Good morning, everybody. Thank you for taking the time to join us today for our FY 2021 results conference. Today, we have our Chairman and CEO, Urs Jordi, and Martin Huber, our CFO, joining us to present. Just to let you know that all the documents, our annual report, presentation, and ad hoc, are available on our website, aryzta.com. Before we begin, I would just like to draw your attention to the forward-looking statement on page two of the presentation. This applies to all the discussions today. I would now like to hand over to our Chairman, Urs Jordi.
Hello, good morning, ladies and gentlemen, at this first autumn day, rainy day, for the presentation of our annual results. Talk today about the past year, the last 12 months, and amongst others, about pricing. This is the price of a product. This share of variable costs. On this variable costs to date, labor is having a heavy impact, raw material, packaging material, energy, all these price raises you know. It's an important component for our actual year now, 2022. We will talk about this price increase and how it works in a moment. Fiscal year 2021, full year revenue, you know from the release today morning. Underlying EBITDA performance is ahead of our expectations slightly. We had especially a good Q4, so a good momentum is coming back. We returned back to organic growth. This is what we told at the beginning. This is key.
A company without organic growth is sooner or later finding itself in difficulties. Disposal of North American business of our ANA business is done, closed. There is carve out work in progress, but on a good track. This business ended for the moment in good hands with Lindsay Goldberg. Disposal of our Brazilian business is signed. Closing will follow soon. We have the CADE approval, which is the antitrust authority in Brazil. That was the important step to take. That worked a good week ago, so we are confident that the closing will be managed fast and smooth. The new five-year refinancing is agreed. There is still work to be done, but this as well is done. Liquidity improved, obviously, as you can see, and net debt are reduced due to the disposals and due to the improving operational business we have.
Simplification of the business, the place, and the local businesses are more empowered. You know that we are going for this multi-local business. There is not one ARYZTA. There are many ARYZTAs in the world. Food and especially bakery business is very local. The same Gipfeli has a different taste in Asia or in the Nordics or here. The customers we have, they have different needs, and this is the way then we approach this. The reduction of the group overhead cost is well on track. It's even slightly higher. You remember we had before this Asian management levels, the European management levels, U.S. management levels. That's all gone. All the remaining operations are in direct report now into the Group CEO. That works quite well. Obviously we have a new CFO appointed, Martin Huber. Welcome.
Good start had. Let me use the opportunity to give a warm thank you to Jonathan Solesbury as well. He onboarded in a difficult moment in difficult times. He did very well. He is now in his retirement life phase, and we well respect this. Q4 trends are very supportive to the outlook. There was a strong organic growth, a bounce back in Q4, especially in food service. Retail appears resilient. That's coming back. There's a bit of difference in shopping behavior and pattern, we are confident that we get there our targets. Back QSR outperforms. QSR seems to pick up all the lost volumes in restaurant, in snacking, in out-of-home consumption. This is a clearly outperforming channel. Food service shows a strong rebound, especially now with the holiday seasons we had over summer and now in autumn. Simplification of structure and business continues.
We are basically today a EUR 1.6 billion, EUR 1.7 billion business. This needs to be managed with lean, fast, and agile structures. Multilocal focus on the approach of this, I just explained. We have a Danish operation, a Dutch operation, an Irish operation, a Swiss operation, the German operation, Eastern Europe, Hungary, France. Not to forget our Asian colleagues. They are very well settled and close to their local business. They are able to take decisions fast. We are able to take decisions much faster than in the past, which is a good thing to have, especially in times when price negotiations are actual. In QSR, there is a pass-through model based on pricing protocols. You know how this works, so this is somehow a process which is settled and works in QSR. This is a capital business and a negotiation business with bigger customers.
Retail now is, as far as pricing is concerned, now in negotiation phase. Most of the retail contracts are calendar year contracts. Now we are heading there towards a good start into the calendar year 2022. There is a financial progress we achieved. This is by far not yet the end where we should be. There is a healthier balance sheet now appearing than a year ago. Let me be understood right. This is maybe step two or step three out of 10 steps which need to be done. ARYZTA still today is a leverage company, but I think in the last 12 months, we did the important activities and the right steps in the right direction. More need to follow, but there is still room for improvement. That's clear. Disposal program delivered, U.S. and the Brazilian sales.
We gave the guidance range of EUR 600 million-EUR 800 million disposal, total we would like to achieve. We are well ahead of this. This worked. We maintain a solid liquidity position. We have reduced our bank debts and refinancing is. Board did a lot of work around the hybrids, the hybrid instruments, the interest, the deferred, and the actual ones, and formed the view on the future capital structure of ARYZTA. Disposals and higher business performance led to an improved financial outlook. We have confidence that the solid way is continuing. We will pay all accumulated, deferred, and current interest on the Swiss hybrid instruments. There are two, and we will pay all accumulated deferred interest and compound interest on the. The option to consider reduction of the outstanding hybrid principal according our financial capacity is an ongoing thing.
