Earnings Call: H2 2021

Oct 4, 2021

Good morning, everybody, and thank you for taking the time to join us today for our FY 2021 results Conference. And today, we have our Chairman and CEO, Urs Geordi and Martin Huber, our CFO, and joining us to present. Just to let you know that all the documents, our annual report, presentation and ad hoc are available on our Web site, arista.com. Just before we begin, I would just like to draw your attention to the forward looking statement on Page 2 of the presentation. This applies to all the discussions today. And I would now like to hand over to our Chairman, Urs Geordi. Hello and good morning, Ladies and gentlemen, at this first autumn day, rainy day, for the presentation of our annual results. We will talk today about the past year, last 12 months and amongst others about pricing. This is the price of a product is share of variable costs. On this Variable costs today, labor is having a heavy impact, raw material, packaging material, energy, all these price Rais, as you know, it's an important component for our actual year now, 2022, and we will I'll 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 We had good Q4, so a good momentum is coming back. We turned 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. And 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 KADE approval, which is the antitrust authority In Brazil, that was the important step to take and that worked a good week ago. The new 5 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 took place and the local businesses are more empowered. You know that we are going for this Multilocal business, there is not one Arista. There are many Aristas in the world, food And especially bakery, this is very local. The same Gifel 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. 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's CEO that works quite well. And obviously, we have a new CFO appointed, Martin Huber. Welcome. Good start, Ed, and let me use the opportunity to give a warm thank you To Jonathan Salisbury as well, he onboarded in a difficult moment in difficult times, and he did very well. And he is now in his retirement life phase, and we well respect Q4 trends are very supportive to the outlook. There was a strong organic growth bounce back in Q4, especially in Foodservice. Retail appears resilient. That's coming back. There's a bit of difference in Shopping behavior and pattern, but we are confident that we Get there our targets. I expect QSR outperforms. QSR seems to pick up all the lost volumes In restaurant, in snacking, in out of home consumption, this is clearly outperforming Channel and Foodservice shows a strong rebound, especially now with the holiday seasons we had over summer and now in Simplification of structure and business continues. We are basically today a €1,700,000,000 business. So this is or needs to be managed with lean, fast and Agile Structures. Multilocal focus on the approach of this, I just explained. So we have a Danish operation, Dutch operation, Irish operation, 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. So 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 2 or step 3 Out of 10 steps which need to be done, Arista still today is a leveraged 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. Both of program delivered, U. S. And the Brazilian sales. We gave the guidance range of €600,000,000 to €800,000,000 of euro Disposal total, we would like to achieve. We are well ahead of this. So this worked. We maintain a solid liquidity position. We have reduced our bank debts and refinancing Board did a lot of work around the hybrids, the hybrid instruments, the Interest deferred and the actual ones and formed a view on the future capital Structure of Forista. Disposals and higher business performance led to an improved financial outlook. So 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 2. And we will pay all accumulated deferred interest and compound interest on The option to consider reduction of the outstanding hybrid principal according our financial Capacity is an ongoing thing. So 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 Nevertheless, hybrid financing may still be part of our future financial structure. Yes, it took 10 years to build it up. We invested now a year to pay the roof away, the More or less $220,000,000 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, Flower 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 Bakter. 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 €12 minimum salary discussion is very prominent there. So we will absorb the majority through price increases. This is an increase we need of Plus or minus 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. So 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% or 5% overall, much easier to manage than an inflation of 1%. 1% inflation is raising the expectation that suppliers are absorbing this. And an increase we have now, I've never Seen in my time in the business, so it's so massive. Therefore, the answer is not yes or no, Price increase or not, question is only how much. There is a mix of pass through and tender pricing, as I told just before. There's a quick serve restaurant model, which is basically based on pricing protocols and mechanisms 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. There is a tender business in retail. We are actually now working on the tenders with the customers to have a new pricing level beginning of next year. Higher costs, higher input costs are making the Calculations around investments, efficiency investments much more easier. So the threshold comes down, we continue to invest in optimization 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, so we target the mid single digit positive organic growth, which is a plusminus5%. We had already discussions today morning about this. Arista didn't have organic growth Over the last 7, 8 years. So, we are back there now first time, which is a