Shares in Aryzta soared by as much as 21 per cent on Tuesday after chief executive Owen Killian, his finance chief and Americas business head tendered their resignations and the Swiss-Irish food group negotiated additional financial headroom from its lenders and signalled plans to sell a key investment.
The moves come after the group warned in late January its earnings could plummet by 20 per cent this year as it lost biscuit and other baked goods contracts in the US – the latest in a series of profit alerts in the past two years. Mr Killian, chief financial officer Patrick McEniff and chief executive of the Americas region John Yamin will all leave the company at the end of its financial year in July.
Decision
“When the stock of a company goes up 20 per cent after the CEO and CFO decide to leave, it was the right decision for that company,” said David Holohan, chief investment officer at Merrion Capital in Dublin.
Shares in Aryzta jumped by 21.4 per cent at one stage on Tuesday morning. However, they subsequently pared their gains to be up almost 11 per cent at 32.84 Swiss francs (€30.80) as of 10.12am.
Last September, Aryzta appointed Gary McGann, former Smurfit Kappa chief executive, as chairman, in a bid to try to increase shareholder confidence after a share price drop of some 50 per cent over the past two years. However the subsequent, unexpected profit warning in January unnerved investors further.
As Aryzta prepares to hire an international recruitment firm to “identify the highest calibre candidates” to replace the three top executives, it has promoted three new members to its executive management team with immediate effect “to support an orderly transition”.
The appointments are Dermot Murphy, chief operations officer (COO) for Europe, Ronan Minihan, COO Americas, and Robert O’Boyle, COO for the Asia Pacific, Middle East and Africa regions.
The maker of Cuisine de France has also increased the covenant headroom under its senior revolving credit facility, so that its net debt can rise to four times earnings before, interest, tax, depreciation and amortisation (ebitda). The company said, however, that it continues to operate within its existing covenant of 3.5 times. It incurred no additional financing costs for easing the terms of its covenants.
Meanwhile, Aryzta has clearly signalled that it intends to sell its 49 per cent stake in French frozen foods company Picard. The purchase almost two years ago was badly received by investors.
“Aryzta has commenced a process with Lion Capital to evaluate investment alternatives for the Picard Business,” it said. The Swiss-Irish company bought the initial stake in Picard from Lion Capital, a London-based private equity firm, in March 2015 for €447 million and had the right to eventually increase the stake to 100 per cent.
Results
Davy analyst Cathal Kenny welcomed that it appears that Aryzta and Lion Capital are aligned in plotting a future path for their investments in Picard. If the stake was to be sold, it would be used to strengthen the group’s balance sheet, Aryzta said.
He said that the announcements on Tuesday are “important in rebuilding of the Aryzta investment case”.
The company’s woes can be traced back to March 2015, when the stock was sold off after Aryzta posted weaker-than-expected results and followed, two weeks later, by the Picard stake purchase, which triggered further losses by the shares.
Last March it announced it had missed its revenue targets and Mr Killian was forced to sell €16 million of shares in the business, equivalent to two-thirds of his total stake. He said at the time, however, that the move did not reflect his confidence in the group but that it had been triggered by the decline in the “collateral value” of the shares.
Aryzta’s 39.4 per cent drop during January, following the latest negative earnings news, made it the worst-performing stock globally in the packaged foods industry.
“While this morning’s announcements reduces the probability of a debt covenant breach and could result in management making a decision to exit its Picard investment, we need to see further evidence of operating margin improvement and organic volume growth before taking a more positive assessment on Aryzta’s long-term outlook,” said Stephen Hall, an analyst with Cantor Fitzgerald.
The shares remain well below the level of 44.6 Swiss francs before the profit warning last month.