At the moment, we pay the deferred interest, the actual interest, and we will address these three principles, hybrid principles, according our capacity and our operational development. Nevertheless, hybrid financing may still be part of our future financial structure. This, it took 10 years to build it up. We invested now a year to pay the roof away. More or less EUR 220 million, Martin, that's correct. The accumulated and deferred interest, the actual interest, and the principles we will address again according our capacity. There is a big elephant in the room, which is the inflation. You hear it, you see it, you pay bills in your flats and homes for gas, for fuel, for heating. Flour is much more expensive than it was some months ago. In Germany, we had a day, one day last week, with almost a 10% cost increase on butter.
Labor is a big issue in our biggest market in Germany as well. There is a new government waiting to take the power, and the EUR 12 minimum salary discussion is very prominent there. We will absorb the majority through price increases. This is an increase we need of ±10%. It depends on channel, on customer, on product, on constellation we have, but it goes somewhere towards the 10%. There is an ongoing efficiency increase program in many aspects all over the organization. This will absorb a part, but the majority will have to be absorbed via pricing. Potential to get this not only for us, for everybody in the market. This is a clear picture for me. Let me repeat again, an inflation of 4%, 5% overall, much easier to manage than an inflation of 1%.
Because the 1% inflation is raising the expectation that suppliers are absorbing this. An increase we have now, I've never seen in my time in the business. It's so massive. The answer is not yes or no, price increase or not. There is a mix of pass-through and tender pricing, as I told just before. There is a quick serve restaurant model, which is basically based on pricing, the protocols, the mechanism we follow. There's a food service business, which is basically a catalog business with new catalogs, with year-end, new prices are in there, and there's a tender business in retail. We are actually now working on the tenders with the big customers to have then a new pricing level beginning of next year. Higher costs, higher input costs are making the calculations around investments, efficiency investments much more easier.
The threshold comes down. We continue to invest in automatization and in more efficient processes and better and smarter ways to cooperate in the supply chain world. Fiscal year 2022 outlook, we are now finishing P2, period 2, and entering into period 3. We target a mid-single-digit positive organic growth, which is a ±5%. We had already discussions today morning about this. ARYZTA didn't have organic growth over the last seven, eight years. We are back there now first time, which is a good thing to have. We will invest all our efforts to remain on that track in the commercial part of the business. We target a 12.5% run rate of EBITDA pre IFRS for the actual year, which is an intermediate step. You know the mathematics in the business. This is a very investment-intensive business. It's a heavy business.
This is an intermediate target. The end of this way, we will see, but if we do the mathematics right, it needs to end somewhere on a 15% EBITDA level. Otherwise, the entire constellation doesn't make sense with the D and last but not least, to achieve a sustainable net profit, which is then the bottom line target in the constellation to be able to support again our balance sheet, and then hopefully at the end of the day for first time for many years, our shareholders. I would then hand over to Martin for more details and the numbers.
Turning to slide 10. ARYZTA has delivered a good set of figures ahead of expectation, both on top and bottom line in 2021. The four key highlights of our 2021 results are, first, the return to positive organic revenue growth in the second part of the year. A resilient performance on the profit despite lower revenues. Third, return to positive operating cash flow. Fourth, we have done an important step towards a more sustainable capital structure. Turning to slide 11. ARYZTA has delivered improved organic revenue performance in 2021, although we still suffered effects from COVID. In 2020, the business has suffered two severe COVID quarters, while in 2021, COVID continued to impact throughout the full year and only improved towards the last quarter of the year.
Although organic growth is still negative, growth performance has significantly reduced, this is thanks to two things. The improved management focus due to the multi-local business approach. Second, an improved consumer sentiment amid lower COVID infection cases. At group level, revenues decreased from EUR 2.9 billion to EUR 2.3 billion in 2021. While for the continuing operation, we decreased revenues from EUR 1.7 billion to EUR 1.5 billion. This resulted in an organic growth for the group at -6.1% and for the continuing operation at -6.4%. Turning to slide 12. By the notable decrease in our revenues, we have improved our underlying EBITDA margin by 190 basis points to 10.8% for the group. This contribution was possible due to three things. Price and mix improvements, operational efficiencies, and very strong action to rightsize our structural costs. Continuing operations contributed a 10 basis points improvement to 11.4%.
This more than compensated the negative volume impact on our revenues of -7%. North America improved its profitability by 390 basis points to 9.6%, due to a revenue recovery in food service and quick service restaurants, strict cost management, and contribution from restructuring. Turning to slide 13. The group delivered a positive operating cash flow of EUR 10.4 million, after a negative result of EUR 84.5 million in the previous year. Two contributors of this result were disciplined working capital management, particularly with strong contribution from our European businesses, and a very strict management of the CapEx approval process. This was achieved, in fact, by the way, despite a reduction of circa EUR 44 million of our securitization program due to disposal of our North American business.
Continuing operation contributed EUR 50.2 million to the positive cash flow, and our divested North American discontinued operation delivered a negative operating cash flow, which was entirely driven by the repayment of the securitization due to the disposal of the business. Turning to slide 14. Successful disposal of our North American business for $850 million, which was achieved ahead of schedule and at the high end of our expectation, supported the reduction of our net debt from EUR 1.011 billion to EUR 220 million, together with improved business performance as well as cash management. As a result of this, our net debt to EBITDA ratio reduced significantly to 0.6x in 2021. Overall, interest costs decreased from EUR 42.7 million to EUR 35.5 million.