good thing to have. And we We'll invest all our efforts to remain on that track in the commercial part of the business. We target a 12.5 percent 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. At 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 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 Turning to slide 10, our turnaround strategy is working and Arista has delivered a good set of ahead of expectations both on top and bottom line in 2021. The 4 key highlights of our 2021 results are first, the return to positive organic revenue growth in the 2nd part of the year, a resilient performance on the profit despite lower revenues, return to positive 3rd, return to positive operating cash flow And 4th, we have done an important step towards a more sustainable capital structure. Turning to Slide 11. Ritz has delivered improved organic revenue performance in 2021, although we still suffered effects from COVID. In 2020, the business has suffered 2 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 and this is thanks to 2 things, the improved management focus due to the multi local business approach and second, an improved consumer sentiment amid lower COVID infection cases. At group level, revenues decreased from $2,900,000,000 to $2,300,000,000 in 2021, while for the continuing operations, we decreased revenues from $1,700,000,000 to 1,500,000,000 This resulted in an organic growth for the group at minus 6.1 percent and for the continuing operation at minus 6.4%. Turning to Slide 12. Despite the notable decrease in our revenues, we have improved our underlying EBITDA margin by 190 basis points to 10.8 percent for the group. This contribution was possible due to 3 things price and mix improvements, operational efficiencies and very strong action to right size our structural costs. Continuing operations contributed a 10 basis points improvement to 11.4%. This more than compensate the negative volume impact on our revenues of minus 7%. North America improved its profitability by 390 basis points to 9.6 percent due to a revenue recovery in food service and quick service restaurants, strict cost management and contribution from restructuring. Turning to Slide 13. Operating free cash flow improved significantly in 2021. The group delivered a positive operating cash flow of $10,400,000 after a negative result of 84.5 €1,000,000 in the previous year. 2 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 44,000,000 of our securitization program due disposal of our North American business. Continuing operation contributed $50,200,000 to the positive cash flow and our Divested North American discontinued operations 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 $850,000,000 which was achieved ahead of schedule and at the higher end of our expectation, supported the reduction of our net debt from $1,011,000,000 to $220,000,000 together with improved business performance as well as cash management. As a result of this, our net debt to EBITDA ratio reduced significantly to 0.6 times in 2021. Overall, interest costs decreased from $42,700,000 to $35,800,000 The 3 main factors supporting this was a lower drawing on the RCF and the term loan, the effect of the repayment of 205,500,000 Shushai notes in December 2019 and lower lease interest expenses. For 2022, our estimates for the interest costs range between $15,000,000 to $19,000,000 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 continued operation in Europe and rest of the world, consisting of Asia and Brazil. Thank you. So overall revenues for continuing operations 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, our Volley 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 minus 6.4%. Disposals reduced revenues by 0 0.9%. This was due to the divestment of our UK business in the Q1 of 2020 and the weakening of the Brazilian real, The Polish slothian and Hungarian frink 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 9% or 7.9%. Rest of the world with a strong QSR channel rate generated an organic growth of 2.3%. In Europe, the strong COVID restrictions and the long lockdowns impacted revenues significantly, especially our foodservice channel suffered with an important margin. As a result of this, the foodservice 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 these geographies supported this performance. In fact, in APAC, we had the most successful full year in terms of revenue in QSR. This was partially muted by the strongly affected foodservice channel in this region. Turning to Slide 17, quarterly sales evolution is still linked to management to improved management focus from the multi local approach and the improving trend of the pandemic. While in the 1st two quarters, Arista 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 foodservice channel. In Q4, all three channels delivered positive organic growth. Worth mentioning that the foodservice 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 foodservice 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 2020. Turning to Slide 18. Price mix contribution for the year, as mentioned before, was positive at 0.6% and strengthened quarter by quarter. The 2nd part of the year showed a clear acceleration, thanks to the good contribution in terms of product mix from the foodservice channel, improved portfolio management and a first contribution from pricing. Bruce 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 20 21. So therefore, we plan for a price increase at 10% plus. 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 Package bread offering due to hygiene concerns, especially in the 1st 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 foodservice 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. And when we look at particularly in France, our biggest foodservice 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 sent, supported by 3 main drivers: disciplined cost management, the contribution from price and mix and the strong actions on our structural costs, including the targeted 25% reduction of our group overhead. These three drivers more than compensated the negative impact 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. 