ZURICH, SWITZERLAND — The acquisitions of Cloverhill Bakery and Pineridge Bakery in 2014, coupled with a favorable currency impact, contributed to fiscal 2015 earnings and revenue growth within the Food North America unit of Zurich-based Aryzta.
In the year ended July 31, Food North America EBITA increased 19% to €275,108,000 ($308,091,000), which compared with €230,313,000 in fiscal 2014. EBITA margins, though, declined 30 basis points to 14.2%. Aryzta attributed the declines to decreased operating leverage created by a decline in underlying revenues during the period.
“However, management has done an excellent job containing the cost base during this transition and during the second half of the year was able to maintain margins consistent with prior year,” Aryzta said.
Food North America revenues in fiscal 2015 increased 22.4% to €1,942.3 million ($2,175.4 million). The acquisitions of Cloverhill and Pineridge contributed 14.8 percentage points and favorable currency contributed 13.8 points, which more than offset a 6.2 percentage point decline in underlying revenue.
Aryzta said the decline in underlying revenue reflects the impact of the company’s capacity optimization strategy to free up capacity for higher volume customers without committing further investment capital.
“While the business has already replaced more than half of the volume lost as part of the program, this strategy is expected to continue to impact Food North America underlying revenue into F.Y.16,” the company said. “Beginning in H2-16 these underlying declines are expected to subside, as replacement volumes continue to rebuild from the existing customer pipeline, as well as from increased management focus on growth of Aryzta own-branded product sales.”
During the year, Aryzta said it invested an additional €146.4 million to expand capabilities in line with the needs of strong international partners and to focus on higher margin, higher revenue per tonne, products going forward. The company also incurred non-cash asset write-downs of €68.5 million as a result of those transitions and the resulting closings of multiple aged manufacturing locations, as well as the reduction in use of other administration equipment or obsolete production assets.
In a Sept. 28 conference call with analysts, Owen Killian, chief executive officer of Aryzta, discussed the rationale behind the company’s roll-out of the Otis Spunkmeyer brand into the retail sector.
“I think if you look at Otis Spunkmeyer, it was originally a retail brand that became much more of a food service brand over a period of time,” he explained. “With the acquisition of Cloverhill we acquired some capability in relation to range extension for Otis Spunkmeyer, and there is some trade press commenting on the brand development in retail for Otis Spunkmeyer. And that’s one of the initiatives that we hope to achieve, as well as putting further focus on the development of the brand of La Brea Bakery over the course of the next 12 months. And it does give more visibility, stability into our margins and into the profile of our business going forward. So that’s going to be an ongoing feature, it’s not just confined to 2016.”
Overall, EBITA at Aryzta increased nearly 6% in fiscal 2015 to €513,965,000 ($575,819,000) from €486,294,000, while underlying net profit eased 5% to €359,723,000 ($403,014,000) from €377,478,000. Revenues increased 13% to €3,820,231,000 ($4,280,451,000) from €3,393,783,000.