The three main factors supporting this was a lower drawing on the RCF and the term loan, the effect of the repayment of EUR 205.5 million Schuldschein notes in December 2019, and lower lease interest expenses. For 2022, our estimates for the interest costs range between EUR 15 million-EUR 19 million, including the lease interest expenses. As you can see as well, interest cover ratio was at 1.9 times, which was well above the minimum of 1 time. Over the next couple of slides, I will now focus on the performance of our continuing operation in Europe and rest of the world, consisting of Asia and Brazil. Thank you. Overall revenues for continuing operation decreased by 8.6% versus previous year. The subdued trading environment, particularly in the first half of the financial year, was a key contributor to this.
Therefore, we suffered a volume decrease of 7%, which was partially compensated by a positive contribution of 4.6% from pricing and mix. This resulted in organic growth of -6.4%. Disposals reduced revenues by 0.9%. This was due to the divestment of our U.K. business in the first quarter of 2020. The weakening of the Brazilian real, the Polish Zloty, and the Hungarian forint impacted sales or revenue by 1.3% for the year. Turning to slide 16. Both regions improved their performance versus previous year. Europe, with a channel structure that is exposed to slower COVID recovery, delivered an organic growth of -7.9%. Rest of the world, with a strong QSR channel weight, generated an organic growth of 2.3%. In Europe, the strong COVID restrictions and the long lockdowns impacted revenues significantly, especially our food service channel suffered with an important margin.
As a result of this, the food service revenue share decreased from 31% to 27% in the region. Retail and QSR performance was more resilient. Particularly our QSR business in Europe delivered almost the same level of revenues in 2021 versus 2020. In rest of the world, we returned to a positive organic growth of 2.3% compared to a negative performance in previous year. The strong exposure to the QSR channel in this geography supported this performance. In fact, in APAC, we had the most successful year in terms of revenue in QSR. This was partially muted by the strongly affected food service channel in this region. Turning to slide 17. Quarterly sales evolution is clearly linked to improved margin focus from the multi-local approach and the improving trend of the pandemic. While in the first two quarters, ARYZTA suffered in all three channels from significant negative volume impact.
This turned positive in the second half of the year. In Q3, retail and QSR channel delivered a positive organic growth and compensated the negative performance of our food service channel. In Q4, all three channels delivered positive organic growth. Worth mentioning that the food service channel delivered or contributed about 50% of the quarterly revenue performance in Q4. In Q4, the revenue performance was supported by a baseline effect, particularly in the food service channel. For 2022, we have all plans aligned to consolidate our return to positive organic growth and expect to deliver a mid-single-digit revenue growth in 2022. Turning to slide 18. Price mix contribution for the year, as mentioned before, was positive at 0.6% and strengthened quarter by quarter.
The second part of the year showed a clear acceleration, thanks to the good contribution in terms of product mix from the food service channel, improved portfolio management, and a first positive contribution from pricing. Urs has highlighted the inflationary pressure and the need for pricing. Our input costs have suffered double-digit increases. For example, butter and flour have increased by more than 20% since the beginning of 2021. Therefore, we plan for a price increase at 10%+. We will not only rely on price increases, we certainly will continue working on operational efficiencies and expect an equal contribution both from pricing and operational efficiency to make front to the headwinds of our input costs. Turning to slide 19. The QSR business, which is 20% of our business, has shown the fastest recovery from the COVID impacts.
We have seen, particularly in those outlets that have drive-through, the fastest contribution to the sales growth. This has helped us to achieve in this channel an organic growth of 2.3%. The retail channel, which represents about 50% of our revenues, has proven to be resilient. Nevertheless, this channel has also suffered some change in purchasing behavior. The strong preference for packaged bread offering due to hygiene concerns, especially in the first part of the year, have impacted the bake off performance in retail. This resulted in a negative organic growth of minus 3%. The negative impact from out-of-home consumption as well as impulse snacking has hit our food service channel strongest and drove the organic growth down to minus 17.7%. This channel returned, as I mentioned before, to positive organic growth in Q4.
When we look at, particularly in France, our biggest food service business, the pace of recovery will largely depend on the reopening of the restaurant, tourist, and hospitality sector. Turning to slide 20. Underlying EBITDA margin of continuing operation improved 10 basis points to 11.4%, supported by three main drivers: disciplined cost management, the contribution from price and mix, and the strong actions on our structural cost, including the targeted 25% reduction of our group overhead. These three drivers more than compensated the negative impacts of the volume impact. Improvement of 10 basis points in Europe to 10.9% was the key driver of the profit increase in continuing operations. The majority of our European businesses improved their EBITDA margin, including Germany, our biggest market. Contribution from price mix, efficiencies resulting from increased capacity utilization and the reduction in conversion cost supported, as well as restructuring-related savings.
Rest of the world, on the other side, decreased the margin slightly to 13.6%. This reduction was driven by Brazil, which suffered significant negative currency impacts, inflationary pressures, input cost headwinds, which they were only able to partially offset through strict cost management and restructuring. Turning to slide 21. When we look at the non-recurring costs for the continuing operation, these amounted in 2021 to EUR 49.8 million. The three main components of these costs are severance and staff related costs of EUR 24.8 million. These costs are related to the reduction of our regional and global head office as well as executive teams, together with many restructurings that we have performed in the different businesses across the group.