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 costs 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 impact, 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 49,800,000. The 3 main components of these costs are severance and staff related costs of $24,800,000 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 obligations totaling $16,100,000 were the 2nd 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. Then profit on disposal reduced our non recurring costs by 8,600,000 This relates to disposal of the remaining 4.6% shareholding in PIKAR, which included the gain on disposal a dividend of $1,100,000 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 $175,400,000 in 2020, while in 2021 it still increased, but at a much lower pace at 59,900,000 And 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 12,300,000 after a significant increase in the previous year and this was 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 Ritzdah 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 actions, the acceleration of operational efficiencies and pricing will support margin progression in 2020 towards our 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, proceeds 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. So we had a clear focus in the last year, fiscal year 2021 on the balance sheet. We are focusing this year on the P and L. As I mentioned, top line growth, good Quality top line growth with improved pricing and then through a reasonable cost structure going down on a reasonable net profit. This is the big gain, having then a future value of Arista, which is representing the true value of our business. North American business, just to remember again, Disposed for US850 $1,000,000 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 Kaldi 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 €500,000,000 of euro with Our lenders with new lenders on the hybrids, again paying back the accumulated deferred And actual interest on all 3 hybrid principles. Nevertheless, hybrids For the time being, we remain part of our capital structure, and we will work Continue to work towards a lean and agile business structure. Basically, we are a much smaller organization now, dollars 1,600,000,000 of sales in $5,000,000,000 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 organic positive organic growth The target of 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 plusminus5 percent organic revenue growth. The 2.5 Percent EBITDA, I already mentioned before. It's an intermediate target. This is a run rate we will achieve in the actual fiscal year and then in a consequence having a sustainable net profit. This was the prepared presentation. And we would now Go to the Q and 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 Current year. At the same time, you're aiming for price increases of roughly 10%. So this means at the end of the day, you're expecting a volume decrease of 5% that's my first question. 2nd question, what was the recent sales trend you have seen so far in the 1st 2 months of the new financial year. And how far are you with these new price negotiations in terms of, let's say, you're already 10% through or 50% through whatever indication you can give here. And 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 So pricing is then, to a certain extent, is then coming on top. Pricing has a phase in effect. So we are already now in the fiscal year 2022. And maybe now coming to the question of how this work is the QSR part of our business. It's roughly 1 5th of our business. There is a pricing mechanism in place, which basically is based on 2 different systems. It's an Asian system and the European system. The European system has always a bit of slight delay. The Asian business is faster, but don't forget we are covered. So this is then a balancing effect. So the QSR pricing is on a good track. There is again a pricing mechanism based on Pricing protocols, which will lead with, in a worse case, a slight delay to a correct pricing. Retail now is in negotiation time. Most of the retail contracts are annualized contracts, January December, so 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, end of November, beginning of December, but we are confident To get there the pricing we are looking for, again, the cost in or increase is that significant that nobody is Able to ignore this in service. This is a catalog business basically. There is as well a pricing I think mechanism targeting a year end change then starting with 1st January. Remember, we should as well that there is a coverage we have in place, so we will able to phase Time wise in a good moment. I'm not able to tell you to what extent we are there in retailer Foodservicepricing, this is a thing we are managing with our customers, so I can't give you more details. You're asking about sales trends. The most obvious one we can see is the QuickServe restaurant trends. The system providers, they pick up the volume, which is not or which was lost or is lost by the smaller protagonists in the market Around the world that the organized customer and the better they organize that, the more they pick up are growing, clearly outgrowing the market faster growing. As Martin mentioned, there is a trend towards PECT Products, there is a bit less impulse sales and more Baked Packed product sales, but the normal pattern is slowly coming back, but Still a bit depressed on the impulse sales. Foodservice 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. But As soon as the lockdowns and the restrictions becoming less, foodservice is coming back With the products we know and we have in Martin, price, volume mix in growth? Well, We say 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% to 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 