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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you, Laura, and good morning, and welcome, everyone, to today's call. I just want to draw your attention to the forward-looking statements on Page 2. This applies to our discussions today.
I'll now hand over to Urs Jordi, to start the presentation.
Thank you, Paul. Good morning, all. Thank you for joining this call today. Let's start with the performance overview for H1 2023 on Page 3.
Revenue of EUR 1,037.1 million was achieved. This reflects an organic growth of 25.4%. The EBITDA increased to EUR 129.1 million, which results in an EBITDA margin of 12.5%.
Operating free cash flow increased to EUR 76 million and IFRS profit was achieved of EUR 51.7 million. As announced, we will pay back EUR 200 million hybrid by the 28th of March 2023. On Page 4, then the business performance. The strategy we lined out is delivering to expectations. As you can see, the market momentum and innovation are supportive to volume. All markets and channels are performing strongly and well. ARYZTA continues to outpace outpaced the European retail market in the retail pillar we are in. Customers and service portfolio are driving Foodservice growth. Innovation and momentum in the channel overall, as key enablers, are visible in our Quick Serve Restaurant performance. On Page 5, then, you can see the challenges. Despite all the points I have laid out, the inflationary environment continues across all costs. Input prices still remain significantly above historic levels. Labor availability and labor costs are still an overall challenge in the business. But consumer consumption trends remain unchanged as we realize and see in our markets. Bakery products have a competitive calorific proposition. Bakery calories are the most efficient calories on our table, this from economical and ecological point of you. So we are in the right business.
On Page 6, you see important reporting and management changes we announced as per today. Concerning reporting simplification, we report from now on only unadjusted profitability figures. We will align the financial year with the calendar year. It means that the 1st of August, which was the start usually of our business year, becomes the 1st of January. We will go into these details a bit later. And we appoint into our ‘EXCO, COO, Sandip Gudka. His appointment is strengthening the executive management team and will help us to drive the performance further.
On Page 7, then an overview. Our midterm targets, we are again confirming today. An organic growth will be achieved, this based on constant pricing of 4.5% to 5.5%. The revenue based on constant pricing as well will be above EUR 2 billion. The EBITDA margin, we are having as a target is 15.5% (sic) [ 14.5% ] or bigger. The CapEx amounts between 3.5% and 4% of revenue. The ROIC will go up towards 11% or more. The total net debt leverage, including hybrids, will be on around 3x EBITDA level. This driven by operational results. Now on Page 8, the guidance for fiscal year '23, as a summary. Current trading and consumer trends, as I told, remain unchanged. The dynamics are still there. The inflationary environment continues. You see this in our business as well as in other businesses. Pricing volatility remains elevated. Further improvements in all key metrics are expected in fiscal year '22-'23. Organic growth being supported by volume and price supported by pricing efficiencies and strict cost control, improvement in cash generation. We will achieve improvement in ROIC. We therefore reiterate the delivering of the mid-term targets 2025.
I would now hand over to Martin Huber for the details. Martin, please?
Thank you, Urs. We will now move to Slide 10. Good morning ladies and gentlemen. Before we enter into the presentation of our strong H1 results, which confirm our progress towards the mid-term target, I want to draw your attention to the following. As indicated last year and communicated in the ad hoc statement, we have further simplified our external reporting. Our profitability figures are now unadjusted, in line with our commitment to discontinue this historic legacy reporting approach.
Including in the reported H1 '22 EBITDA, the nonrecurring elements of loss on disposal and restructuring costs and impairment. The EBITDA for H1 '22 based on our new definition, equates to 7.1%. For the sake of this presentation and for the ease of comparability, we show you the fiscal year '22 profitability figures as per the previously reported version. For your convenience, you will find a reconciliation between the previously reported '22 figures and the new simplified profitability measures in the appendix of this deck.
We move now to Slide 11. We remain focused on our key business levers and on executing continuous business improvement despite the very challenging environment. The first 6 months of our fiscal year '23 were filled with volatility and uncertainty. In this context, we have delivered a strong set of figures in all our key metrics. We have achieved an organic growth of 25.4%, supported by volume and pricing, adding incremental revenues of slightly over EUR 200 million.
Our EBITDA increased to EUR 129.1 million, maintaining our margin stable at 12.5% despite the significant inflationary environment. The strong business results have accelerated the cash flow. Our cash flow generated from activity increased by over EUR 60 million to EUR 44.8 million, allowing us to further reduce our total debt levels. Finally, return on invested capital also improved significantly to 9.1%, which is above our weighted average cost of capital. Improved EBITDA as well as disciplined management of working capital and CapEx are the key contributors to this.
