Aryzta pushes €800m share sale as debt ‘inhibiting’ turnaround

Aryzta’s chairman Gary McGann has urged shareholders to back the group’s planned €800 million share sale to cut debt, saying high borrowings are standing in the way of a turnaround at the embattled Swiss-Irish baked goods group.

“Despite the scale and range of changes already implemented, stabilising our business has been difficult and our [full-year] 2018 outcome was not where we wanted or expected it to be,” Mr McGann said in a letter to shareholders ahead of the company’s upcoming annual general meeting in Switzerland on November 1st.

“In particular, the business remains highly leveraged, which is inhibiting our ability to implement the required changes to position the business to perform.”

Aryzta said on Thursday that its board is unanimous in its view that an €800 million "rights issue" – or share sale to existing investors – is needed to repay €500 million of debt, give it €150 million for restructuring, and provide additional working capital.

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However, Aryzta's largest shareholder, Cobas Asset Management, which has a voting stake of almost 15 per cent, opposes the plan, saying the scale of the equity raise is excessive.

Slumped

Shares in the owner of the Cuisine de France brand in Ireland have slumped by as much as 87 per cent in the past 3½ years on the back of a slew of negative financial results and profit warnings.

Analysts at Davy highlighted in a note this week that the group’s current travails include: some customers who had outsourced business to Aryzta now baking goods themselves; underutilised facilities; difficulties in passing on rising labour, transport and raw material costs to customers; as well as the group’s highly indebted and “complex” capital structure.

A slew of executive changes at the group in recent times has not helped, it said. Seven of the nine members of the executive committee, including chief executive Kevin Toland and chief financial officer Frederic Pflanz, have been appointed in the past 13 months.

‘Leveraged’

Mr McGann said that the group will remain “relatively highly leveraged” following the share sale. Davy analysts estimate that net borrowings will fall from 5.2 times earnings to a ratio of 2.5 as a result of the equity raise. However, including hybrid debt instruments on Aryzta’s balance sheet, the ratio will remain above five.

Aryzta committed last year to a plan to reduce its debt by €1 billion over four years, including disposals and cash generated from its remaining operations.

The group has so far raised an estimated €230 million from asset sales – including Irish restaurant supplier La Rousse and its troubled Cloverhill facilities in the US – and a dividend following a refinancing at its 49 per cent-owned French frozen goods affiliate Picard. The group is currently seeking to sell its Picard stake.