Hello, and welcome to the ARYZTA Full Year Results 2023. My name is Caroline, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand over the call to your host, Mr. Paul Meade, Head of Investor Relations, to begin today's conference. Thank you.
Thank you very much, and good morning, everybody, and welcome to our results call for the 12 months to July 2023. I just want to highlight that the forward-looking statements apply to all of today's discussions. I'd now like to hand over to our Chairman and Interim CEO, Urs Jordi.
Thank you, Paul. Good morning, everybody. Let me welcome you to this year's result presentation, and we would start with page four, the key highlights and the achievements of our fiscal year. The revenue, you can see, amounted to EUR 2.123 billion, which was an organic growth of 21.6%, and an achieved EBITDA of EUR 271.3 million, which resulted in a margin, EBITDA margin of 12.8%. A free cash flow was generated of EUR 109.1 million, and a profit for the period resulted on EUR 112 million.
On page five, then you can see the strategic overview. In-store bakery overall continues to gain market share as we have prognosed. Innovation accounts for 11% of revenue versus a 6% share in prior year. 40% of revenue growth was generated by innovation. Capital allocation we are doing is supporting innovation in core, in bake- off business. ARYZTA is outperforming the markets in value and in volume growth. On page six, some points about inflation, which continues.
A volatile inflationary environment continues to persist. Commodity prices are moderating, but are still at historical elevated levels. The cost of living increases impact labor and services. Consumption trends remain unchanged. Bakery products are competing well for share of consumer spend. Bread is a very efficient calorie, and let me say it like this, a strong currency of our day. Concerning ESG, is the group publishing a ESG report first time in March 2024. It is aligned with legislation, as well with customers and consumer trends.
The key focus areas in this ESG work are greenhouse gas reductions, water use assessments and reductions, supply chain assurance measures, and a commitment to Science Based Targets initiative is signed. The guidance for 2023, so the 17-month period to December 2023. We will see further improvements in all key metrics in 2022-2023. The organic growth will moderate to mid- to high-teens, supported by volume and price.
The first two months of the stub period are volume positive. EBITDA margin expansion will be supported by growth, efficiencies, and cost discipline. A further improvement in free cash flow will be generated. A sequential improvement in ROIC will be achieved. On page nine, the table you know, the midterm targets, which we are again confirming today. Organic growth will be achieved between 4.5%- 5.5%, an EBITDA margin bigger than 14.5%, an ROIC 11% or higher. The revenue on constant currency and pricing of north of EUR 2 billion will be generated. CapEx will amount in percent of revenue between 3.5%- 4.0%, and the total net debt leverage, including hybrids, will be below 3. I would hand over now to our CFO, Martin Huber.
Thank you, Urs. Good morning, ladies and gentlemen. Let's move to the next slide. ARYZTA has made strong progress in the first 12 months of its 17-month financial year, 2023. In a complex, volatile, and inflationary context, we have delivered a strong improvement of our results compared to the previous year. In summary, we delivered an organic growth of 21.6%, achieving revenues of EUR 2,123 million. Our EBITDA margin improved by 30 basis points to 12.8% versus the previously reported margin. Free cash flow more than doubled to EUR 109.1 million, allowing us to further reduce our total net debt level. With ROIC of 10.2%, we generated economic profit and are delivering true value to our shareholders.
With these results, we have taken a decisive step towards our midterm targets of 2025. Let's move to the next slide. Unprecedented input cost inflation on our input cost required correct pricing. This was the key driver of our organic growth of 21.6%. All our businesses, except Switzerland, registered double-digit pricing. In this context, volume growth has proven to be resilient and contributed 3.5% to the overall organic growth. France, Germany, and APAC QSR delivered over 80% of the total volume-driven revenue growth. Overall, revenue grew by 20.9% or EUR 367 million. With this, we have added to our top line more than the equivalent of our French business. Let's move to the next slide.
In the first 12 months of the financial year, 2023, we have generated volume-driven revenue growth of 3.5%, which I've just mentioned, on top of a very strong COVID recovery in 2022. While the volume growth was positive in the first three quarters, Q4 was flat. Several temporary effects have contributed to this result. As part of our continuous process to support profitable growth, we have eliminated some low margin or loss-making business lines in a few countries and optimized our portfolio. Timing of promotional activities have impacted, as well as one-off QSR contingency volume supply in Europe, in Q4 of last year. In the retail channel, representing 53% of our total revenue, we have once again outperformed the market, both in value as well as in volume.