Legal and financial obligation totaling EUR 16.1 million were the second most important component, and they relate to advisory and defense banks costs related to the Elliott bid, which was rejected by the board in December 2020. These costs are to a large extent legacy commitments. Profit on disposal reduced our non-recurring cost by EUR 8.6 million. This relates to the disposal of the remaining 4.6% shareholding in Picard, which included the gain on disposal and a dividend of EUR 1.1 million, which we received during the period. Turning to slide 22. On this slide, negative figures are a deterioration of working capital. Positive figures are an improvement. For the group, working capital performance significantly improved versus previous year. At group level, working capital has increased by EUR 175.4 million in 2020. While in 2021 it still increased but at a much lower pace at EUR 59.9 million.
This was associated to the reduction of our securitization program that we had to reduce given disposal of the North America business. Now our continuing operation, working capital actually improved by EUR 12.3 million after a significant increase in the previous year, this performance was mainly driven by the European business, which accelerated the cash conversion cycle by 10 days. All three levers of working capital contributed. Strongest contribution came from inventory management as well as accelerated cash collection. Turning to slide 23. In summary, we can say that the turnaround plan of ARYZTA is on track. With a much improved management focus, we are well prepared to consolidate our return to positive organic growth. The results from our strong structural cost action, the acceleration of operational efficiencies, and pricing will support margin progression in 2020 towards our run rate of around 14% underlying EBITDA.
That is equivalent to the 12.5% that Urs has mentioned before, pre-IFRS. The strength and discipline in working capital, the repayment of the deferred and current hybrid interest, receipts that we will receive from Brazil, plus the new RCF set us up to further progress towards a more sustainable capital structure in the next year. With this, I conclude the financial review of 2021 and hand back to Urs.
Martin, for details. This picture you know quite well, all about operational improvement at the moment. We had a clear focus in the last year, fiscal year 2021, on the balance sheet. We are focusing this year on the P&L. As I mentioned, top line growth. Good quality top line growth with the improved pricing and then through a reasonable cost structure, going down on a reasonable net profit. This is the big aim, having then a future value of ARYZTA, which is representing the true value of our business. North American business, just to remember again, disposed for $850 million in cash to Lindsay Goldberg, a wonderful partner and a good new home, a good new owner for our North American business.
There is a Brazilian business which is signed and soon closed with the CADE approval, which again, is possibly the most important step in this administrative process to the sale of the business. We did good progress in simplifying the business, in supporting the business in fast and more efficient structures, in removing costs. The businesses were cost overloaded, not only the group, the businesses as well. There is a new refinancing agreed, as I mentioned, of EUR 500 million with our lenders, with new lenders on the hybrids, again, paying back the accumulated, deferred, and actual interests on all three hybrid principles. Nevertheless, hybrids for the time being will remain part of our capital structure. We will continue to work towards a lean and agile business structure. Basically, we are a much smaller organization now, EUR 1.65 billion of sales in European countries, in Asian countries.
We are an industrial bakery, and we do our utmost to have the correct structure and correct processes in place to support our business model. The outlook, again, for fiscal year 2022, mid-single-digit positive organic growth is the target. The Q4 is a bit misleading. There is a base effect in, and this is, I think, a good and a solid view and prognosis and target for the actual year to have a ±5% organic revenue growth. The 2.5% EBITDA, I already mentioned before, it's an intermediate target. This is a run rate we will achieve in the actual fiscal year. In a consequence, having a sustainable net profit. This was the prepared presentation, and we would now go to the Q&A question. First, to the questions in the room, and then to the questions from the listeners.
First question. You were mentioning an organic sales growth target of roughly 5% for the current year. At the same time, you're aiming for price increases of roughly 10%. This means at the end of the day, you are expecting a volume decrease of 5%. That's my first question. Second question. What was the recent sales trend you have seen so far in the first two months of the new financial year? How far are you with these new price negotiations in terms, let's say, are you already 10% through or 50% through? Whatever you can give here. My last question is regarding the EBITDA margin before IFRS 16. You're aiming for an exit rate of 12.5%. Could you give us any flavor here, what's your best guess in terms of H1 and full year? Thank you.
Thank you, Patrick. I start with maybe the last one and would then hand over to Martin for the price and volume mix in pricing. At the end of the day, it's always a mix and Martin will go back to this. Basically a 5% volume growth market. Pricing is then to a certain extent, coming on top. Pricing has a phase in effect, we are already now in the fiscal year 2022, maybe now coming to the question of how this works, is the QSR part of our business. It's roughly one fifth of our business. There is a pricing mechanism in place, which basically is based on two different systems. It's an Asian system and a European system. The European system has always a bit slight delay. The Asian business is faster, don't forget, we are covered. This is then a balancing effect.
The QSR pricing is on a good track. There is, again, a pricing mechanism based on pricing protocols, which will lead with, in the worst case, a slight delay to a correct pricing. Retail now is in negotiation time. Most of the retail contracts are annualized contracts, January till December. We are now in negotiation with all our biggest customers around this. There is a good progress so far done. Usually, these contracts are then being closed towards year end of November, beginning of December, but we are confident to get there the pricing we are looking for. Again, the cost or increase is that significant that nobody is able to ignore this in food service. This is a catalog business, basically. There is as well a pricing mechanism targeting a year end change then, starting with 1st of January.