5. And for the 2022 results, a lower mid single digit volume evolution. Top of the pricing, we go to the mid single. But then all in all, this would still mean then double digit, right? I mean, if you are aiming for low No, we say our overall organic growth, as I said, is mid single digit that has lower and the higher end of 5% to 8% Then we are at the higher end of mid single then 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. This market is growing between 3%, 4%, 5% Regarding EBITDA margin? Our as I mentioned before, our strict cost management that we have taken during previous year will gradually help us to improve profit margin together with the additional operational and the pricing that should start coming through. And therefore, as we mentioned, we will aim at the run rate of 14 Around 14% towards the end of the fiscal year 2020. Threats improvement means also H1 should Be better than H2 last year, despite headwind from despite seasonality or special effects. Patrick Carlsonberger, again, it's Teusch from Autelbank. Concerning the planned repayment of the hybrid bond interest, When exactly is this likely to happen? And can you give us some more details about the terms concerning the agreed 5 years €500,000,000 Refining deal. And last question, could you give us an insight into 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, 1 will be in October for the 2 Swiss hybrids and there's a Euro hybrid due in March. Yes. We need to pay the accumulative funds. Exactly. In the backup, we can consult the timing on the payment of the A cumulative compounded interest of the $175,000,000 And then there are the due dates of the different Hybrids, where we pay the current interest. Maybe for the refinancing details? Yes. So 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 this for the concluded period was 1.4%. So the structure is very similar. You expect similar rates for our new RCF. As far as innovations are concerned, there is an overall trend towards Artisanal products towards darker products, so not really the white roll or the white bucket. It's rather 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 is a lot of 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 the higher end of the pricing scale. And it's different from country to country, customer to customer. But these are basically the trends. But were you so far happy with the product quality Or do you see some room for improvement? There is always room for improvement. And Arista 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 Quality level overall, but this is an endless and an evergreen topic We are addressing basically innovation is almost no, 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 I think erosion. So innovation is key for all businesses we are doing in food service, in quick 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 markets, foil, Cardboard boxes, carton boxes were not always available. So then organizations are becoming Very innovative around topics like this. So it's a very live environment. We woke up in Arista since we are in power. Thank you. It's Jern from UBS. Three questions, please. The first one is on your current utilization in Q4. Can you tell us where this is roughly Expanding and also if you see your cost base on the ground in 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 Equity free cash flow including the hybrid dividends and the interest costs, it should be around $60,000,000 maybe CapEx slightly below $100,000,000 Is it fair to assume that the equity free cash flow this year is already reaching €50,000,000 plus? And the third question, please, On your balance sheet, I mean, you have your hybrids outstanding within in brackets interest costs 6% plus. You're paying on the credit facility 1.5%. Isn't there the option to, for example, refinance the Euro hybrid already with debt or do you evaluating also Convert or capital increase in the future, just some more color would be appreciated. I will hand over then to Martin. Let me go firstly maybe to the hybrids. We did a lot Of homework and analysis around the hybrid and the way they are in the balance sheet now are not that bad. They are expensive. But at the end of the day, a refinancing of the hybrid 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 This structure, so we need to take care that this remains like this. The company did a capital raise in 2018, And the process from 2018 until 2020 ended in the name of the Board to sell the company. So the money is gone. So 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. So this is not a topic at the moment. We clearly go after the $220,000,000 and we will eat the elephant, The 3 hybrids in bits and pieces for the time being, this is the plan. So for more details, Martin? I think the first question was on capacity utilization in the factories, if I got that right. And if we are already happy with the efficiencies that we have achieved. I think we made good progress in 2021. But 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 Proving the capacity utilization, which is below 70% overall at group level and continue working on efficiencies. I mentioned before, this is will be an important part together with pricing to offset the headwinds. So We have established a good base to continue working from, but we're not yet satisfied where we are. So we see opportunities still to come in terms of efficiencies and certainly capacity utilization. And I guess the The strong drive in innovation will also help us to support that volume growth. In terms of Cash flow, continuing operation, as I showed you before, delivered around €50,000,000 this year, And we expect to continue increasing that in the full year 2022, which will sizably increase. And certainly, overall cash flow will be negative because we paid the deferred and the cumulative interest. Maybe just one quick follow-up. I mean, total interest cost was a hybrid together, €60,000,000 according to