As Urs mentioned, we are positive in Q5 in terms of volume growth, and we are confident that we will deliver a positive volume growth in the next five months of our long financial year, 2023. Next slide. Our European business further accelerated in 2023 and delivered an organic growth of 22.3%. Revenues reached EUR 1,877 million. EBITDA margin remained stable at 11.7%. Pricing and the contribution from our efficiency programs helped to achieve these results. Important to highlight, on a like-for-like basis, incorporating the non-recurring effects in 2022, the margin improved by 30 basis points from 11.4% to 11.7%. The business performance in Germany and France are worth to be called out. Our turnaround initiative in Germany is delivering results.
The EBITDA margin recovered substantially, and the organic growth of 22.8% was driven by both volume and value. In France, we continue to gain market share, generating an organic growth of almost 25%. The organic growth was supported by a strong, close to 10% volume growth. This volume growth was driven by same customer growth as well as acquisition of new customers. The strong top-line growth converted into a solid margin expansion in this business. Next slide. Our business in rest of the world contributed an organic growth of 17.4% to our top line acceleration. With revenues of EUR 246 million and an EBITDA margin of 20.6%, rest of the world was the key contributor to our overall profit improvement.
Pricing, as well as volume growth in quick service and mix improvement in our food service business, supported organic growth in this region. The business volume growth in QSR is the result of the win of a new customer in Australia, the increase in the number of restaurants in our incumbent customers there, as well as the same restaurant revenue growth. The Malaysian food service business, together with our Japanese entity, strongly improved their margins and were the key contributors to the overall profitability acceleration in rest of the world. Next slide. The group EBITDA margin improvement of 30 basis points to 12.8% can be split into two parts. On one side, our gross margin decreased by 40 basis points.
The margin impact of the input cost increase of over EUR 200 million more than offset the effects of our efficiency programs, addressing the factory fixed cost and the price increase of 18.2%, in terms of the gross margin. On the other side, the significant operational leverage generated by the disciplined cost management program for our distribution, as well as our sales, marketing, and administration costs, helped to more than compensate the negative gross margin impact. Next slide. The correct pricing and the significant contribution of our cost discipline programs helped to improve the gross margin before distribution from 30.5% in H1 to 31.1% for the 12 months of 2023. However, we are still 70 basis points below pre-COVID levels.
Although raw and packaging materials have come down from the peaks in late 2022 and early 2023, they are still 50 percentage points, 50% above pre-COVID levels. With circa 24% pricing in the last 24 months and strong cost discipline in the factories, we have been able to compensate part of this effect. Going forward, a mix of focused pricing actions, continued delivery of our efficiency programs, and portfolio improvement through innovation is key to return to our historic gross margin level. Next slide. We have made good progress in our efficiency program and supported the margin progression with that in the group. We have rolled out now in all our 26 factories, the performance control system. This is a key enabler to drive sustainable, continuous improvement in our bakeries.
Two key highlights to mention here: through optimization program, strict cost discipline, we have improved the conversion cost as a percentage of revenue by over 200 basis points versus previous year. Through our focused efforts to reduce food waste, we have achieved across all factories an 80 basis points reduction of our waste as a percentage of used raw material. Project Simplex, our program to simplify and standardize our recipe structures and the leverage of group procurement, have delivered more than EUR 11 million of cost optimization. With Simplex, we have concluded now 10 projects.
They have contributed to this, more than EUR 11 million. Global procurement has further increased its coverage to circa 70% of the spend in 2023. We are on track to reach at least 80% by 2025, as committed during the Capital Market Day. Group procurement is now covering also part of our services and indirect material spend and has started to address CapEx as well. Our total fixed costs have grown by circa 8%, which is within our targeted range of 30%-40% growth of organic growth.
To support the sustainable fixed cost management going forward, we have several initiatives running within our end-to-end process optimization program. I would like to call out two initiatives related to this program. We're preparing the go-live of SAP S/4HANA in Switzerland, beginning of 2024. All integration tests are on track. In Poland, we are ramping up the pilot to launch a business service center for transactional finance activities. This goes live now in October. Next slide.
