September 25, 2017 / 3:11 PM / 10 months ago

Aryzta returns to businesses after retail strategy backfires

Sept 25 (Reuters) - Swiss food company Aryzta is shifting its focus back to just supplying businesses and ditching its foray into retailing after reporting a record billion dollar annual loss, it said on Monday.

Aryzta, which supplies baked goods to stores and fast food restaurants worldwide, warned in January that its strategy of selling Otis Spunkmeyer products directly to retail customers had backfired, wiping a third off its shares that day.

The company has since brought in new management to turn the business around and announced its strategy on Monday, two weeks after its new Chief Executive Kevin Toland took up his role.

“Aryzta is committed to improving revenue growth by refocusing on its core strengths as a global leader in B2B (business-to-business) frozen bakery and European food solutions,” it said in a statement.

Shares in the Zurich-based company jumped as much as 5 percent as investors welcomed the new approach following a year of upheaval. Aryzta was trading at 30.85 euros at 1419 GMT, above the lows hit in January after its profit warning.

“While there are plenty of risks, we see a potential multi-year turnaround story for investors not averse to risk under a new team,” Kepler Cheuvreux analyst Jon Cox said.

Aryzta, known for its Cuisine de France range and Otis Spunkmeyer brand, reported a loss of 907.8 million euros ($1.1 billion) compared with a profit of 67 million euros last year.

The loss was mainly down to 860 million euros of charges related to marking down the value of its North America and Germany businesses. On an underlying basis, its full-year profit fell 42.5 percent to 179 million euros.

Aryzta’s troubles started when it decided to sell its Otis Spunkmeyer muffins and cookies directly to retail customers. At the same time, it was also making rival products for other companies. Some took exception to Aryzta’s move into retailing and cancelled their production contracts with the Swiss company.

The loss of production volume in North America, increased spending to boost its retail presence and a rise in labour costs hit its profit, all at a time its Otis Spunkmeyer products were not selling as well as expected.

For North America, Aryzta booked a goodwill writedown of 492 million euros, an impairment charge of 139 million related to the damage to its relationships following the move into retail and a charge of 126 million related its factories.

The company said about 800 experienced workers had left its Cloverhill factories, acquired in 2014, after a federal audit of a third-party agency that supplied the staff revealed inadequate documentation.

“While the Cloverhill business had been profitable every month since its acquisition, following this disruption these locations incurred 16.3 million euros of losses during June and July 2017, which is expected to continue to impact the business during 2018,” it said.

For the current financial year which started on Aug. 1, the company said its best current estimate for earnings before income, tax, deprecation and amortisation was to be broadly in line with the previous year, when EBITDA was 420.3 million.

Separately, the frozen dough maker said it had agreed a new five-year unsecured refinancing of 1.8 billion euros. ($1 = 0.8428 euros) (Reporting by Anna Serafin and Sylwia Lasek; editing by David Clarke)

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