 31 July 2017. There was no change to the composition of the CGUs or to the level at which goodwill is monitored for internal management purposes. Note 14 of the 2017 Annual Report, pages 109-112, includes further information on the methods used in the impairment testing, and on the background to the goodwill impairments recorded in July 2017.
As the recoverable amounts were in excess of the carrying values, no further impairment losses have been recognised related to the Group's goodwill in Germany or North America during the period ended 31 January 2018.
The headroom of the recoverable amounts of the two CGUs tested over the respective carrying amounts at 31 January 2018 and 31 July 2017 is summarized in the table below, as well as the amounts by which the key assumptions would need to change, in isolation, such that the recoverable amounts would equal the carrying values of the CGUs.
| Headroom over carrying value |
Pre-tax discount rate allowable movement |
Terminal growth rate allowable movement |
|||||
|---|---|---|---|---|---|---|---|
| 2018 January |
2017 July |
2018 January |
2017 July |
2018 January |
2017 July |
||
| Germany | €10m | – | 0.1% | 0.0% | (0.1)% | 0.0% | |
| North America | €27m | – | 0.1% | 0.0% | (0.1)% | 0.0% |
As there were no indicators for impairment of any of the other CGUs during the period ended 31 January 2018, management has not updated any of the other impairment calculations previously performed during the year ended 31 July 2017.
| 9 | Analysis of net debt | ||||
|---|---|---|---|---|---|
| Analysis of net debt in EUR `000 |
1 August 2017 |
Cash flows | Non-cash movements |
Translation adjustment |
31 January 2018 |
| Cash | 535,570 | 8,957 | – | (8,777) | 535,750 |
| Overdrafts | (113,630) | (19,200) | – | 2,515 | (130,315) |
| Cash and cash equivalents | 421,940 | (10,243) | – | (6,262) | 405,435 |
| Loans | (2,154,285) | 96,374 | (15,397) | 45,785 | (2,027,523) |
| Finance leases | (1,525) | 405 | 142 | 1 | (977) |
| Net debt | (1,733,870) | 86,536 | (15,255) | 39,524 | (1,623,065) |
The Group's new five-year unsecured €1,800m refinancing, comprising a €1,000m amortising term loan and a €800m revolving credit facility, was utilised on 22 September 2017 to repay in full the revolving credit and term loan facilities put in place in September 2016 and all amounts outstanding as of 31 January 2018 have been classified between current and long-term, in accordance with the terms of this new financing agreement.
The refinancing was underwritten by four of the Group's key relationship banks and general syndication was successfully completed during the period ended 31 January 2018.
In order to provide enhanced financial flexibility, the Group has increased the covenant to a maximum 4.75x Net Debt: EBITDA at 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.
During February 2018, the Group completed the disposal of its Cloverhill Chicago and Cicero facilities in North America for proceeds of €57m, net of associated transaction costs.
During March 2018, the Group agreed to sell its 50% interest in Signature Flatbreads to its joint venture partners for net proceeds of approximately €34m.
These disposals are consistent with ARYZTA's strategy to focus on its frozen B2B bakery operations and exit non-core businesses. The associated proceeds from these transactions will be used to reduce net debt.
The Group is subject to litigation risks and legal claims that arise in the ordinary course of business, for which the outcomes are not yet known. These claims are not currently expected to give rise to any material significant future cost or contingencies.
During the six months ended 31 January 2018, there have been no significant changes in the related party transactions described in the ARYZTA AG 2017 Annual Report and Accounts, which could have a material impact on the financial position or performance of the Group.
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 145 of the ARYZTA AG 2017 Annual Report and Accounts.
During the period ended 31 January 2018:
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 60 of the ARYZTA AG 2017 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 or reviewed these half-year interim results.
On behalf of the Board
Gary McGann Kevin Toland Chairman, Board of Directors CEO, Member of the Board
12 March 2018
of Directors
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.