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Edited Transcript of ARYN.VX earnings conference call or presentation 13-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Half Year 2017 Aryzta AG Earnings Call - Afternoon

Zurich Mar 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Aryzta AG earnings conference call or presentation Monday, March 13, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paul Meade

Aryzta AG - Head, IR

* Gary McGann

Aryzta AG - Chairman

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Conference Call Participants

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* Jon Cox

Kepler Cheuvreux - Analyst

* Fintan Ryan

Berenberg - Analyst

* Jason Molins

Goodbody - Analyst

* John Ennis

Goldman Sachs - Analyst

* Alain Oberhuber

MainFirst - Analyst

* Jean-Philippe Bertschy

Vontobel - Analyst

* Joern Iffert

UBS - Analyst

* Patrick Schwendimann

ZKB - Analyst

* Cathal Kenny

Davy - Analyst

* Ian Hunter

Investec - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to this Aryzta AG German call. The call will be hosted by Gary McGann, Chairman of Aryzta AG, and Paul Meade, Head of Investor Relations. And I will now hand the call over to Paul Meade. Please go ahead, sir.

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Paul Meade, Aryzta AG - Head, IR [2]

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Thank you, Jenny. Good afternoon, ladies and gentlemen, and thank you for taking the time and interest to join today's call. Also on the call from Aryzta is Pat Morrissey, Aryzta General Counsel, CAO and Company Secretary.

And before turning over this call to our Chairman, Gary McGann, I would like to draw your attention to the mandatory forward-looking statements for all Aryzta releases. The forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments.

Now I will pass the call to Gary, who will make some introductory remarks and then take questions. Over to you, Gary.

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Gary McGann, Aryzta AG - Chairman [3]

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Thank you very much, Paul, and again, good morning or good afternoon, ladies and gentlemen, wherever you are, and thank you again for taking time to be with us for some of you for your second call today.

As Paul has mentioned, I don't propose to do deal with either reports of performance or prospects. I was appointed as non-exec Chairman 12 weeks ago, and I'm going to frame my remarks in that context. I'm hosting today's call particularly in the spirit of shareholder engagement.

I've already spoken with a number of our shareholders and intend to meet with many more of you in the coming weeks and months. And while opinions and time horizons may vary, shareholder views are respected at Aryzta and will inform the Board's thinking on major strategic and capital allocation decisions. This will be at the core of our shareholder engagement. Shareholders have entrusted us with their capital, and as a Board, we have a responsibility to deploy that capital in the best long-term interests of Aryzta.

In the course of shareholder engagement, the recurring question is whether my conviction now is at the level it was on appointment on December 13. And while the scale and scope of the challenges which we are currently addressing are more significant than I originally expected, I do retain my absolute belief in the inherent strength of Aryzta. These include a well-invested asset base following a significant capital investment cycle, cash flow generation capability, a unique infrastructure with a strong franchise in the specialty baking industry and the current and emerging talent within the business.

Let me give some perspective on the challenges we face. From a strategic, financial and operating environment point of view, Paul has already taken you through the half-one numbers, which include the immediate financial challenges facing the Aryzta business. Again, a question I've been asked is whether the core elements of the business are now ex-growth and if current margin structure is the future margin structure. The simple answer to that question is that I don't believe so, but it is too early for me to call.

What we can say is that as you would expect, we would conduct a detailed business review against current and expected market conditions. Any assumptions we then make will be grounded in deliverable reality to better frame expectations of future performance. With an immediate focus on deleveraging, we would see cash flow as a more relevant performance measure in the near term.

In operating terms, you've seen the impact of negative operating leverage on the half-one performance. Optimal capacity and utilization rates to reflect current and expected demand will form part of our business review. Beyond any pricing initiatives, the most immediate management task it to increase operating efficiency to better reflect today's market conditions.

Strategically, a detailed review would extend to the current business model and directions. We understand the concerns some shareholders have expressed, and these views will be carefully considered as part of an overall business review.

More immediately, we've announced our intention to review options for our stake in Picard. In the right circumstances, we would consider monetizing our stake, and any proceeds from which would be applied towards our deleveraging objectives.

Turning to management succession, we previously announced that our CEO, Owen Killian, our CFO, Patrick McEniff, and CEO of the Americas, John Yamin, had previously tendered their resignations. We now confirm that they will depart at the end of March. We would again record our sincere appreciation for their service to Aryzta and their contribution in building a strong industry franchise. Our immediate priority is to ensure that we have the right team in place to provide stability and continuity for all our stakeholders.