your, I think, interest And then the CapEx, is it fair to assume between €80,000,000 to €100,000,000 this year? Lower. I think you have to be a bit you can be a bit less aggressive terms of CapEx. Thanks a lot. But yes, the hybrid interest about $45,000,000 the current ones And then you had the other interest plus the leases that I mentioned you before. Thank you. The first question from the phone comes from Andreas Vonark from Baader. Please go ahead. Yes, good morning. Thank you for taking my questions. First one, I'll start with easy ones. Slide 35 on your presentation, the cash generation of the continued operations. So if we would add now a year financial year 2022, I mean, could we go here through the most important numbers? I mean, to my understanding, EBITDA of the continued business will be, let's say, €200,000,000 And then you I think you indicated that the CapEx should be below €100,000,000 I mean, 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 €45,000,000 level? And could you please comment on the restructuring related cash flows, which has been around €50,000,000 last year, can that expect it to be close to 0? And just to have clarity, could you give me a best guess on the interest and income tax, which has been minus EUR 42,000,000 for the last year? That will be my first question. Then the second question is on the capital structure that you mentioned that you have given a lot So just to be clear, there is no negotiations at the moment with hybrid holders On potentially transforming their hybrid into equity capital. And there's also no plan to do so in the future. That's the second question. And then the third question on the capacity utilization again. So if I understand you correctly, you're guiding for mid single digit Organic growth, which means minus 5% volume growth, as you have indicated. And I assume this will basically all come from the retail segment and not from QSR and probably not from the catalog business. So 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. I mean, Shouldn't that then give you a significant negative hit on the capacity utilization in financial year 2022? That will 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'll take the easy one to give Mark In a moment, time to be prepared for question 1, which is the question 2 about the finance Structure and the hybrids, no. There is at the moment no discussion with the hybrid holders about debt equity swap. And no, there are no plans at the moment to go there. Martin, question 1. I think the question 1, if I was right, was on working capital And the significance of the So, I mean, if I may, I mean, probably it's easiest if we just look on Slide 35 In the appendix of your slides, where you have the cash generation. And when you could comment on most of the lines. I said, I mean, EBITDA should, I guess, be around €200,000,000 And then for 2022, I mean, how much negative working capital would you expect? Would you expect the same level of lease contracts? Would the restructuring be close to 0? And what would be best guess for the interest and income tax? Thank you. So let's start with the more 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, but there is also efficiencies that we will still foresee in terms of Management of payables as well as cash collection. So I so we will see a continuous improvement In our working capital management. Anti interest and income tax? Interest rates, I've given you a range of €15,000,000 to €19,000,000 And then we'll have the payment of the deferred and accumulated Hybrid interest, which you can see also on the in the deck, it's €175,000,000 plus the current hybrid interest, Which are around $45,000,000 That gives you the $220,000,000 that Orest mentioned before. If I may put in an add on, I mean, the cash generation might be negative this year. And in the following years, It will be, let's say, somewhere between $0,000,000 to $100,000,000 I mean, will that then not take quite long, Okay, down the €800,000,000 hybrid to a reasonable net debt to EBITDA level, including the hybrids? Thank you. So as I just to reinforce, operating free cash flow next year will be certainly positive and will be more positive than it was this year, number 1. Number 2, the overall cash flow from the activities will be negative, as I mentioned given the repayment of the mainly the repayment of the hybrid interest. So we expect our Performance to continue to improve. And therefore, 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. So having now the view on the Hybrid principles, there are 3 basically. There is a EuroHybrid, which is the expensive one, north of 6 And there are 2 Swiss hybrids of about 4% plus minus both. So the 2 Swiss hybrids are moderate. The Euro hybrid is expensive. That's the most probably the first one we will address. But at the end of the day, the cost of capital, if you take share capital, owners' capital, is much higher than the 6% or the 4%. So 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, more efficient way than a capital raise. That's clear. Thank you very much. The next question comes from Mike Farham from Credit Suisse. Please go ahead. Hi, guys. Can you hear me okay? Yes. Brilliant. Sorry, can I just come back to the guidance And primarily the EBITDA margin guidance because, yes, I'm just trying to Get my head around this? So I guess the first question is, what was The EBITDA margin pre IFRS 16 in 2021, because 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 Dial margin on a pre IFRS 16 basis, that accounts to around €60,000,000 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 percent plus 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. So the P and 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 phasing in and there is a costing phasing As I mentioned, we have there some coverage position. So the 400 basis points, you need always to see on the timeline. 