The strong set of numbers on top of, and on top and bottom line, combined with further efficiencies in our working capital management, have allowed us to deliver a free cash flow of EUR 109.1 million, more than double of what we have achieved in our previous year. Next slide. Supported by the much improved free cash flow, we have reduced our total net debt from EUR 1.104 billion to EUR 1.017 billion. Our leverage reduced at the same time from 5x to 3.7x EBITDA. We are on track to reach below 3x leverage by the end of 2025. During 2023, we have made good progress to improve our capital structure.
In March, we have paid back the outstanding EUR 200 million of the euro hybrid and canceled this bond. In July, we have added an additional euro Swiss franc term loan facility of circa EUR 134 million to allow for further capital structure optimization and to deliver interest arbitrage. Over the next two years, we will continue to deleverage our balance sheet through sequential improvement of our business results and aim at a stepped optimization of our hybrid financing.
This will enable us to access attractive refinancing options towards the end of our midterm plan. Next slide. We have been actively managing our total financing cost and delivered a result that is at the lower end of our guidance. The buyback and the cancellation of the hybrid, the euro hybrid, the implementation of interest rate hedging, and the further leverage of our cash pool, have allowed us to keep the total financing cost, excluding lease interest, at EUR 66 million.
Remember, we have guided at the beginning of the year for a financing cost, excluding lease interest, between EUR 65 million and EUR 70 million. For the remaining period of our extended financial year, we expect the financing cost, excluding lease interest, to be within the range of EUR 30 million-EUR 32 million for the next 5 months. Continued strong business performance and our new term loan facility provide us with the means to continue to actively manage our financing costs. Next slide. Profit acceleration, improvement in working capital management, and continued prudent CapEx management have increased ROIC to 10.2%. With this result, we are back delivering value to the shareholder and are approaching our midterm targets of at least 11%.
As highlighted in our updated alternative performance measure section of the financial report, we have amended the ROIC calculation, considering a normalized tax rate of circa 25%. Next slide. Our profit for the period has increased to EUR 112 million. This is the result of a strong set of figures, with significantly improved EBITDA and operating profit margins, the active management of our interest costs, and some benefits on the tax line due to the recognition of deferred tax assets, mainly related to the Swiss entity merger. This concludes the review of the financial results for the twelve-month interim period of FY 2023. I thank you for your attention. And back, Urs and Paul.
Thank you very much, everybody. We will now go to the Q&A, and our operator will manage those calls.
Sure. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. To withdraw your questions, you can press star two. We will take the first question from line, Pascal Boll from Stifel. The line is open now. Please go ahead.
Yes. Morning, everyone. Morning, Urs and Martin. Happy to see that you seem to be really on track to deliver on your targets. Three questions for me. First of all, you seem to be quite positive on volumes for the remainder of the changed financial year. What drives your optimism here? What is the volume or what is the volume driven by? And then, maybe on pricing, we have seen extraordinary pricing over the last 12 months. Looking forward, what is the risk that we see negative pricing and that will, pricing will moderate more quickly than expected? And, and my final question on the midterm targets: You say that you are keen to deliver on those targets by end 2025. Now, just to clarify, do you mean by the end of July 2025 or December 2025? Thank you.
Good morning. Good to hear you. Thank you for the questions. I would start with the last one. We expect to deliver this by end of the fiscal year, which is in our new way, we see December 25. Volume will remain positive based on the fact that the consumption and the consumer behavior remains strong. The flat Q4 was driven, as Martin has outlined, by strong comps in the prior period.
So we helped a competitor to overcome a technical issue a year ago. The underlying volume was good with this, and we had a very good start into this last five months, a good momentum in all channels. So the Q4 flat volume is a technical effect. Bread is a very efficient calorie, and therefore we are positive to achieve further volume growth. For pricing, I would ask Martin to answer.