We now move to Slide 12. Capitalizing on market momentum and an increasing contribution from our innovation launch over the last 36 months were key to drive our growth. The resulting organic revenue growth of 25.4% was supported by a resilient volume growth of 5.8%, mix of 4.3% and pricing of 19.3%. All relevant businesses delivered positive volume growth in H1 '23. France, Switzerland, Poland and our QSR business in APAC generated over 80% of this volume growth.
ARYZTA managed to obtain the necessary pricing to compensate in absolute terms, the input cost increase for raw and packaging materials as well as energy costs. Worth highlighting that pricing combined with disciplined cost management was the basis for margin protection compared to previous year. FX added positively to revenue growth, while the effect of the Brazil disposal reduced revenues by 1.5%. Overall, our revenue increased from EUR 835.3 million to EUR 1,037.1 million, which corresponds to a growth of 24.2% compared to H1 '22.
We now move to Slide 13. Both our European and APAC QSR business, our growth performance was broad-based, and Rest of the World, generated strong double-digit organic growth. With this result, we can now confirm that all our businesses are ahead of pre-COVID levels. In Europe, we delivered a resilient volume growth of 5.6%, while managing several pricing rounds to compensate in absolute terms, the inflationary effects on our input cost. The call out are our businesses in France and Poland, which delivered double-digit volume growth.
The QSR business in Rest of the World also generated double-digit volume growth, supported by an increase in restaurant openings as well as an increase in guest count. Our Foodservice business in APAC contributed with a mid-teens price increase to the strong performance in Rest of the World.
We move now to Slide 14. Our reliable supply chain and the customer-centric innovation approach makes us a preferred partner for the retail channel. In this channel, which represents 52% of our revenues, we have significantly accelerated our organic growth to 22.6%. The majority of our retail revenues are in Europe, where we have been able to outperform the market, both in value and volume.
Both our European and APAC QSR businesses delivered strong double-digit organic growth. The expansion of the restaurant footprint of our key customer in some countries as well as the increased guest count in other countries supported these growth figures. Growth was supported further by our continuing program of customized innovation in the QSR space.
With our value proposition for our Foodservice customer, we have been able to capture new customers supporting volume growth. In addition, our targeted service offering has allowed us to increase the revenue share in existing customers. As a result, we have generated, again, a strong organic growth of 27.3% on top of an already strong performance in H1 '22. The labor saving competing advantage of bake-off remains very supportive to ongoing growth trends in this channel. For example, in France, our catalog and innovations have proven highly relevant, as our customers face staff availability issues and increased competition. With our offering, we increased our average volume per customer by almost 10% as compared to H1 '22 in this business.
We move now to Slide 15. We have been able to maintain our EBITDA margin at 12.5% in a challenging inflationary environment. The key to this achievement are: the contribution of necessary pricing, our prudent commodity risk management approach, cost optimization supported by our efficiency programs and disciplined fixed cost management. While we have been able to generate the pricing contribution to offset the inflationary effects on our input cost in absolute terms, the gross margin decreased by 110 basis points. The operational leverage on our factory fixed cost helped to partially offset the negative margin impact on our variable cost though.
Margin impact of higher transport costs were more than compensated by disciplined fixed cost management in our distribution setup. SG&A for indirect cost only increased by EUR 6 million to EUR 107.9 million, and contributed significantly with 180 basis points operational leverage to the EBITDA margin. Depreciation and ERP amortization increased slightly to EUR 55.7 million, but reduced their share in revenue. Move now to Slide 16. Our efficiency programs that we have presented during the Capital Market Day, the continuous improvement in our manufacturing operations, Simplex to support recipe standardization and global procurement leverage and end-to-end process optimization delivered important contribution to protect our profit margins. Targeted initiatives focused on conversion cost and waste delivered an efficiency gain of circa 2% compared to H1 '22. For example, we have set up a task force and identified in all our factories the root causes of waste, clear action plans were defined, and the results are evident, showing a clear improvement trend month after month.
We expect to deliver EUR 26 million to EUR 36 million cost improvement through Simplex and procurement leverage over the period of the midterm plan, '23 to '25. In the first 6 months of this period, we have generated over EUR 5 million of cost optimization through these 2 programs. Simplex has delivered an important part of this result. Through disciplined cost management and end-to-end process optimization, we target to limit the fixed cost growth to 30% to 40% of our organic growth. In H1 '23, total fixed cost grew by only 6.5% compared to H1 '22. This is less than 30% of the organic growth and is delivering a significant operational leverage.
