Aryzta (SIX Swiss: ARYN) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the Half Year twenty twenty six Results Conference Call and Live Webcast. The call will be hosted by Urs Jordi, Chairman and Interim CEO and Martin Huber, CFO. I'm Matilda, the Chorus Call operator.

0:19 I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.

0:45 At this time, it's my pleasure to hand over to Paul Meade, Head of Investor Relations. Please go ahead, sir. Thank you, Matilda. Good morning, and welcome to our H1 results call. Our presentation includes forward looking statements, which details the various risks and uncertainties that may impact our business and which also apply to today's discussions. I will now hand over to Urs to start the presentation. Thank you, Paul. Good morning, all. Let me welcome you to this H1 twenty twenty six result overview. On Page four, you can see the key highlights of the first half year twenty twenty six.

1:36 We did achieve a revenue of EUR €1,064,000,000 almost, which accounts for an organic growth of minus 2.7%. EBITDA has been achieved of €139,900,000 and the free cash flow of €23,600,000 Earnings per share stands at €1.82 In April this year, we did repurchase the hybrid bonds, the last outstanding hybrid bonds. And as you did read some weeks ago, we did a French bolt on acquisition to expand our French business.

2:23 Then on the next page, Page five, you can see the H1 organic growth being impacted by mainly a heightened macro and geopolitical uncertainty. Consumer savings are going up and consumer uncertainty is visible, resulting in a subdued consumer sentiment. We did work against strong prior year comps. Germany was clearly the most challenging market. Germany underperformance offset the growth in other key markets. We are driving project excellence at attractive savings and strengthen margin resilience.

3:12 For Germany, we are considering all options to maximize shareholders' value.

3:22 Post measure accelerating and delivering attractive savings benefits. The excellence program, as I did mention, is rolling out faster and in more bakeries and in more markets. We are streamlining the organizational model. Further optimization investments are planned for H2 this year. We have very good visibility on key inputs. Innovation rate of 19% is supporting profitability via premiumization. Then on Page seven, the guidance for 2026. We are targeting to achieve organic growth at the lower end of the guidance range, reiterate expectation to deliver further EBITDA and EBIT improvement, and we expect to deliver solid cash generation and an improvement in net debt to EBITDA.

4:26 For 2027 and 2028, the Board will propose a capital return allocation to shareholders at the AGM twenty twenty seven. The options for these are dividends, share buyback or a combination of both. We are targeting to evolve progressively towards Swiss listed SMEs payout ratios. I would hand over now to Martin Huber for financial review. Thank you, Urs, and good morning. I'm pleased to share our results for the first half of twenty twenty six. We had a challenging start into the year, particularly in Germany, but the group delivered a resilient performance in a difficult economic and consumer environment.

5:22 Revenue of €1,063,900,000,000 was below the prior year, resulting in an organic growth of negative 2.7%. This was mainly driven by volume mix of negative 2.1%, with Germany being the key drag on the group performance. Our reported EBITDA margin of 13.2% was 70 basis points below prior year and includes onetime cost of approximately €5,400,000 mainly related to the excellence program, which is driving cost optimization and organizational efficiency. These one time costs represent approximately 50 basis points of revenue.

6:08 Free cash flow of €23,600,000 is largely in line with previous year and our guidance for the first half of twenty twenty six. ROIC of 11.1%, although below last year given lower profitability, is ahead of our weighted average cost of capital, creating value for our shareholders. At the same time, we made clear progress on the levers that matter for the full year. We accelerated cost efficiency, improved capital structure and reduced the financing cost. Let me now provide more details on the composition of our revenue performance. Total revenue decreased by 2.1% or €22,500,000 This reflects an organic growth of negative 2.7%, which is partially offset by a positive foreign exchange impact of 0.6%.

