McCann wants back­ing for Aryzta €800m share sale

The Irish Times - Business - - BUSINESS | NEWS - CIARA O’BRIEN and JOE BREN­NAN

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 yes­ter­day that its board is unan­i­mous 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.

Op­poses the plan

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. 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 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. 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. 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.

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