ARYZTA AG (fka IAWS GROUP PLC) (ARZTF) Q2 2026 Earnings Call Transcript

Good morning and welcome to our H1 results call. Our presentation includes forward-looking statement which details the various risks and uncertainties that may impact our business and which also apply to today's discussions. I will now hand over to Urs to start the presentation.

Thank you, Paul. Good morning, all. let me welcome you to this page one 2026 result overview. On page four you can see the key highlights of the first half year 2026 we did achieve a revenue of 1 million 64 million almost which accounts for an organic growth of minus 2.7 percent. EBITDA has been achieved of 139.9 million and the free cash flow of 23.6 million. Earnings per share stands at 1 euro. This year we did read on the next page page 5 H1 organic growth being impacted by resulting in a substitute. It worked against excellence and post-measure accelerating and delivering attractive savings benefits the excellence program as I did mention is rolling out faster and in more bakeries the organizational model further optimization investments are on page seven the guidance for 2026 we are targeting to achieve organic growth at the lower end of the guidance range reiterate expectations to deliver further EBITDA and EBIT improvement and we expect to deliver a solid cash generation and an improvement in net debt for 2020 allocation to shareholders. The options for this are dividends, share buyback or a combination of the targeting to evolve progressively to work in Uber.

Thank you Urs. We had a challenging start into a reported EBTA margin of 13 point optimization and free cash flow, largely in line with previous year, and our guidance for the ROIC of 11.1%, our weighted average cost of capital. Let me now, total revenue decreased by 2.1% or 22.5 million euros. The consumer sentiment impacted retail in particular, as well as QSR channels in Europe, solid organic growth in Switzerland. QSR in the rest of the world delivered mid-single-digit organic growth, supported by pricing, and while the other two channels, I will now move from, at the same time, year-to-date, three of our seven retail markets have additional markets, have our continued strong innovation activity, representing 19.2% of revenue, delivered almost the same. The innovation platform acquired in France will contribute to our revenue growth for the full six months of the second half. Lower revenue, with a margin of 12.80 basis points. The European businesses are the main focus of our customers. Based on the progress of these initiatives, we are confident that Europe will recover margin in the second half and control targeted improvement. This was Europe. I will continue to share further details. The QSR channel has been driving the top-line performance of Rest of World. Positive organic growth of 2.7% is supported by both volume. The other two channels in Rest of World were the ramp-up of the Perth factory The cost of pre-hiring of factory staff and margin to increase as a next step, our EBTA margin reduced by 70 basis points in H1 to 13.2%, including a 50 basis points impact of one-time cost related to the cost efficiency and optimization initiatives. These one-time costs correspond mainly to restructuring expenses. Gross margin before distribution improved sequentially by 70 basis points versus the second half of 20. Procurement and other savings initiatives plus margin accretive innovation, which added 20 basis points. The negative impact of distribution and SG&A on the EBTA margin on one side is driven by lower operational leverage. We expect transactions to strengthen EBTA margin improvements. I will now provide more details in our long-term efficiency and cost optimization program excellence. The program is now moving from assessment into delivery, already being realized, and further rollouts. Up to now, we have addressed, identified and confirmed, the alignment of our IT. We are also progressing with the rollout of our IT roadmap as we continue to evolve towards a more digitally enabled company. With this, we confirmed that the Richter continues to target to achieve the 20 to 30 million net savings. Free cash flow of 23.6 million euro is largely in line with previous year and as per the expectation. Stable working capital and disciplined capex management, lower absencing costs, higher net confidence to generate solid levels of cash. On the next slide, I share more details on the working capital performance. Our trade networking capital was maintained at efficient levels and protected cash flow performance for the company. Our cash conversion cycle has somewhat higher inventories and days of sales. I will now move to our capital structure. I will continue to move towards our targeted leverage levels, improve our financing and capital structure, supported by consistent cash generation and disciplined balance sheet management. Key achievement in the first half of 2020. Six, our total net debt decreased by almost €100 million to €789 million, corresponding to a leverage ratio of 2.7 times. The repayment of the last remaining hybrid principal concluded our hybrid repayment and refinancing program, and our core equity continues to increase to 23.3% of total assets, up from 18%. And on the next slide, I'll explain the evolution of our financing costs, where the stronger capital structure is translating into tangible benefits. Noted by the continued optimization of our financing structure, the reduction of total net debt, and a further improvement of our cash management, decreased total financing costs by 5.5 million euro to 16.8 million. Our interest rate hedging, which is covering 29% of our bank debt, will end in the second half of this year. Given the positive evolution of our year-to-date financing cost, we are improving our full-year guidance to the lower end of the 37 to 40 million Euro range. This compares to the previously targeted range of 40 to 43 million euro. Next is the evolution of ROIC and value creation. Our ROIC remained robust at 11.1%, which is ahead of our cost of capital. Even in the more challenging profitability environment, the group continues to generate returns above its weighted average cost of capital and creates economic value for the shareholders. The year-on-year reduction of ROIC is explained by lower operating profit in the first half. Importantly here, the capital base has been well controlled. Discipline CAPEX and efficient working capital management have delivered a stable to slightly declining invested capital base. It is lower than last year, but remains comfortably above the cost of capital. Moving now to the earning per share. per share at one euro 82 cents is largely stable versus previous year the lower operating profit was almost fully compensated by further improved financing cost and lowered and a lower tax charge i will now conclude with our outlook for the full year while the first half was demanding particularly in europe we have made significant progress in ramping up our cost optimization and efficiency initiatives these actions are expected to support a stronger profit contribution in the second half and keep us on track to deliver profit improvements for the full year we are set to accelerate the impact of the excellence initiatives which contribute to the targeted profit improvement for the full year the plan to further drive channel penetration the contribution from our growth investments and new facilities, and the strength of our innovation pipeline provides support required to target the lower end of our organic growth guidance. We are reviewing all options for Germany over the next few months to support shareholder value maximization, and we'll share the outcome in due course with the market. Our resilient business model and solid cash generation will set us up for the resumption of returning capital to our shareholders in 2027 so in summary while the first half was challenging the direction of travel is clear we are addressing the short-term pressure points accelerating the initiatives which are under our control and are strengthening the financial platform of the group this gives us confidence to target profit improvement for the full year and the lower end of our organic growth guidance. Thank you very much, and I hand back to Urs.