7:05 The subdued consumer sentiment impacted retail in particular as well as QSR channels in Europe with Germany being the main driver of the negative growth. Solid organic growth in Switzerland, France, The Netherlands partly offsets this impact, but not enough to compensate for the decline in Germany. QSR in Rest of World delivered mid single digit organic growth, supported by pricing and volume mix, while the other two channels in this region were flat. Overall, negative pricing remains limited and is expected to be stable to slightly improving for the full year. I will now move from the group revenue bridge to the performance of Europe and Rest of World.

7:53 Europe and Germany, in particular, weigh on group revenue performance in the first half. At the same time, it is important to highlight that there are clear signs of relative resilience in several of our retail markets.

8:08 Year to date, three of our seven retail markets have outperformed their respective markets, and two additional markets have significantly closed the gap versus market performance. Our continued strong innovation activity, representing 19.2% of revenue, delivered almost the same absolute top line contribution as in prior year and importantly, is supporting margin. Distribution platform acquired in France will contribute to our revenue growth for the full six months of the second half.

8:44 Lower revenue impacted profitability with an EBITDA margin of 12.4%, coming in 80 basis points below the prior year. The European businesses are the main focus of our cost efficiency and optimization initiatives, and most of the related onetime costs, therefore, are recorded in this region.

9:08 Based on the progress of these initiatives, we are confident that Europe will recover margin in the second half and contribute to the overall targeted improvement of the group EBITDA margin. This was Europe. I will continue to share further details to Rest of World segment.

9:27 The QSR channel has been driving the top line performance of Rest of World. Positive organic growth of 2.7% is supported by both volume mix and pricing. The other two channels in Rest of World were flat in growth. We're highlighting our Malaysian business with good contribution to growth, driven by volume, which was, however, offset by the performance of the other businesses.

9:53 The ramp up of the Perth factory is progressing well, and we expect a positive contribution to revenue in the second half of this year. The cost of pre hiring of factory staff and preparatory work in the factory have temporarily impacted profitability of Rest of World, for the full year, we expect EBITDA margin to increase to previous year's level. As a next step, I will move now to the key drivers of the EBITDA margin. EBITDA margin reduced by 70 basis points in H1 to 13.2%, including a 50 basis points impact of onetime costs related to the cost efficiency and optimization initiatives of our excellence program.

10:44 These onetime costs correspond mainly to restructuring expenses and consulting costs supporting the accelerated rollout of the program. Gross margin before distribution improved sequentially by 70 basis points versus the second half of twenty twenty five and remained flat versus the first half of twenty twenty five.

11:07 Key drivers of the evolution of the gross margin versus previous year are a positive contribution from procurement and other savings initiatives of 90 basis points, plus margin accretive innovation, which added 20 basis points to the gross margin. These positive effects helped to compensate the impact of lower operational leverage and the negative net effect of commodity deflation, labor and energy inflation as well as slightly negative pricing. The negative impact of distribution and SG and A on EBITDA margin on one side is driven by lower operational leverage and on the other side, by approximately 50 basis points of onetime costs, which are recorded within SG and A.

11:55 These costs were partially offset overall by the ramp up of the excellence cost savings program, which have already contributed 30 basis points to the result.

12:07 We expect the impact of Excellence actions to strengthen in the second half and to be a key contribute to the targeted EBITDA margin improvement for the full year. I will now provide more details on the excellence program and the savings initiatives behind this margin improvement.

12:30 We have made good progress in our long term efficiency and cost optimization program excellence. The program is now moving from assessment into delivery, with confirmed savings already being realized and further rollouts prepared for the second half. Up to now, we have addressed with this program circa 45% of total production volume. So far, we have identified and confirmed EUR 8,000,000 to 10,000,000 of gross cost reductions in operation. We are gradually building up internal capacity to further accelerate the coverage on the remaining plants, and we expect to have our full manufacturing footprint covered by the end of twenty twenty seven.

13:19 The alignment of our organizational structure is progressing according to plan and is expected to deliver annual gross cost savings of approximately EUR 10,000,000.