We move now to Slide 17. The EBITDA evolution in our 2 regions show a contrasting picture. While our EBITDA in Europe increased to EUR 100.8 million, the margin decreased by 70 basis points to 11.1%. This is driven by the effect of absolute compensation of input cost inflation through price increase, which is a pure mathematical impact. In addition, compared to rest of the world, there is a clear difference in the channel and product mix as well as in the timing of input cost evolution and pricing. We expect to further close this gap towards year-end.
The strong improvement of our Foodservice business in APAC, primarily driven by the Malaysian business, accelerated Rest of the World margin by almost 600 basis points to 22.3%. This improvement helped to compensate the margin impact in Europe and kept overall group EBITDA at par versus previous year. In the inflationary context, our commodity risk management was key for having a good visibility on our input costs to protect our customer and our business models.
Moving now to Slide 18. Our strong earnings as well as disciplined working capital management were the key drivers of our significantly improved cash flow performance. Working capital contribution improved to EUR 30.5 million through disciplined management as well as an increase in debtor securitization. In addition, the reduction of restructuring-related cash outflows as well to the overall result. With this, we have improved the operating cash flow by EUR 65 million to EUR 76 million in the first half of '23. As already called out at the start of the presentation, the resulting cash flow from activity improved to EUR 44.8 million, allowing us to further reduce our debt levels.
Moving now to Slide 19. In H1 '23, ARYZTA is back in value-creating territory, delivering an economic profit. Our increased focus on value creation, supported by appropriate management incentive metrics is driving the acceleration of return on invested capital from 3.4% to 9.1% in H1 '23. This strong achievement is a result of our improved profitability, the increased working capital efficiency and the prudent management of CapEx, which corresponds to 2.7% of revenue in H1 '23.
Moving to Slide 20. Our strong business results have helped us to further decrease the total net debt leverage to 4.3x, making good progress towards the mid-term target of 3x leverage. All the actions taken over the last 2 years, the divestiture of the North American and the Brazilian business and the much improved business performance have reduced leverage by almost 50%. Want to highlight in the first 6 months of fiscal year '23, we have also taken actions to manage our overall interest cost such as the reduction of the RCF borrowing by EUR 100 million and the implementation of interest risk management measures.
Moving now to Slide 21. As announced on February 22, we have called out the outstanding EUR 200 million hybrid principal in full. The settlement date for this is March 28. Our early redemption decision is based on the following: the improved business performance, which increased significantly our cash generation from activities. Our strong liquidity position at the end of H1 consisting of EUR 185.9 million of cash and EUR 205 million of undrawn RCF facilities. And last but not least, the ample covenant headroom. The repayment of the principal will be financed in equal parts of cash as well as increased the RCF drawings. This decision allows us to save on future interest costs in a rising interest rate environment. It is consistent with the mid-term target and improves our capital structure.
In summary, we have delivered a strong set of figure in the first half of '23 and are confirming with these results that we are on track towards our mid-term targets. Thank you very much.
Thank you, Martin, for the presentation. We will continue with Q&A.
[Operator Instructions] Your first question comes from Jörn Iffert.
Just 2 questions, please. The first one is, can you give us an update where you currently stand on your utilization? And also where you are on the volumes versus pre-COVID levels and more precisely in retail and Foodservice in Europe? And the second question will be, please, when you look on your business from the bread perspective, is there anything strategically you think which is missing in terms of customer channels, regional presence you want to focus on over the next couple of years? .
Thank you, Jörn. I start with the second part of the question block. Our focus is clearly in bake-off. Bake-off is outgrowing the bakery market. As you know, this amount today bake-off months day for around 25%, 26% of the total market, and we expect this to grow up to 28%, 29%. Our businesses -- business pillars we are in, which is retail, Quick Serve Restaurant and Foodservice are exactly covering this fastest growing part segment in the bakery business. Therefore, we don't really miss a driver in the business we are. Geographically and from a business point of view, we think we are well positioned.
Capacity utilization is around 70%. Volume growth is there, but we overcompensate the volume growth with efficiency initiatives, which is a good thing. Unfortunately, value utilization is not flat or even across all the plants and the businesses, but overall, having a 30% free capacity more or less is a good thing to have in a growing environment.
