Clock ticking for new Aryzta management team

Investor patience wearing thin as shock profit warning prompts shares to tumble 30%

The profit warning came as a shock. It wasn't that Aryzta hadn't been troubled previously. This was far from its first profit warning but there had been expectation among the investor community that the company had already communicated the scale of its problems in previous updates and was now working on restructuring the business to drive recovery.

The company blamed two key factors for its problems – Brexit and falling sales and higher labour costs in its American business.

The shares reacted as expected, dropping precipitously.

No, this story is not from this week. It occurred one year ago, almost to the day, January 24th, 2017. And it was the final straw in the increasingly troubled tenure of Owen Killian, the man who had masterminded the original merger of IAWS with Swiss baker Hiestand to form Aryzta in 2008.


Steady the ship

Aryzta is now led by an entirely new management team, recruited by former Smurfit Kappa chief executive Gary McGann, who was brought on board in Killian’s final days to try to steady the ship.

Former DAA chief executive Kevin Toland has only been in charge since September and only two weeks ago appointed a new head of the American division that has been the source of much of the company's woes.

But none of that served to soften the blow when Aryzta announced on Thursday that profits would fall 15 per cent on a like-for-like basis. It didn’t help that only two months previously, the new management had guided that profit this year was likely to be “broadly in line” with 2017.

A conference call with analysts did not go well by all accounts. Within hours, a number of analysts had downgraded their outlook for the company.

When Killian issued his ill-fated profit warning this time last year, the shares tumbled to a historic low below €28. This week, Aryzta shed over 21 per cent on Thursday before dipping below €22.50 at one point on Friday for a cumulative loss of 30.3 per cent since the warning before a modest rally.

Toland and his team are now on notice. Restructuring the company to engineer a turnaround is critical. But investor patience is wearing thin. Time is not on their side.