13:30 We are also progressing with the rollout of our IT road map as we continue to evolve towards a more digitally enabled company. Key initiatives this year include the S4HANA implementation in phonetic and the upgrade of our warehouse management system in the French Cudapat business.

13:52 With this, we confirm that Aryzta continues to target to achieve the EUR 20,000,000 to 30,000,000 net savings by 2028 through project excellence by optimizing, on one side, our operation and on the other side, streamlining the organization. From excellence, I will now turn to the cash flow performance. Free cash flow of EUR 23,600,000 is largely in line with previous year and as per the expectation. Stable working capital and disciplined CapEx management supported the results. Lower absolute EBITDA was almost fully compensated by the improvement in financing costs and lower cash taxes.

14:36 Higher net lease payments and some other elements had a slight negative impact on cash flow. For the full year, we are confident to generate solid levels of cash flow, supported by the improved profitability. On the next slide, I share more details on the working capital performance supporting cash flow.

14:58 Our trade net working capital was maintained at efficient levels and protected cash flow performance for the company. Our cash conversion cycle has slightly increased by two days compared to H1 last year, somewhat higher inventories and days of sales outstanding have been almost fully offset by better payment terms management. I will now move to our capital structure and leverage development. We continue to move towards our targeted leverage levels and to improve our financing and capital structure, supported by consistent cash generation and disciplined balance sheet management. Key achievement in the first half of twenty twenty:

15:44 six, our total net debt decreased by almost EUR 100,000,000 to EUR $789,000,000, corresponding to a leverage ratio of 2.7 times. The repayment of the last remaining hybrid principal concluded our hybrid repayment and refinancing program.

16:03 And our core equity continues to increase to 23.3% of total assets, up from 18% in previous year. On the next slide, I'll explain the evolution of our financing costs where the stronger capital structure is translating into tangible benefits.

16:25 Supported by the continued optimization of our financing structure, the reduction of total net debt and a further improvement of our cash management, decreased total financing costs by EUR 5,500,000 to EUR 16,800,000.

16:44 Our interest rate hedging, which is covering 29% of our bank debt, will end in the second half of this year. Given the positive evolution of our year to date financing cost, we are improving our full year guidance to the lower end of the 37,000,000 to €40,000,000 range. This compares to the previous year range the previously targeted range of 40,000,000 to €43,000,000

17:13 Next is the evolution of ROIC and value creation. Our ROIC remained robust at 11.1%, which is ahead of our cost of capital. Even in the more challenging profitability environment, the group continues to generate returns above its weighted average cost of capital and creates economic value for the shareholders.

17:36 The year on year reduction of ROIC is explained by lower operating profit in the first half. Importantly here, the capital base has been well controlled. Disciplined CapEx and efficient working capital management have delivered a stable to slightly declining invested capital base. ROIC is lower than last year, but remains comfortably above the cost of capital. Moving now to the earnings per share. Earnings per share at €1.82 is largely stable versus previous year. The lower operating profit was almost fully compensated by further improved financing costs and the lower tax charge. I will now conclude with our outlook for the full year.

18:25 While the first half was demanding, particularly in Europe, we have made significant progress in ramping up our cost optimization and efficiency initiatives. These actions are expected to support a stronger profit contribution in the second half and keep us on track to deliver profit improvement for the full year. We are set to accelerate the impact of the excellence initiatives, which contribute to the targeted profit improvement for the full year. The plan to further drive channel penetration, the contribution from our growth investments in new facilities and the strength of our innovation pipeline provides support required to target the lower end of our organic growth guidance.

19:11 We are reviewing all options for Germany over the next few months to support shareholder value maximization, and we'll share the outcome in due course with the market. Our resilient business model and solid cash generation will set us up for the resumption of returning capital to our shareholders in 2027. So in summary, while the first half was challenging, the direction of travel is clear. We are addressing the short term pressure points, accelerating the initiatives which are under our control and are strengthening the financial platform of the group. This gives us confidence to target profit improvement for the full year and the lower end of our organic growth guidance.