We appointed three new members to our executive team. That's Dermot Murphy, who is the COO of Europe; Ronan Minahan, the COO of the Americas; and Rob O'Boyle, COO of Asia-Pacific, Middle East and Africa. Collectively, they have combined experience of more than 40 years with Aryzta, and each brings deep knowledge of the business and the industry. This executive team is supported by a strong leadership team, including Seb Gooding, who is Director of Operations in Europe; Tyson Yu, the President of Canada; and Brady Millerberg, Head of our Group Public Reporting and Financial Controls.

This senior team, together with the executive management, will ensure Aryzta remains fully focused on driving the business forward and delivering for our customers during this period of significant transition.

We have also announced today the appointment of an Interim CFO, David Wilkinson. David is a Senior Partner in KPMG Dublin, who is currently head of transact services, corporate finance and advisory services. He has come into the role with immediate effect and will review the quality and effectiveness of our budgeting and forecasting. David will support our executive management team on the priority of maximizing free cash flow generation and delivering returns from our invested capital base. He will also play a key role in supporting the review of our business model and direction.

Our next step is to appoint a new Group CEO and Group CFO. We are already fully engaged in that process, and we have appointed a leading international recruitment firm, Russell Reynolds, who together with the Nominations Committee specifically and the Board generally, are working assiduously towards this objective. Our intention is to find the best candidates for each role as quickly as circumstances permit. This will inevitably take time. In the meantime, we have a capable team in situ providing the necessary continuity and stability I mentioned.

Turning to governance and stewardship, on the issue of succession and stewardship, as a Board, we are also committed to continue to strengthen and deepen our skill set through the process of Board refreshment and renewal. Our objective is to ensure we have the appropriate plan with skills and expertise to assist in setting the strategic direction of the business, providing oversight, governance and engagement with the management team.

With the support of a global search firm Korn Ferry, we are well advanced in our efforts to identify one and possibly two new non-executive directors to enhance the skill set and experience on the Board and to increase its diversity. In terms of my own role and consistent with the commitment given on appointment, I have already indicated my intention to step down from two public company boards by the end of June.

Turning to culture, for the Chairman and the Board, there is also responsibility to define culture or to set the tone from the top. For any culture to be effective, there also has to be an echo from the bottom. More specifically, it has to be embraced by and permeate through the organization as a whole.

As we continue to evolve our culture, we will work on achieving even greater ownership and accountability within Aryzta. We will also benchmark major strategic or capital allocation decisions against our own inherent fair market value. We will treat capital as if it were our own. In this context, we will also enhance our focus on shareholder engagement by enhancing and improving communication with shareholders. This will be aligned with our long-term strategic direction, and our intention is to embed, resource and reward the evolved culture.

As set out in the first-half release this morning, we have both increased our covenant headroom and extended the maturity profile of our EUR614 million term loan facility by 12 months to 2019. Increased financial flexibility, together with strong free cash flow generation capability, provides us with more time and space to transition to new leadership and to optimize our business model and direction.

To conclude, we very much appreciate you taking the time to participate in today's call. As you would expect of any non-executive chairman, and particularly one 12 weeks in, I don't have all the answers. But I believe I'm asking and will continue to ask the relevant questions.

Of greater significance is that those questions are being embraced throughout the organization. I believe Aryzta has a unique franchise, and that in time, we can address weakness and capitalize on our strengths.

In order, our objective is to deliver stability, performance and then growth. I'd like to thank you, and I'm now happy to take questions, but I again would ask that the questions are along the lines of the subjects covered.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Your first question, from Kepler Cheuvreux, comes from the line of Jon Cox. And your line is now open.

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Jon Cox, Kepler Cheuvreux - Analyst [2]

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Yes, good afternoon, guys, and thanks for taking the time this afternoon to talk to us all.

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Gary McGann, Aryzta AG - Chairman [3]

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You're welcome.

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Jon Cox, Kepler Cheuvreux - Analyst [4]

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Actually, Gary, I wonder if you could just further elaborate on what you've seen over the last couple of months in terms of positives at the Company. And as a bit of an add on, following on from your comment, do you think that Aryzta over-earned in the last couple of years in terms of that very strong margin? It seems to be that you said you think not, if you could just elaborate on that as well. Thank you.

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Gary McGann, Aryzta AG - Chairman [5]

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Sure. Again, Jon, thank you for taking the time again and for the questions. Bearing in mind that I am in the position where I have a number of weeks of experience under my belt, and so I'm in that classic position where I have enough information to be dangerous rather than helpful, I need to caveat everything in that context.