Volumes is a bit connected to the question about capacity. Some volumes are up versus pre-COVID levels, some product groups are up, some others are still behind. So this is a mixed picture. Overall, the volume is more or less or slightly above now on the group versus pre-COVID ever. Does this answer your question, Jörn.
Maybe let me -- if we look at the revenue, Jörn, at constant currency, all -- as I indicated during the call, all our businesses are now above pre-COVID levels. Capacity utilization as, Urs indicated, is around 75%.
Your next question is from Jon Cox at Kepler.
Just a couple of questions from me. On the profitability, the APAC business, obviously well above 20% now. Should we be confident enough to pencil this in going forward? And then on the other hand, Europe, look, maybe slightly weaker than anticipated. Just wondering where you think we can get for the year as a whole. Do you think we can get back to where we were a year ago on that? And then a question on the debtor securitization, which is helping your working capital. Just wondering how much further do you think that program can go? It was obviously reversed at some point over the last couple of years, now you seem to have gone the other way again. Just wondering where you could think that could go and what sort of contribution that could have to your free cash flow over the next couple of years?
For the question. In terms of profitability, as I indicated in Europe, the effect that you're seeing there is basically a pure mathematical impact that you get from price increase compensating in absolute terms, the input cost increase, raw and packaging materials as well as energy. As I also said, we are confident that we will be further closing this gap and reach previous year's levels for the full year in '23. In terms of APAC profitability level above the [ '20s ], that is certainly a sustainable level. So we are confident and we are comfortable with that level. In terms of debt securitization, our program is as a total envelope of EUR 130 million. As you can see in the report, we had EUR 116 million of debtor securitization used in H1 '23. So that is the -- let's say, the headroom that we still have. Of the EUR 30.5 million working capital contribution to the cash flow, about half was coming from -- slightly more than half was coming from improved working capital management and the balance is coming from the increased debtor securitization.
So you only have that EUR 14 million and there'd be no plans to expand that at all?
No. When we look at working capital management, let's say, apart from improved managing -- let's say, management of inventory receivables and payables, we have the debtor securitization program, as indicated, the EUR 130 million. And we also have a facility to support the management of our suppliers where we have a supplier financing program.
Maybe let me add something, Jon. The business in Europe and Asia, the businesses are slightly different. There is a different channel mix. We have more retail in Europe, more QSR in Asia. The product portfolio is different addressing this channel mix. There is different timing and dynamic around input costs, labor, whatever it is. So there's a timing effect in this. So this will evolve the way as Martin described. Did the answer with this, your question, Jon?
Your next question is from Patrik Schwendimann.
Patrik Schwendimann from Zürcher Kantonalbank. Congrats for the great results. First question, it was announced that Sandip Gudka will be the future COO. Is he also in the pole position now becoming the future CEO? That's my first question. Then volume growth was amazingly good. What is your best guess for the volume growth for the next couple of quarters and for next year? Is there still some volume growth, let's say, 3% to 4% expected?
Then third question, QSR was really strong. Can you elaborate again what was behind this? And what is here your best guess in terms of growth for the QSR channel for the next couple of quarters and for next year? And final question, any indication about the best guess for the net financial results, including the hybrids for the current year and also for next year would be helpful.
Thank you for this, Patrik. Let me start with Sandip. Sandip is since several years with us that he is a very experienced and strong supporter of our business. So he is appointed now for the COO position, and this will be his role. And more about the CEO role is not to disclose. We are there in the frame we laid out. This race is open, and we will inform as soon as there would be something to talk about. The volume growth remained strong, as I told the momentum in the bakery business is a good one. And the advantage, the calorie has, is visible clearly, and this especially in inflationary time. So we believe to see a good volume growth as well in the future. The mid-term plan is talking about a growth, a significant part of this is driven by volume, but concrete and solid numbers we don't lay out here.
Quick Serve Restaurant is clearly a winner of our days. The shortage of labor, increased costs, the digestion of the COVID crisis really supported Quick Serve Restaurant growth. The 4 big protagonists are harvesting this, and we are following this. There is a very active innovation and renovation activities in this part of the business. And all of this is driving Quick Serve Restaurant growth, which we believe will continue. Indication, Martin?
On your last question, the financial result, look, I think if you take our guidance where we said we will be continue improving on all our key metric that includes EBITDA. And you can take for your model, the indication that I have given at the beginning of the year where we see financing cost, I gave a range of EUR 65 million to 70 million that is -- holds true. So you can continue calculating with that range to come up with your net financial results.