20:01 Thank you very much, and I hand back to Urs. Thank you, Martin. For this information, we would now continue with Q and A. We will now begin with the question and answer session. First question comes from the line of Daniel Bouwerki from Societe Generale Bank.

20:56 Please go ahead. Yes. Thank you. Can you hear me? Yes. Yes. Thank you. I would have a question on the European market, especially in retail. Is the shrinkage there, it's only the market decline? Or you also walk away from some contracts or did not renew them because they were not attractive enough? That will be my question. Daniel, again. It's basically the market and the consumer environment. We have good figures and good visibilities in the markets. We believe that in many markets, we are gaining market share even in Q2 in Germany.

21:45 But in Germany, the market for H1 for bakery products was short by minus 1% in value and minus 4%, minus 5% in volume. So this is the main driver of this. So there is no cancellation of contracts or corporations. It's clearly a market issue we see in this retail business. Thank you. The next question comes from the line of Chiara Vigianmaria from Berenberg. Please go ahead. Yes, morning. Thanks for taking my question. I'd like to ask what gives you confidence in achieving the full year guidance? Are you already seeing demand acceleration in the beginning of H2? And then I also wanted to double check if you have any comment on the midterm guidance.

22:43 Thank you for this, Chiara. We have all programs in place. And as you already see or Martin did mention, the markets outside Germany are doing reasonably well. We have good initiatives in place. We have a high share of innovation, which are driving which is driving our positioning in the market. On the other hand side, we have this aggressive cost program, this excellence program, which is delivering good results. We have now addressed almost 50% of the entire manufacturing footprint or the entire volume output by 50%, which is a good progress, generating very good results. That's why we are confident to achieve the guidance we gave, the top line at the lower end.

23:45 As we have told, the markets will remain challenging, mainly in Europe, mainly in retail, but this has been addressed. This is the confidence we have. Thank you. And on the midterm guidance? We stay with this for the moment. This is no change. We have, as I told, good programs in place, good initiatives. As we have told, we test options for Germany. Midterm plan '28 remains unchanged. Clear. Thank you. We now have a question from the line of Martij Karal Sarraet from UBS.

24:30 Please go ahead. Yes. Hi, good morning. Thank you for taking my questions. The first one would be on Germany, please. I mean, I would like to understand what happened on pricing especially. So yes, I mean, what is driving this negative pricing? Are there overcapacities? Is there potential insourcing from retailers putting pressure to prices? And any color here would be appreciated. And also my second question would be on, yes, considering what you can control, what are the plans to drive growth, especially in Germany, but also elsewhere in 2027 and beyond? Thank you for your question.

25:16 In terms of the first one, look, Germany, no surprise, has been always a cost conscious and price competitive market environment. We as for the first half performance, we are not satisfied with the performance there. And that's why we have decided that we will study all options for the German businesses, and we'll analyze that. We come back with the once we have concluded the assessment, we'll come back to the market and inform the market about the next steps we are taking. As Urs has mentioned, the German bread market is in decline. That is the driver of the performance.

26:02 So it's not about walking away from contracts, as we have mentioned before already by the first question of Daniel and is also not a topic of insourcing. So that's the overall summary of what has happened in Germany and our actions towards that situation. So we are making sure that we are ahead of the curve and address the points in order to fix the performance and maximize the overall value creation of our business. Does that answer your question? Yes. Thank you. And my second one on growth in 2027 and beyond, not necessarily only in Germany.

26:53 Yes. I think I would reiterate what I mentioned in the presentation. It is about driving channel penetration. It is about leveraging the investments that we have done in our new facilities and in our growth CapEx. So for example, the earth factories expect it to deliver growth in the second half, and that should help us to improve the performance that we had. I would also like to draw your attention to the fact that the second half was in 2025 was softer than the first half. So therefore, we also have an effect of comps.

