Aryzta CEO keeping ‘open mind’ on strategic options

Swiss-Irish baked goods group Aryzta's chief executive Kevin Toland said that he is keeping an "open mind" on options for the company as he refused to be drawn by analysts on the potential outcome of a strategic review that was launched last month.

"Any company that isn't having a hard look [at strategy] with an open mind should be," said Mr Toland, adding that the hiring of advisory group Rothschild & Co as the troubled baked goods group navigates coronavirus will help come up with options to "maximise value" for shareholders.

The comments came as Aryzta reported that its revenue fell 24 per cent in the third quarter of its financial year, to the end of April, as the pandemic hit business.

Steps taken to mitigate the impact of the virus on the business have been effective, the group said. These include furloughing 30 per cent of its staff and pausing production in eight bakeries.

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Decline

Revenue during the quarter to April 30th was €644.2 million, a 21.5 per cent organic decline compared with the third quarter of 2019, and 24 per cent overall when disposals and currency movements were taken into account.

While April saw a 49 per cent organic decline in revenue, the initial easing of coronavirus restrictions internationally in recent weeks has seen business pick up from low point, with sales of for the first three weeks of May down 33 per cent from the same period last year.

Since taking over a deeply troubled business in late 2017, Mr Toland has overseen almost €400 million of asset sales, reduced net debt, and been pursuing a cost-cutting programme designed to deliver €200 million of savings in the three years to July 2021.

However, one of his targets – turning around the company’s North American business – has fallen behind schedule, with the group revealing in early March that it was cutting margin forecasts for the unit and taking a €437 million goodwill charge. The virus has thrown up greater challenges.

Aryzta announced on May 13th that it had hired Rothschild to review “all strategic and financial options” for the company by the end of July. It came hours after two activist investors, Veraison Capital and Cobas Asset Management, with a combined stake of over 17 per cent, said they were looking to engage in “constructive dialogue” with the company on creating value in the business.

Tensions

Aryzta said on Monday it would hold an extraordinary general meeting by mid-August following a request by Veraison and Cobas, which are seeking to unseat the company’s chairman Gary McGann and four other directors, including Mr Toland, from the board. The proposed removal of Mr Toland from the board would free him up to focus on his executive functions, they argue.

The move marks a serious ratcheting up of tensions within the Swiss-Irish listed group, which has been struggling to halt a five-year long slide in its share price.

Still, investors cheered how Aryzta has been managing to conserve cash so far during the crisis, with liquidity standing at €389 million as at May 22nd, compared to €385 million at the end of April.

“Consistent with seasonal patterns, we expect a net cash outflow in [the fourth fiscal quarter] but to conclude the year with a good overall liquidity position,” it said. Shares in Aryzta rose 8 per cent in Dublin.