Thank you, Martin. Information we would now continue with Q&A.

We will not begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from a webcast while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Daniel Burki from Syriacantonal Bank. Please go ahead.

Yes, thank you.

Can you hear me? yes yes yes thank you i would have a question on the uh european market especially in in retail is the shrinkage there it's only the market decline or you also walk away from some contracts or did not renew them because they were not attractive enough that would be my question thank you good morning Daniel again it's basically the market and the consumer environment we have good figures and good visibilities in the markets we believe that in many markets we are gaining market share even in Q2 in Germany but in Germany the the market for H1 for bakery products was short by minus one percent in value and minus four minus five in volume. So this is the main driver of this. So there is no cancellation of contracts or corporations. It's clearly a market issue we see in this retail business.

Thank you.

The next question comes from the line of Chiara Jan-Maria from Bernberg. Please go ahead.

Yes, morning. Thanks for taking my question. I'd like to ask what gives you confidence in achieving the full year guidance? Are you already seeing demand acceleration at the beginning of H2? And then I also wanted to double-check if you have any comment on the midterm guidance. Thank you.

Thank you for this Chiara. We have all programs in place and As you mentioned, the markets outside Germany are doing reasonably well. We have good initiatives in place. We have a high share of innovation, which is driving our positioning in the market. On the other hand side, we have this aggressive cost program, this excellence program, which is delivering good results. We have now addressed almost 50% of the entire manufacturing footprint or the entire volume output by 50% which is a good progress generating their good results. That's why we are confident to achieve the guidance we gave on the top line at the lower end. As we have told, the markets will remain challenging, mainly in Europe, mainly in retail, but this has been addressed.

Thank you. And on the mid-term guidance?

We stay with this for the moment. This is no change. We have, as I told, good programs in place, good initiatives for Germany.

Clear. Thank you. We now have a question from a line of Marti, Keral Farré. from UPS. Please go ahead.

Yes hi good morning and thank you for taking my questions. The first one would be on Germany please. I mean I would like to understand what happened on pricing especially. So yeah I mean what is driving this negative pricing? Are there over capacities? Is there potential insourcing from retailers putting pressure to prices and any color here would be appreciated and also my second question um would be on yeah considering what you can control what are the plans to drive growth especially in germany but also elsewhere in 2027 and beyond for a question in terms of the first one germany no surprise has been always a cost conscious and price competitive market environment for the first half performance we are not satisfied with