Good morning, Pascal. In terms of pricing for the next five months, we don't see a general risk of a general price reduction. There might be some more negotiations where we give back some small price elements, but in general, we expect pricing to remain at the current levels. As I mentioned already, there will also, in the future, be some focused pricing action required. As we have outlined, the input costs are still at index 150 of pre-COVID level. We have pressure on labor cost. Energy cost is not receding. In that sense, services due to the labor cost increase are also holding strong in terms of input costs. That's why we do not expect to see a general reduction of price.
Thank you.
Pricing, pricing, will be positive in the, in the organic growth as we laid out, for the 17 months as well as for the 5 months of the, of the current period.
Thank you, Martin. Pascal, did we answer your questions with this?
Yeah. Thank you. Absolutely.
Thank you. We will take the next question from the line, Patrik Schwendimann from ZKB. The line is open now. Please go ahead.
Yeah, Patrik Schwendimann from Zürcher Kantonalbank . Good morning, Urs. Good morning, Martin. Congrats for the good results. My first question is regarding the channels. We have seen, I mean, all three channels growing very nicely with QSR and food service slightly outperforming. What's your best guess looking for the next couple of quarters in terms of channel growth? And also especially France, you have mentioned, I mean, an extraordinary growth of 25, almost 35%.
What's going on there, and how do you see the next couple of quarters in France? Then second question regarding further repayments. I mean, it's better to be on the safe side to not pay down too much hybrids very shortly, but I would expect maybe that we will see in the next six months another smaller repayment. Would this be a fair assumption? And my third question is, what still gives you... I mean, you have achieved very a lot in the last couple of years, but what still gives you the most headache? Thank you.
Thank you, Patrick. Let me start with the channel growth. Maybe we start with retail. Retail, mainly the bake- off volume is very robust, very solid. Our position there is strong, and we are outgrowing in this part of the market. Retailers in difficult days are a good and a very efficient provider of calories, bread, in particular, as well, as I mentioned. Therefore, we are confident to continue with our customer relationship, channel management, with the value drivers being supported with innovation, confident to continue on this retail growth path. In quick serve restaurant, this is an overall winner of our days. It's addressing everything which is prominent in our time, the spendable income availability.
Quick service restaurant is very efficient in creating an event for families. Quick service restaurant is very efficient to address skilled labor shortage, overall labor shortage. The system is managing this, therefore, the growth there, we believe, will continue. There is maybe a slight lower volume growth prognosed by the protagonists, but still volume growth, so a robust position there.
In food service, in hotels, restaurants, in bake- off stations, in bakeries, the labor shortage, the labor availability, the labor cost, which is going up, the energy cost, which is up, is a challenge these people have. We are addressing all these challenges. Bake- off products are very efficient in labor cost absorption, in energy absorption. It's for many customers of us, a good answer on their issue they have. We are confident to continue to manage growth in these channels in the bake- off part. Maybe I would hand over for the repayment of hybrids to Martin.
Good morning, Patrick. In terms of further repayment, as I called out, we are aiming at sequential improvement of our business result, towards our midterm target that we have confirmed. This includes the element of continued strong cash generation. And with that, you can certainly expect that this is within our elements of active management of our financing cost. We are looking when the right moment comes for an additional stepped buyback of our hybrids. So this is clearly within our scope and assessment based on our sequential progress of the business performance.
Maybe to your last question, Patrick, the headache question. We have seen over the last some years, several black swans, which became white in the meantime, like COVID, which was there, is still there, and is maybe becoming more prominent over our winter month and days. So we observe this very careful, what the impact would be for our customers, for our employees, for the world, which should travel and should eat out of home. So this is a point we observe.
War in Ukraine and this connected with wheat, up and downs in volume and in pricing, not only wheat, but at the moment, mainly wheat, so we will see what the evolution is there. We are very well positioned. We have good teams in place to follow this, to take the right actions at the right time. Inflation is an issue around the world for us as well. I mentioned this in the presentation. The inflation per se is a challenge, and the volatility inflation, inflation is an issue. The interest raises are giving challenges to everybody in this industry.
These four black swans, you know, I think there is a geopolitical situation we have to observe. We are with businesses close to the Eastern European war. We have business in Taiwan. There are other places becoming maybe a bit more difficult. Overall, again, I believe all these risks are valid for everybody in our days, and for the business we are in, the calorie we are providing, this, stands for a good supporter and a good protection against many of these, issues. Did I answer with this your question, Patrick?