Remember, we said as well that there is a coverage we have in place, so we will able to phase it time-wise in a good moment. I'm not able to tell you to what extent we are there in retail or in food service pricing. This is a thing we are managing with our customers, so can't give you more details this. You are asking about sales trends. The most obvious one we can see is the quick service restaurant trends. The system providers, they pick up the volume, which was lost or is lost by the smaller protagonists in the market. Around the world, the organized customer and the better they are organized, the more they pick up, are growing, clearly outgrowing the market faster, growing. Well, as Martin mentioned, there is a trend towards packed products.
There is a bit less impulse sales and more baked, packed product sales. The normal pattern is slowly coming back, but still a bit depressed on the impulse sales. Food service had a strong rebound in the summer holiday season, especially in France, in Switzerland as well, and Asian countries a bit less due to the ongoing pandemic situation there. As soon as the lockdowns and the restrictions becoming less, food service is coming back with the products we know and we have in. Martin, price volume mix in growth.
Well, we guided for an overall mid-single digit growth, so that can have a lower end and a higher end of mid-single digit. Let's put it 5%-8%. Pricing will certainly come in, and I would expect a lower mid-single digit volume performance. The long term improvement, Urs has mentioned, is five. For the 2022 results, a lower mid-single digit volume evolution. Top of the pricing, we go to the mid-single.
All in all, this would still mean then double digits, right? If you are aiming for a low single digit volume growth.
We say our overall organic growth, as I said, is mid-single digit. That has a lower and a higher end of 5%-8%. We are at mid-single digit, and we'll have a volume component and the price component.
Carbohydrates are growing with the population. Population is growing by 1%. We are in a convenience part of the carbohydrate market, and this market is growing between 3%, 4%, 5%. Volume. This is the place we are aiming. Starting EBITDA margin?
As I mentioned before, our strict cost management that we have taken during the previous year will gradually help us to improve profit margin together with the additional operational efficiencies and the pricing that should start coming through. Therefore, as we mentioned, we will aim at the run rate of around 14% towards the end of the fiscal year 2020.
Gradual improvement means also H1 should be better than H2 last year. Despite seasonality or special effects. Yes.
Thanks a lot.
Patrik Hassenpflug again, Zürcher Kantonalbank. Concerning the planned repayment of the hybrid bond interest, when exactly is this likely to happen? Can you give us some more details about the terms concerning the agreed five years EUR 500 million refinancing deal? Last question, could you give us an insight into the latest product innovations and what we can expect in the near future?
The hybrid interest details, Martin can show you later. Basically, there are 2 payment windows. One will be in October for the two Swiss hybrids, and there is a Euro hybrid due in March.
The current one.
Yes.
First we pay the accumulative one.
Exactly.
Slide in the backup, where you can consult the timing on the payment of the cumulative and compounded interest of the EUR 175. There are the due dates of the different hybrids where we pay the current interest.
Maybe for the refinancing details.
Yes. The refinancing to continue is at very similar rates as the current one that we just retired at the end of September. Our RCF weighted average interest rate for the concluded period was 1.4%. The structure is very similar. You can expect similar rates for our new RCF.
As far as innovations are concerned, there is an overall trend towards artisanal products, towards darker products. Not really the white roll or the white baguettes. It's rather a handmade appearing product with darker flour, with sourdough, in with plant-based ingredients. This is a big trend. CO2 footprint is a big question now coming up. There are a lot of efforts going into this. Customized products on the different regions. There are, in QSR, initiatives towards more exclusive products, so having then a lower end of the pricing scale and a higher end of the pricing scale. It's different from country to country, customer to customer. These are basically the trends.
Were you so far happy with the product quality? Do you see there some room for improvements?
There is always room for improvement, and ARYZTA suffered on the quality side and on the innovation side over the last years. Innovation, by the way, is not only product. Product is one part. There is the entire value chain we should take into consideration, but there is always room for improvement. We need to improve this innovation process and the quality level overall, but this is an endless and an evergreen topic we are addressing. Basically, innovation is almost the most efficient way, let me say it like this, to defend the company from becoming not relevant anymore and protecting the company from pricing erosion. Innovation is key for all businesses we are doing in food service, in quick-serve restaurants, and in retail. Towards the trend, I told there are innovations in the logistic part of the business, even in the packaging part of the business.
That's a big issue. As well driven by shortages in the market. Foil, cardboard boxes, carton boxes were not always available. Organizations are becoming very innovative around topics like this. That's a very lively environment we woke up in ARYZTA since we are in power.
Thank you. It's Jörn from UBS. Three questions, please. The first one is on your current utilization, in Q4, can you tell us where this is roughly standing? Also if you see your cost base on the ground and the production side as more or less efficient right now, that you only would need to do some fine-tuning. The second question, if I make a quick back of the envelope, cash flow calculation on the equity free cash flow, including the hybrid dividends and the interest costs, it should be around EUR 60 million, maybe CapEx slightly below EUR 100 million. Is it fair to assume that the equity free cash flow this year is already reaching EUR 50 million+? The third question, please, on your balance sheet, you have your hybrids outstanding with an interest cost 6%+. You're paying on the credit facility 1.5%.