However, based on what I've seen, I think we have a very, very significant invested capital base and asset quality across the regions in a variety of different locations. There is no question from the limited amount of exposure I've had to people who know the marketplace and the products that we produce excellent product in a very, very high-quality manner and very food-safe manner. And we clearly have people of enormous experience and knowledge and talent within the greater organization who know this space, understand the space and are capable of doing business effectively in this space.

One of the -- that's the positive. The caveat to those are that we have been engaged in a huge amount of initiatives in a relatively short period of time in terms of capital expenditure on bringing into best-in-class mode many of our bakeries. We have acquired a significant number of businesses and the challenges of integrating them are always harder than people imagine.

We have invested significant, time, effort, focus and all the other challenges associated with implementing an SAP platform across our business. And we have obviously done SKU rationalization, organization, structure changes, etc.

There are a lot of initiatives, the outcome of which, when optimized, will undoubtedly create significant value opportunities for the business, when we look at those against the backdrop of the optimal business model and the winning formulas we have in business sense.

In terms of your question about Aryzta having over-earned, the first thing to say is I, as you would expect, and the Board and the Chairman of the Audit Committee would have satisfied ourselves that the numbers as audited and confirmed by our management and PwC are absolutely correct. So there's no question of any doubts about historical performance and information and numbers and accounting.

In terms of the margins, there's no particular reason, and again, qualifying my answer by saying I'm not long enough around to have forensic views on these things, but there's no reason to my mind and what I've heard and seen to suggest that the -- if I could turn it the other way around, Jon, that current margin levels are more normalized and appropriate. But obviously, that's work in progress and time will tell.

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Jon Cox, Kepler Cheuvreux - Analyst [6]

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Thank you very much.

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Gary McGann, Aryzta AG - Chairman [7]

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Thank you.

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Operator [8]

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Thank you very much indeed. Now, from Berenberg, your next question comes from the line of Fintan Ryan, and your line is now open.

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Fintan Ryan, Berenberg - Analyst [9]

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Good afternoon, and --

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Gary McGann, Aryzta AG - Chairman [10]

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Good afternoon, Fintan.

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Fintan Ryan, Berenberg - Analyst [11]

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Nice to speak to you, Gary. I just had a question in terms of your views on the succession of senior management. Are you considering both internal and external appointees for CEO and CFO? And if anything at this stage, what would be your preference?

And just secondly, would you consider -- I know you've highlighted that the nature of your role is a non-executive Chairman. Would you consider potentially at some -- if things develop in a certain way, would you consider actually taking on a more executive role within the Aryzta organization?

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Gary McGann, Aryzta AG - Chairman [12]

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Well, your second question is a lot easier than your first one, Fintan. I can answer the second one. If I were 10 years younger, I'd jump at it, but I'm not unfortunately. So the answer to the second one is no, I wouldn't consider taking it on. I have commitments to a number of other people, and not least of all my head chef at home, who's not best pleased right now.

In terms of -- but in terms of your first one, which is an important question, clearly, a couple of us on the Board are literally only recently appointed. These developments have come at a relatively fast pace for everybody, including you, over the last two to three months. And so the reasonable position for anybody to take is to take a full look at things and to look at the options we have on appointing the best-in-class CEO and CFO we can find for this Company, which has greater traction and potential going forward.

That in no way suggests that there are no internal candidates, and I would be reasonably confident that we will have internal candidates who will be serious applicants for the roles, and they will be considered fully in the context of the executive search program. But I think in the circumstances, it will be reasonable for any Board and particularly this Board and these circumstances to have done a full, if you like, holistic view on things rather than select from internally or externally.

In terms of preferences, my very clear preference is that we get the right leadership, supported by a top management team driving the business forward. And I wouldn't want to pre-judge it and in any way suggest, for example, any particular outcome will be worse than the other. But I think we will be well served with a decent slate of people who will want to lead this Company both from a CEO and CFO point of view.

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Fintan Ryan, Berenberg - Analyst [13]

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Great. Thank you very much.

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Gary McGann, Aryzta AG - Chairman [14]

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Thanks.

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Operator [15]

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Thank you very much indeed. Now, from Goodbody, your next question comes from the line of Jason Molins, and your line is now open.

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Jason Molins, Goodbody - Analyst [16]

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Hi, Gary. Thank you for taking my call.

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Gary McGann, Aryzta AG - Chairman [17]

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Hi, Jason.

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Jason Molins, Goodbody - Analyst [18]

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My question, a couple of questions if you don't mind. The Company's headline that you're looking at options into Picard and in particular with Lion Capital. I appreciate it's early in the process, but if you're able to talk about what some of the possible options are here, that would be very useful. And also, with regard to some of your other JVs, signature food is obviously a big component as well, so wondering if that's still seen as being core. Is that also potentially being considered?