Perfect. Thanks a lot, Urs and Martin. Let's see you, see you soon.
See you soon, yeah. Thank you.
Thank you. We will take the next question from line Andreas von Arx from Helvea. The line is open now. Please go ahead.
Yeah, I guess that's me, Andreas von Arx from Helvea. I have also three questions. First one is on the midterm guidance. Just like to get a bit of feeling, what does this really mean for the absolute EBITDA? I mean, you're at EUR 2.1 billion sales, and you're guiding for mid-single digit organic growth. That should bring you, I guess, somewhere to EUR 2.2 billion-EUR 2.5 billion sales by 2025. And if I then take 14.5% EBITDA margin, I get to, let's say EUR 320 million-EUR 350 million EBITDA. Is that the kind of number we should think about?
Or is there still the possibility that, you know, we could see significantly lower wheat prices and then significant negative pricing, and that sales level then would be closer to the EUR 2 billion you're guiding? And then, of course, the adjusted, the EBITDA would also be lower than that level of EUR 320 million-EUR 350 million that I mentioned before. So that would be my first question. Shall I, shall I go one by one, or shall I come up with all three of them?
Morning, Andreas. Morning, Andreas.
Morning.
I think Martin would answer this now.
Good morning, Andreas,
Morning.
I think, your range that you're indicating, makes absolute sense to us.
That's 3.20-3.50? Okay, super. Then, Urs, I think you mentioned in your statement at the beginning that you expect a further improvement in free cash flow. Just wanted to check if that's really, you know, what you wanted to say. Because, I mean, in the free cash flow of EUR 109 million, I think there are some items that might be, you know, less favorable next year. Let's say, the CapEx could be higher, and the net working capital impact, you know, with less securitization might be a bit less. So do you really think that you will, you know, stay on that EUR 100 million level and improve? Or will it just, y ou know, is it more a general statement that the free cash flow should be higher compared to the past?
Andreas, if you allow, I will take that question. Look, you've called out a couple of elements, and, like, like CapEx, like, securitization. You also have to consider that we have continuous improvement program on our working capital, driving their capital efficiency, making, the management of our stocks, more efficient, for example. So, we are confident that we have, the, first of all, the plans, and second of all, the actions aligned to, to support that statement, with, with figures. So, we are, we are looking to drive, the working, let's say, the, the working capital agenda, and that will support, apart from the profit improvement that will support the further improvement of free cash flow.
Okay, great. And then last question on the market outlook. I mean, a lot of branded food producers we as analysts speak to say that they will do significantly more promotions going forward, given, you know, that input prices for them have come down. Do you see a risk that there will be considerable switching back of consumers that, you know, have now avoided inflation in going into the bread category, that they might go back to, let's say, more value-added categories, and therefore, that the overall category that you're in might see volume pressures, you know, let's say, on a 12-month basis? Thank you very much, and that would then be it from my side.
Thank you, Andreas. If you take the entire range we are producing and selling, there's maybe a bit less than 50% in commodity and a bit more than 50% in value-added products. There will always be migration between these two. But the good thing in this is that we are in both the commodity part and the value-added part very present. There is not really a replacement for bread. There is fresh bread, toast bread, artisanal bread, French bread, all these different types of product groups.
But bread consumption remains quite stable, even in good days. There is a per capita consumption in Europe, more or less 72-75 kg. It depends on region and on the way you define bakery products. It's in Asia, around 20. In Europe, the 72-75 remains stable, and the 20 in Asia is growing. Therefore, we are confident that this impact you, possible impact you described, will not hit us. Is this fine with this, Andreas?
Thank you very much.
Thank you. There's no further question at this time. I'll hand it back over to your host for closing remarks.
Thank you for taking the time to be with us today, morning. As you have seen, the old fiscal year, so August 2022 to July 2023, was a good year for us. We remain on track to achieve the midterm target goals, and this is the path we will continue to work on. I wish you a good day. Some of us, we will meet in half an hour or so, 15 minutes, here in Zürich . If there are questions, don't hesitate to contact Paul or us, and we will answer your questions as good as possible. Again, have a good day and hear you soon. Goodbye.
Thank you for joining today's call. You may now disconnect.