Isn't there the option to, for example, refinance the EUR hybrid already with debt? Do you evaluate also a convert or a capital increase in the future? Just some more color would be appreciated.
I will hand over to Martin. Let me go first maybe to the hybrids. We did a lot of homework and analysis around the hybrids, the way they are in the balance sheet now are not that bad. They are expensive, at the end of the day, a refinancing of the hybrids wouldn't lead us at the moment to an arbitrage to a lower interest. We have always to take in consideration that hybrids are a part of our equity structure, we need to take care that this remains like this. The company did a capital raise in 2018 year, the process from 2018 until 2020 ended in the name of the board to sell the company. The money is gone.
We understand, and you will understand that there is very limited humor and enthusiasm for a capital raise, whether it's a direct one or an indirect one via, debt- equity swap. This is not a topic at the moment. We clearly go after the EUR 220 million, and we will eat the elephant, the three hybrids in bits and pieces for the time being. This is the plan. For more details for Martin.
I think the first question was on capacity utilization, the factories, if I got that right. If we are already happy with the efficiencies that we have achieved. I think we made good progress in 2021. As Urs said, it was an important step of many. It's a good set of figures, but there is still work to be done in terms of improving the capacity utilization, which is below 70% overall at group level. Continue working on efficiencies. As I mentioned before, this will be an important part together with pricing to offset the headwind. We have established a good base to continue working from, but, we're not yet satisfied where we are. We see opportunities still to come in terms of efficiencies and certainly capacity utilization. I guess the strong drive for innovation will also help us to support that volume growth.
In terms of cash flow, continuing operation, as I showed you before, delivered around EUR 50 million this year. We expect to continue increasing that in the full year 2022, which will sizably increase. Certainly overall cash flow will be negative because we paid the deferred and accumulated interest.
Maybe just one quick follow-up. Total interest cost with the hybrid together, EUR 60 million, according to your, I think, interest guide. The CapEx, is it fair to assume between EUR 80 million-EUR 100 million this year?
Lower. I think you can be a bit less aggressive in terms of CapEx.
Thanks a lot.
Yeah, the hybrid interests are about EUR 45 million, the current ones. You had the other interest, plus the leases that I mentioned to you before.
Thank you.
The first question from the phone comes from Andreas von Arx from Baader. Please go ahead.
Good morning. Thank you for taking my questions. First one, I'll start with two easy ones. Slide 35 on your presentation, the cash generation of the continued operations. If we would add now a financial year 2022, could we go here through the most important numbers? To my understanding, EBITDA of the continued business will be, let's say, EUR 200 million. I think you indicated that the CapEx should be below EUR 100 million. Given an input cost increase of more than 10%, shouldn't there be a significant adverse negative effect on the working capital movement, on that slide, page 35? Could you quickly comment on the lease contracts? Is that still on the same EUR 45 million level? Could you please comment on the restructuring related cash flows, which have been around EUR 50 million last year? That expected to be close to zero.
Just to have clarity, could you give me a best guess on the interest and income tax, which has been minus EUR 42 million for the last year? That will be my first question. The second question is on the capital structure that you mentioned that you have given a lot of thought. Just to be clear, there is no negotiations at the moment with hybrid holders on potentially transforming their hybrid into equity capital. There's also no plan to do so in the future. That's the second question. The third question on the capacity utilization again. If I understand you correctly, you're guiding for mid-single digit organic growth, which means minus 5% volume growth as you have indicated. I assume this will basically all come from the retail segment and not from QSR and probably not from the catalog business.
Given this is a bit more, let's say, 50% of your business, the retail business could be down in volumes by 10% next year. Shouldn't that then give you a significant negative hit on the capacity utilization in financial year 2022? That would be my questions. Thank you very much.
Thank you, Andreas. I'm not sure whether we managed to write down everything you asked. Maybe I take the easy one to give Martin Huber a moment, time to be prepared for question one, which is the question two about the finance structure and the hybrids. No, there is at the moment no discussion with the hybrid holders about debt/equity swap. No, there are no plans at the moment to go there. Martin Huber, question one.
I think the question one, if I was right, was on working capital.
If I may. Probably it's easiest if we just look on slide 35 in the appendix of your slides, where you have the cash generation. When you could comment on most of the lines. I said, EBITDA should, I guess, be around EUR 200 million. For 2022, how much negative working capital would you expect? Would you expect the same level of lease contracts? Would the restructuring be close to zero? What would be best guess for the interest and income tax? Thank you.
Let's start with the most straightforward one. I think Urs also mentioned it on the slide. We will target or expect non-recurring costs to be minimal in 2022, certainly not at the levels that we have had in this year. When it comes to the lease, you can expect similar levels as we have in 2021. When it comes to working capital, yes, it's certainly true that we will have an input cost increase, which will impact, to some extent, the inventories. There is also efficiencies that we will still foresee in terms of management of payables as well as cash collection. We will see a continuous improvement in our working capital management.
The interest and income tax?