And then secondly, just in terms of the guidance, obviously, you were in place on January 24 at the last trading update, and there was guidance, so it'd be quite useful just to hear what the change in view with the Board and the decision today not to provide guidance for this year. That'd be great.

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Gary McGann, Aryzta AG - Chairman [19]

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Thanks, Jason. Let me take the first one first. As you called out, I've made some comments about Picard, but also you know that I made a comment that we would look at the total business model, the strategic direction, the areas of strength, areas where we have, to use that cliche, the right to win, and how we optimize the returns on the investment the business has had.

So we will look at the range of different options, and they will incorporate obviously any associate structures or joint venture structures that we have. But specifically to Picard, we've had some very, very clear feedback from shareholders, and I've spoken to quite a number of them and post-January 24, and my focus in discussions with them was their views on the strategic fit, as distinct from any views on the value of having cash for the business rather than having the investment in the business.

And effectively all, quite frankly, were of the view they did not see the strategic fit. So that one specifically is called out against that backdrop. Now, having said that, it's worth bearing in mind, and you'll have seen from the numbers this morning and in the interaction with Paul, that Picard is an exceptionally nice business. It's doing extremely well. It's performing well. It's had a good half year and is a business that can continue to go from strength to strength.

And so priority one in anything we do is not to in any way damage any aspects of our own business or anybody else's business. I think secondly, we have a 49% shareholding plus a call option in that business, and against the backdrop of a strong business, these are valuable things to have, and we want to ensure we properly value those. And so our activity will be pitched in the context of those two realities.

The third one, of course, is there's a 51% shareholder, and their views as to what their intentions are will inform us one way or the other as to what our options are, and the options are fairly straightforward. Either we sell on our own, we sell with Lion Capital or we do something else. But bottom line is that we will monetize this in circumstances where we get adequate value for it and don't in any way damage it.

In terms of guidance, I think it's very important to remember how Boards fulfill their obligations in anything they do. Boards are basically totally dependent on the management team in order to exercise their duties, whether it's duties of care, duties of governance, duties of anything else. Absent a continuing CEO and CFO and having regard to the level of changes that have taken place in the last while, obviously, we issued the profit warning in January. In February, we announced this management transition, and indeed the strategic review of the investment, and we're announcing a further range of initiatives, including the appointment of an interim CFO and the acceleration of the senior management changes.

So we're overseeing a heck of a lot of things, and we're not executive. We're non-executive, so against that backdrop. There is no real alternative for us other than to avoid guiding. It's not that we won't guide, I believe. It's that we cannot guide, particularly. It's just not prudent.

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Jason Molins, Goodbody - Analyst [20]

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Okay, thanks.

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Gary McGann, Aryzta AG - Chairman [21]

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Thanks, Jason.

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Operator [22]

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Thank you very much indeed. Now from Goldman Sachs, your next question comes from the line of John Ennis, and your line is now open, sir.

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John Ennis, Goldman Sachs - Analyst [23]

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Thanks for taking the questions. I've got two. So the first one is, what essentially led to the earlier-than-expected management transition? I'm just wondering what made you move that forward to March from July? Is there anything that's changed in the last month that basically drove you to move that forward?

And then the second question, you mentioned in your opening remarks that free cash flow is the metric to focus on in the near term. I just wondered, is this the key target or KPI you have set for the interim management team? Or if not, what are the key targets you've set them? Thanks.

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Gary McGann, Aryzta AG - Chairman [24]

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Thank you very much, John. In terms of the transition, I think it's fairly straightforward. We look at the amount of currency that's underway, both in terms of reviews of the business model, in terms of seeking succession, in terms of Board refreshment, in terms of bolstering the management team at COO and senior leadership level and recognizing that the end date for the transition of the current management team, being unlikely to have delivered us a new CEO and CFO unless we're extremely fortunate, the concept of having an interregnum of that length of time made no sense.

And by mutual agreement, with Owen Killian and Patrick McEniff and John Yamin, we've advanced it to the end of March in order to ensure that we continue to have momentum, and where there isn't -- for the management team and the business, where there's no danger of trying to second guess which people or which person to listen to in terms of the issues and focus. It was putting management, ongoing management and the senior executive team, in an invidious position, and that was recognized both by the outgoing executives and the Board.

I think in terms of free cash flow, you'll be aware that free cash flow in fact is -- and cash generation has been an important consideration for the business, and while we have made the -- taken the initiatives to amend and extend, clearly, leverage is an important focus issue for us, and deleveraging now that we have the significant capital investment cycle completed, this is a strong cash flow business, but is it important that we drive it hard. And so therefore, absent any complete business reviews or any changes we might make, the most obvious thing where there's never any doubt -- cash is a very simple metric that has no accounting treatments attaching to it for want of a better word.

