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ISEQ lower-Food Group Aryzta reports

Monday, September 24 09:25:42

The ISEQ is lower this morning at 3,319, down 24 points as uncertainty returns to equity markets following a week of positives. What seems like Spanish indecision regarding the need for further assistance from the ECB has taken centre stage again today.

The Irish Food industry seems to bring good news on a weekly basis this year and Davy Stockbrokers analyses the latest results from Aryzta ( the old IAWS) :

ARYZTA posted a robust set of numbers that were modestly ahead at EBITA level with Food Group margins up 60bps year-on-year (yoy) and some 30bps ahead of forecast. A higher-than-expected tax charge meant that adjusted EPS was in line with forecast and up 8.8pc for the year at 337.5c. Food revenues grew by 11.3pc to E2.87bn. By region:

Food Europe: an underlying revenue decline of 1pc was masked by an acquisition contribution of 7pc, the latter reflecting the Honeytop deal in August 2011. Overall, revenues grew by 7.5pc to E1.27bn. EBITA margins expanded by 70bps as ATI benefits began to materialise and as product mix changed. EBITA rose by 13.7pc to E169.5m.

Food North America: strong revenue growth was maintained through the year and on an underlying basis rose by 7pc. Overall revenue advanced by 13.2pc to E1.37bn, supported also by FX and some modest M and A. A margin expansion of 50bps was fuelled by the underlying growth and also by the ATI where the region is "well advanced in terms of operating on a single ERP platform". EBITA rose by 18.6pc to E176.3m.

Food Rest of World: revenues grew by 23pc (to E221.5m) and EBITA by 18pc (to E29m). Underlying revenue growth was 13pc, a level that was broadly maintained throughout the year. This was the only region where the EBITA margin out-turn was below forecast - ARYZA incurred additional transport costs in Brazil as it completed new capacity expansion. This capacity became fully operational in Q4.

ARYZTA incurred some E99.6m of non-recurring charges, the majority of which (E83.5m) related to the Food Group. Such spending in the Food Group was heavier than expected in the second half of the year and in total comprised staff severance (E50.6m), asset write-downs (E7.8m) and other integration and transaction costs through the year (E25.1m). Most (92pc) of the Food Group costs were cash costs.

ARYZTA Food Group delivered a healthy 16pc increase in operating cash flow in the period: E315m versus E272m in the prior period. The improved out-turn in operating cash flow was driven by a 14pc increase in divisional EBITDA to E465m. Net debt for the Food Group increased E20m to E976m. Key moving parts in the net debt line include: investment capital expenditure E89m (E52m: 2011), transaction and restructuring costs E88.6m (E31.8m: 2011), FX -E139m (E51m: 2011) and acquisitions E100m (E318m: 2011). With the ATI programme ongoing, further reinvestment of operating cash flow is expected in FY2013.

DAVY VIEW: A good performance, apart from in Europe, characterized ARYZTA's FY2012 result - underlying growth was very good in the US and in the rest of the world while Food Group operating margin overall gained 60bps. Via its ATI programme, the group is working to achieve a 15pc return on investment target by FY2015. This implies good continuing growth potential, although this year growth will again be checked by a difficult European trading environment. Our forecast growth of 12.4pc is too high given the guided EPS range of 5-10pc according to Davy Stockbrokers.