Interest rates, I've given you a range of EUR 15 million-EUR 19 million. We'll have the payment of the deferred and accumulated hybrid interest, which you can see also in the deck. It's EUR 175 million plus the current hybrid interests, which are around EUR 45 million. That gives you the EUR 220 million that Urs mentioned before.
If I may put in an add-on. The cash generation might be negative this year, and in the following years, it will be, let's say, somewhere between EUR 0-EUR 100 million. Will that then not take quite long pay down the EUR 800 million hybrids to a reasonable net debt to EBITDA level, including the hybrids? Thank you.
Just to reinforce, operating free cash flow next year will be certainly positive and will be more positive than it was this year, number one. Number two, the overall cash flow from the activities will be negative, as I mentioned before, given mainly the repayment of the hybrid interest. Over the next periods, we can review, as Urs mentioned, depending on the performance, how we will address the hybrid principles.
Andreas, we discussed this several times. The hybrid mountain was built up over the last 10 years. It will take a moment to digest this. That's not possible in a moment. There is no plan and no room at the moment for a capital raise. Having now the view on the hybrid principles, there are three basically. There is a EUR hybrid, which is the expensive one, north of 6%, and there are two CHF hybrids of about 4% ± both. The two CHF hybrids are moderate. The EUR hybrid is expensive. That's the most probably the first one we will address. At the end of the day, the cost of capital, if you take share capital, owner's capital is much higher than the 6% or the 4%. It's still an efficient solution. It's an expensive solution. It's a historic solution.
We will address this, and as I told, there are more and less expensive ones, but doing this with this process is, from a cost of capital point of view, a more efficient way than a capital raise.
That's clear. Thank you very much.
The next question comes from Baig Faham from Credit Suisse. Please go ahead.
Hi, guys. Can you hear me okay?
Yep.
Brilliant. Sorry, can I just come back to the guidance, and primarily the EBITDA margin guidance because, yeah, I'm just trying to get my head around this. I guess the first question is, what was the EBITDA margin pre-IFRS 16 in 2021? I don't think you've disclosed the lease depreciation unless I've missed it. Well, I've had a go at it anyway, and I get to around 8.5% for FY 2021. Which means that by the end of, I guess, FY 2022, you're expecting a 400 basis points increase in your EBITDA margin on a pre-IFRS 16 basis. That accounts to around EUR 60 million.
Given that your volume forecast for FY 2022 is at the lower end of mid-single digit, and that you're saying that you're going to absorb half of the double-digit 20% + input cost appreciation, how do you get the fall-through of such a large operating margin expansion? Because it seems to me that you're going to be seeing a marginal leverage on the volumes of well in excess of 100%.
Fiscal year 2021 is a condensed view on 12 months. The P&L and the performance of the company improved towards the year end. The same we will see in fiscal year 2022. There is a pricing, a phasing in, and there is a costing phasing in. As I mentioned, we have there some coverage position. The 400 basis points you need always to see on the timeline. It's based on our budgets and plans and programs doable. There is a lot of operational improvement. Let me remind you that there was a cost removal of 25% plus minus on group overhead costs, which didn't fully appear in the P&L 2021. There is a ramp-up in the total saving as well coming in the fiscal year 2022. For us, the 12.5% is a doable and reasonable target, Martin.
Yes, just to reinforce what I mentioned before, the 12.5% pre-IFRS EBITDA margin corresponds to around 14% post IFRS 16. The around 14% run rate, which we expect to achieve towards the end of the financial year 2022, corresponds to the 11.4% that we have reported for continuing operations.
Okay. That's helpful. I guess a question on sort of strategy. I think, Urs, you mentioned you want to step up your playing field within QSR in Europe. How is that developing? Any early wins that you can call out? When do you think your exposure will be more aligned to the market in Europe?
We are in actual projects now to align with this in the existing production capacities we are building now at this very moment, additional one in Poland. We are in discussion with our customers about a next step. This is an ongoing process. We ship today products in volume almost through Europe to support markets which are faster-growing. There are projects most probably we will address in Asia. This is an ongoing process. The next bigger capacity which is coming to the market is then ready somehow in a good year from now, from Poland. Poland will support Poland, Czech, part of Hungary. Germany. Yes, Germany. This is the journey we go. There is a lot of innovation in this QSR channel, which is widening the offer from a positioning point of view and from a new product category point of view.
This is the way we will pick up this trend. By the way, the same way in retail and in food service, the world became different. There are more and more single-person households. There are more and more people taking care for their lifestyle. There are studies saying that as more expensive basic food products are, the higher volume has been sold via bread, because bread is the cheapest component in the basic food. It's cheaper and more efficient than fruits, than meat, than dairy, than fish, for example. We are addressing all these trends, so QSR is a strong trend, but not the only one. Did I answer the question with this?
Yeah. That's helpful. Thank you.
The next question comes from Roland French from Davy. Please go ahead.
Hi, good morning, everybody, and thanks for taking my questions. I just have one, and it's more so a clarification question around the inflation cost pool. If you take it in turn, you've called out raw material, labor, and distribution cost inflation. Can you maybe just guide us to your overall expectation for inflation across those cost pools, and then break it down by, A, what you're getting via pricing, and B, what you might recover in terms of that internal efficiencies? Thank you.