So the actions we have taken that I have laid out, first of all, let's say, the management of our RCF borrowings, the interest risk management approach and now the recently announced repayment of the hybrid, the remaining EUR 200 million, all of these actions will make sure that we can maintain within that range that we have guided for at the beginning of the year.
[Operator Instructions] We will now take our next question from Andreas von Arx.
I have three questions. The first one is on innovation. You mentioned that this is a contributor of growth. Could you give an indication of how much of your sales or volume improvement comes from these innovations? And maybe some indication of whether these are new products or renovated products? Maybe some indications whether these are just a handful of big few innovations or whether we're looking here at the bigger number of small improvements and maybe some examples would help here as well. Second topic would be the energy costs. I mean I think I see that you can pass on the energy cost, but nevertheless would like to get a feeling whether this still is an important topic for this year, given you might run out of hedging or whether here, the overall situation has improved already. And then I have a third question on a completely different topic, and that's on the regulation of marketing of sugar or high sugar products.
I mean, on the one hand side, you have a relatively high share of sugar of -- let's say, high sugar bakery products in my view. On the other hand, of course, not a lot is really branded business here. But given your expertise, Mr. Jordi, what could be the impact on your business model, if there would be a rather harsh limit on what can be advertised towards kids, maybe general population in the future on high sugar products?
Thank you, Andreas. Let me write down and I will start with the sugar question. There are regulations in place in some parts of the world, not only for sugar. This regulation is about salt, fat, other ingredients. So usually, there's a pre-time the industry has to find replacements support, reductions, which we are doing since many years. So reduction or changes in the fat composition, in the salt content, in the sugar content, we have alternative add-ons instead of sugar are clearly on the program.
So the industry overall is working with this. These regulations are mainly targeting the hidden sugar. We don't really sell hidden sugar in catch-up or wherever it is. We have vanilla bar [indiscernible] sugar, obviously, is in there. We are confronted with this challenge, addressing this, and I think it would be more or less targeting sweet range we have. We don't talk about bread or products like this. So this is a topic on the agenda. We are on a good track to manage this. It's under survey, and we believe that we are well positioned for this clear challenge, which is...
Sorry if I quickly jump in. Maybe I was not clear, but I was referring also to the initiatives in Germany that have been presented last week that would clearly regulate any advertisement possibility of high sugar products, especially towards children. But if a strict regulation would come, basically, more or less would make advertisement very difficult in general for high sweet products. I mean, what -- if that would come, what would be the impact on the business model?
This is a discussion. It's mainly targeting the retail packs that are being sold with the Gummy bears and all these type of products, it's most probably less about baked products. You should always remember baked products -- overall, bakery products are basic calorie on our table. Therefore, we are there less in the spotlight than the examples I mentioned.
Let me come to the innovations. Martin will give you some detailed figures about the share of innovation versus our total turnovers. We have good numbers, good improvement achieved over the last 2 years. And this is not only driven by one big innovation. So there is an innovation activity across all product categories. Breads are heading towards dark flour, low-carb products, high protein products, handmade sourdough-supported products, which are improving freshness and taste in the bread.
So this works there. We have big initiatives with big customers. So there is a big initiative with big burger. One customer renovating and innovating the burger portfolio, this is as well affecting our snack range. Snacks to go is a big topic. It's vegetarian component in this and vegan component in this. So it's a broad-based process, which is based on a group process, on a view we have, which then the companies and the local units are delivering. Martin can give you the share of innovation in numbers.
Andreas, you remember from our Capital Market Day, where we have presented as part of our growth initiatives that innovation is a key driver of the 4.5% to 5.5% organic growth without pricing. In H1 '23, our share of innovation is slightly below 18%. And in a way, we consider innovation all the products that we have launched over the last 36 months.
With this, we obviously drive and improve our portfolio and increase the share of our premium products. So in that sense, we have a rough split between premium and standard products, of about 40% is premiums, 60% is standard. And with that innovation, we are step-by-step improve the share of our premium element on our revenues.
In terms of energy cost, that was your other question, we indicated at the beginning of the year that energy as a percentage of revenue will be around 5% to 6%. You can consider that we are within this range at H1. And as I indicated, we have been able to obtain the necessary pricing to compensate in absolute input cost inflation including the energy cost increase.
There are no more questions in the queue. Now I will hand back over to closing conference call. Please go ahead.
Again, thank you very much for joining us today. If there are questions more, please contact us via [ IR ] or via Martin Huber. Otherwise, I wish you a good day, take care and talk to you soon. Have a good day.
Thank you. This concludes the session for today. Participants can now disconnect.