performance there and that's why we have decided that we will study all options for the german businesses and we'll analyze that we come back with the once we have concluded the assessment we'll come back to the market and inform the market about the next steps we are taking as us has mentioned the german red market is in decline that is the driver of the performance It's not about walking away from contracts, as we have mentioned before already by the first question of Daniel, and it's also not a topic of insourcing. So that's the summary of what has happened in Germany and our actions towards that situation. So we are making sure that we are ahead of the curve. Does that answer your question? yes thank you and my second one on growth in 2027 and beyond not not necessarily only in germany yeah i think i would reiterate what i mentioned in the in the presentation it is about driving general penetration it is about leveraging the investments that we have done in our new facilities and in our so for example the earth factories expected to deliver growth in the second half and that should help us to improve the performance that we have I would also like to draw your attention to the fact that the second half was in 2025 was softer than the first half so therefore we also have an effect of comps and don't forget our continued strong contribution from our innovation program which has been strong in the first half and we expected to continue to drive contribution to the top line in the second half that's helpful many things as a reminder if you wish to register for a question

please press star and the one on your telephone the next question comes from the line of john Cox from Kepler Chevrolet. Please go ahead.

Yeah, good morning guys. Just coming back to Germany, I think you said the market overall is down one percent in value and then down four or five in volume. Was that what I heard? Because when I look at your interim report and look at the segment reporting, Germany is down actually almost ten percent.

So just trying to square the circle in terms of you saying you haven't walked away from any contracts you've not lost any insourcing you know deals or whatever I'm just wondering why why are your German sales down ten percent when I look at your interim report in that segment reporting there are several aspects on this these numbers I did give you the minus one and minus four or minus five these are retail sales we are in Germany in food service as well and in a quick serve restaurant now there is in markets like Germany and accelerating effect there are protagonist customers with own manufacturing capacities and if markets are short they are insourcing so if the market is short there is an addressable market for the suppliers It's becoming less because some big customers are then re-insourcing products in their own manufacturing. These are the two points you need to consider in this number.

Okay, and then to come back to this down 10%, and I've seen this before with other big food supplies, Barry Caliber, the same sort of thing happened, volumes down across the board, everybody started to insource, and that put pressure on their business. why should this turn around in Germany in the second half of the year for you guys to get to you know low single digit decline overall in organic sales growth because you know if the market is down four or five percent it takes a bit of time to get you know that their own work off their own capacity again before coming back to you to to actually actually do that and maybe it's a bit of an ad I understand that little and some others are actually you know expanding their own capacity over the next year or so, you know, I guess this would impact your own business with them as they would look to fill up that capacity.

Good morning, John. We have indicated in the presentation that there is three drivers that will drive the acceleration in the second half. This is channel penetration. This is the contribution from our new facilities that come online, and the overall growth investment that we have concluded over the last couple of years, and our continued strong contribution from our innovation activities. Then there is a technical effect. There is lower comps in the second half, and we have, as I mentioned, we have some of the seven retail markets, we are measuring on a consistent basis where we see strong performance. So we have three markets that are outperforming the market. We have two markets that are catching up to the market momentum. That gives us confidence that we have the positions and the pieces in place to drive a strong growth performance in the second half. and as we have mentioned we will review all options for germany we will do that analysis we will come back to the markets once that's concluded and let the market know what the next steps are for germany just just on germany and you've talked about the fact that next year you'll start to return cash uh to shareholders either dividend or a buyback in terms of germany if you have to start closing factories it's not it's not a cheap thing to do yeah i'm just

wondering what what would the impact that be on cash generation for you and your ability to pay uh you know a dividend or do buybacks next year if say you're closing a couple of your factories in germany and or you do a full exit and then maybe you have to write down all of these these assets or effectively you know maybe you can't really monetize much of what's actually in Germany at the moment John as I said we are assessing all options we are running these analysis and once we have concluded these analysis and these assessments we'll come back to the market and let the market know about the next steps do you have any rough time scale for when this sort of review will be concluded you can expect that this is sometime in the second half of this year Okay. Maybe just the last one. On the rest of the world business, you have capacity coming on there. Maybe organic sales growth was a little bit more subdued than some of us expected with that new capacity coming on. Is it just maybe the capacity is not coming on as fast as you anticipated in the rest of the world?

I think you heard me say in the presentation before that we expect Earth Factory to contribute to the revenue performance in the second half. And I would call it that this is running in line with expectations.

Okay. Thank you very much.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Urs Jodi for any closing remarks.

Thank you for this. Thank you for joining. We are here to answer questions. We will have our meeting today. Maybe one or the other will have the opportunity to meet us in person today. I wish you a good day.