The absorption is in majority through pricing. It's two third or even more of the costs we will have to get via pricing. The rest via efficiency increase and better and smarter processes. The breakdown in the cost components, if I understood the question, well, we mentioned flour. Martin told this, that there is a flour price increase over the last 12 months of 20%+. Butter, I mentioned last week. Actually, last week, within 2.5 to three trading days, almost 10%. There is a labor cost increase in our biggest market. It's not only there, but mainly there. The hourly rate was around EUR 11 an hour, minimum salary. We are now on almost EUR 13. There is an energy price explosion, let me say it like this, over the last two months. You read it in the newspaper. There is a construction material increase.
We had projects with a budgeted investment of EUR 100, and we ended then after a review of the project on a 150% cost base, now managed down and slimmed some, but there is still a significant inflation. It's important that, again, we understand that this is a timing game as well. It's the question from when on we get the new prices, and we will get the new prices, we will make sure with all our efforts, and what the current coverage position is we have in the market. We cover flour, we cover butter, we cover energy, we cover other raw materials. It's somehow a mix. Fiscal year 2022 is a mix of pricing going then into growth, and costing going then into the cost part. Price increase or the cost increase.
The cost inflation, we believe is driven by two factors, and this we should understand well, which is a release of the COVID pushback. Everywhere, if somebody tries to buy a new car now, you will see this, there are some parts not available. You could easily end up in the situation getting a car without all the components. This pushback will go away, and there will be a leftover. The leftover is a significant cost increase on the basics into our industry. Let me give you an example. The transportation cost of a container from Denmark or Rostock or Hamburg or Rotterdam, wherever it is, to an Asian port, into Shanghai or into Tokyo or wherever it is, was in the past below $2,000 a container. Now it's above $4,000, maybe above $5,000. Factor 2.5.
This is significant, will remain there, and it's our big project for this year to absorb this to one third. Good this will be possible and to hand over then the rest to the customers. There is no really alternative to this. Did I answer with this your question?
You did. Thanks for the color. Appreciate it.
Ladies and gentlemen, we have received a number of questions online, so I have a summary of some of them that have not already been answered. I'll just call them out for the transcript so that everyone is aware of them. The first question was that, can you comment further on the expected proceeds of Brazilian business?
We agreed with the partner, with Grupo Bimbo, a wonderful company, a good competitor. This is important to understand. Good competitors are good challengers acting on a reasonable price level. We agreed with Grupo Bimbo to keep silent on this. As I mentioned at the beginning, the range of $600 million-$800 million is well exceeded together with the North American business. This is the answer for this question.
The next one is that, with the payment of the deferred hybrid interest, does this mean that going forward, hybrid interest will be paid as normal?
In the future, yes.
Would you care to comment further on the level of the securitization program that operates within the company?
Martin.
This is part of our way we manage working capital and our financing. Brazil has not been part of it, so there is no effect of the divestment of the Brazilian business to be considered in that. We consider this to continue supporting our working capital performance and financing. It's a relatively efficient way of financing at a relatively low cost.
The final one that hasn't been answered really is, could you comment on the targeted leverage that you would expect for the OpCo excluding hybrid?
We don't publish targeted leverage ratios. What we have said, we will continue working on strengthening the balance sheet above all through operational performance or improved operational performance. Subsequently, as the company financial health allows, we will start turning towards the hybrid, as we mentioned in the presentation.
That concludes the summary of the questions that we received. I now hand back to Urs for some closing remarks. Thank you.
Thank you for the questions. I hope we were precise enough with the answer or the answers. It's a journey now for a bit more than 12 months we undertook. I think we did some first good steps in the right direction over the last 12 months. Many more need to follow. This year is all about qualitative revenue growth, pricing absorption, and there is a lot about cost efficiency, process efficiency. There is a lot about delivering what we plan. We see and we realize and Jörn figured this out as well, somehow in research, there is an increasing morale in the company, which is important. A company is nothing else than the sum of its people working for, the sum of its customers buying from us, partners financing us, supporting us all over the place.
I remember times when ARYZTA had to pay flour, packaging, and transport before any truck was delivered. These times are gone. Slowly we go back or we are coming back into a normalized world. It will take time. You shouldn't expect new big announcements in that rhythm as we had it this year. We did now the first big steps. More will follow, but it will take time. For me, the important view is that the plane, call the plane the ARYZTA plane, is gaining flight altitude and not losing anymore. In the past, the plane lost flight altitude, and then it's a question of time until the first mountain or the Irish Sea is low. We turned the flight path up to higher levels. It will take time. It's work. It's not just happening from one day to another.
We know that you understand this very well, not only on the hybrid part of the business. It was good to see you here in Zurich. Many of you, we know each other since many, many years. That's good to see you back in an old cooperation targeting towards a hopefully better world. Let us invite you for something to eat, as it should be for a food company. It would be a shame to let people go home without something good to eat and a present. If you hand over this bag you are carrying home to your wife and to your kids, give them warm regards from us, from Uster in Switzerland or from ARYZTA. They know where they can buy it tomorrow, because tomorrow it's going to be eaten or over. Thank you.
Have a good day, and let me invite you, as I told, for a short bite. Thank you.