27:41 And don't forget our continued strong contribution from our innovation program, which has been strong in the first half, and we expect it to continue to drive contribution to the top line in the second half. That's helpful. Many thanks. The next question comes from the line of Jon Cox from Kepler Cheuvreux. Please go ahead. Yes. Good morning, guys. Just coming back to Germany. I think you said the market overall is down 1% in value and then down 4% or 5% in volume. Was that what I heard? Because when I look at your interim report and look at the segment reporting, Germany is down actually almost 10%.

28:36 So just trying to square the circle in terms of you're saying you haven't walked away from any contracts, you've not lost any in sourcing deals or whatever. I'm just wondering why are German sales down 10% when I look at your interim report in that segment reporting? There are several aspects on this. These numbers, I did give you the minus 1% and minus 4% or minus 5%. These are retail sales. We are in Germany in foodservice as well and in quick serve restaurants. Now there is in markets like Germany an accelerating effect. There are customers with own manufacturing capacities.

29:22 And if markets are short, they are in sourcing. So if the market is short, there is an addressable market for the suppliers. Is becoming less because some big customers are then re insourcing products in their own manufacturing. This is the or these are the two points you need to consider in this number. Okay. And then to come back to this down 10%, and I've seen this before with other big food suppliers, Barry Callebar, same sort of thing happened, volumes down across the board, everybody started to insource, and that put pressure on their business. Why should this turn around in Germany in the second half of the year for you guys to get to low single digit decline overall in organic sales growth?

30:14 Because if the market is down 4% or 5%, it takes a bit of time to get their own work off their own capacity again before coming back to you to actually do that. And maybe it's a bit of an add. I understand that Lidl and some others are actually expanding their own capacity over the next year or I guess this would impact your own business with them as they would look to fill up that capacity? Good morning, John. We have indicated in the presentation that, let's say, there is three drivers that will drive the acceleration in the second half. This is channel penetration. This is the contribution from our new facilities that come online and the overall growth investment that we have concluded over the last couple of years and our continued strong contribution from our innovation activities.

31:17 Then there is a technical effect. There is lower comps in the second half. And we have as I mentioned, we have some of the seven retail markets we are measuring on a consistent basis where we see strong performance. So we have three markets that are outperforming the market. We have two markets that are catching up to the market momentum. That gives us confidence that we have positions and the pieces in place to drive a strong growth performance in the second half. And as we have mentioned, we will review all options for Germany. We will do that analysis. We will come back to the markets once that's concluded and let the market know what the next steps are for Germany.

32:10 Just on Germany. And you've talked about the fact that next year, you'll start to return cash to shareholders, either dividend or a buyback. In terms of Germany, if you have to start closing factories, it's not a cheap thing to do, yes? I'm just wondering what would the impact that be on cash generation for you and your ability to pay a dividend or do buybacks next year if, say, you're closing a couple of your factories in Germany and or you do a full exit and then maybe you have to write down all of these assets or effectively maybe you can't remonetize much of what's actually in Germany at the moment? John, as I said, we are assessing all options. We are running these analyses.

33:00 And once we have concluded these analyses and these assessments, we'll come back to the market and let the market know about the next steps. Do you have any rough time scale for when this sort of review will be concluded? You can expect that this is sometime in the second half of this year. Okay. Maybe just the last one. On the Rest of the World business, you have capacity coming on there. Maybe organic sales growth was a little bit more subdued than some of us expected with that new capacity coming on. Is it just maybe the capacity is not coming on as fast as you anticipated in the rest of the world? I think you heard me say in the presentation before that we expect Hearth Factory to contribute to the revenue performance in the second half.

33:51 And I would call it that this is running in line with expectations. Okay. Thank you very much. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Urs Jordi for any closing remarks. Thank you for this. Thank you for joining. We are here to answer questions. We will have our meeting today. Maybe one or the other will have the opportunity to meet us in person today. I wish you a good day and a good week. Goodbye. Ladies and gentlemen, the conference is now over.

34:42 Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.