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% Plusminus on group overhead costs, which didn't fully appear in the P and L 'twenty one. There is And a ramp up in the total saving as well coming in the fiscal year 2022. So for us, The 12.5% is a doable and reasonable target, Martin. Yes. And Just to be just to reinforce what I mentioned before, the 12.5% pre IFRS EBITDA margin corresponds to around 14% post IFRS 16. So The 14% 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 operation. Okay. That's helpful. And I guess A question on sort of strategy. I think as 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? This is 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 next steps. So this is an Ongoing process. We ship today products in volume almost through Europe to support markets which are Fast growing. There are projects most probably we will address in Asia. So 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. And Germany. So 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 foodservice, the world became different. There are more and more house 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 is 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? Yes, that's helpful. Thank you. The next question comes from Roland Frang from Davy. Please go ahead. Hi, good morning everybody and thanks for taking my questions. I just have one. It's more so a clarification question around the inflation cost pools. So 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 tools 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 To pricing, it's 2 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 flower. Martin told this that there is a flower price Increase over the last 12 months of 20% plus after I mentioned last week, actually last week within 2.5, 3 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 €11 an hour Minimum salary, so we are now on almost 13. There is an energy Gee, price explosion, let me say like this over the last 2 months, you read it in the newspaper, there is a Construction material increase, so we had projects with a budgeted rate of 1 And then after a review of the project on 150% cost Base now managed down and slim some, but there is still a significant inflation. Now 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 flower, we cover Butter, we cover energy, we cover other raw materials. So it's somehow a mix. Fiscal year 2022 is a mix of pricing, pricing going then into growth and costing, costing going then into the cost part. Price increase or the cost increase, the cost inflation we believe is driven by 2 factors that this You 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. So you could easily end up in the situation Capital without all the components, but this pushback will go away. And there will be a Leftover and the leftover is a significant cost increase on the basics into our industry. Let me give you an example. The transportation cost for 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 The container. Now it's above 4, maybe above 5. So factor 2.5%. This is significant. We'll remain there and it's our big project for this Here to, A, absorb this to 1 third. So could this really 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. And ladies and gentlemen, we have received a number of is online. So I have a summary of some of them that have not already been answered. So I'll just call them out for the transcript, so that everyone is aware of them. So 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. But As I mentioned at the beginning, the range of $600,000,000 to $800,000,000 is well See that 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 divestiture of the Brazilian business to be Considering that, and 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. And the final one that hasn't been answered really is, could you comment on the targeted leverage that you would expect for the Hopco excluding hybrid? We don't Publish targeted leverage ratios. What we have said, we will continue working on strengthening the balance sheet through operation above all through operational performance or improved operational performance. And subsequently, As the company finance 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. And I'd now hand back to Urs for some closing remarks. Thank you. Thank you for the questions. And I hope we We're precise enough with the answer or the answers. It's a journey now for a bit more than 12 months we undertook. So, I think we did some first good steps in the right direction over the last 12 months. Many more needs 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 Jern Figure this out as well, somehow in research, there is an increasing morale in the company, which is important. The company is nothing else than The sum of its people working for the sum of its customers buying from us, partners, Financing us, porting us all over the place. I remember times when Arista had to pay flower packaging and transport Before any truck was delivered, these times are gone. So, slowly we go back or we are coming back into Normalized world, it will take time. The 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 Arysta plane, is gaining flight Altitude and not losing anymore. Past, the plane lost flight Then it's a question of time until the 1st mountain or the Irish Sea is low. So we turned the flight path up To higher levels, it will take time. It's work. It's not just From one day to another. And 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 It's good to see you back in an old corporation targeting towards Hopefully, better word. So, let us invite you for Something to eat as it should be for a food company. The shame would be a shame to let people go home without a good Something good to eat and present. And if you hand over this bag, you are carrying home to your wife and Dear kids, give them warm regards from us, from Heestan in Switzerland or from Arista, they know where they can buy it Tomorrow, because tomorrow it's going to be eaten or over. Thank you.