So it's an ideal measure that is clear to everybody and identifiable and measurable, and we have the only piece of clarity, if you like. We are in a position and comfortably in position to do it is to say that we can deliver over EUR1 billion of debt reduction over four years and reasonably confidently. But to do that, obviously, we need people to drive the cash, and that's the context.

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John Ennis, Goldman Sachs - Analyst [25]

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Okay, thank you very much.

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Gary McGann, Aryzta AG - Chairman [26]

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Thank you very much, John.

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Operator [27]

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Thank you very much indeed. Now, from MainFirst, your next question comes from the line of Alain Oberhuber, and your line is now open.

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Alain Oberhuber, MainFirst - Analyst [28]

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Good afternoon, gentlemen.

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Gary McGann, Aryzta AG - Chairman [29]

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Good afternoon.

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Alain Oberhuber, MainFirst - Analyst [30]

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(multiple speakers) Gary, very good that you give us this presentation. I have mainly two questions. First is regarding your main clients, the QSR. Did you have a lot of discussions recently with them as they were maybe a little bit uneasy regarding the balance sheet and the long-term contracts you have with them? If you could give us a little bit reassuring from that side?

The other thing is regarding your balance sheet. If you keep these two business, Picard as well as flat bread, and with the forecast we currently see, could we exclude a capital increase?

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Gary McGann, Aryzta AG - Chairman [31]

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Well, let me take the first one, and even though perhaps for some people 12 weeks sounds like a long period of time, I haven't really spent too much spare time at home, but I haven't been out in front of customers because we have a CEO and a CFO, and I certainly don't want to confuse the situation.

Secondly, we have a senior management team who are very market-facing. You know, it would be a stretch to say that people weren't concerned about our announcement around profit warnings, and indeed a change of the most senior management team. However, I believe that, from my conversations with the operating team, customers are reassured. Obviously, we will continue to work extremely hard for them. We will continue to drive the business from day to day.

There's nothing fundamentally changed about this business, other than -- it's a big other than, but other than a profit warning and a change of the senior team. But the core business and the people who engage with the customers, and the delivery of products and service and safety and so on for our customers all continues as it is, and we will continue to work hard to reassure customers. And wherever is necessary, I will certainly do my part. But there's no particular factors at play other than one or two ongoing business type activities which you would expect in any business.

In terms of the balance sheet, and in terms of, I suppose, your point about the cash call, it would be a foolish person who would ever say under no circumstances there would be a cash call. However, I'm going as close as it is prudent to say that, in the sense that from -- in the world I've lived in, a cash call from shareholders at any price of the share, but particularly at a depressed price of the share, is the last place you would want to go, and we have very strong cash flow generation capabilities.

What I've said that we would not undervalue the investments that we have in our joint ventures, by the same token there is a prudent valuation that is capable of being got in the market. So I don't envisage circumstances where we wouldn't be able to deliver the EUR1 billion in four years' time, and in those circumstances I don't see any reason why there would be a cash call.

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Alain Oberhuber, MainFirst - Analyst [32]

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Thank you very much, Gary.

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Gary McGann, Aryzta AG - Chairman [33]

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Thank you.

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Operator [34]

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Thank you very much. Now, from Vontobel, the next question comes from the line of Jean-Philippe Bertschy. And your line is now open.

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Jean-Philippe Bertschy, Vontobel - Analyst [35]

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Good afternoon, gentlemen.

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Gary McGann, Aryzta AG - Chairman [36]

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Good afternoon.

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Jean-Philippe Bertschy, Vontobel - Analyst [37]

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First one, to follow up on Alain's questions with the customers, maybe from a different angle. So, you don't have an option of following a capital increase in order to secure the customer base, which is probably key for future cash flow, in my view. So is there an option -- you would do a capital increase, I would say, in a preemptive way?

And the second one, on Picard. You said you didn't want to damage the value. So, for you it's not an option to sell back to Lion Capital at a lower price. Is that a fair assumption?

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Gary McGann, Aryzta AG - Chairman [38]

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Well, I think, first of all, Alain -- let me deal with the second one first. Oh, JP I mean, I beg your pardon.

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Jean-Philippe Bertschy, Vontobel - Analyst [39]

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No problem.

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Gary McGann, Aryzta AG - Chairman [40]

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The -- I'm -- it's too early for us to rule in or out anything around how we might deal with our strategic holding in Picard. Obviously, the conversations I would have had with shareholders, the discussions at board level as to what we would or wouldn't do, are all relatively recent, and therefore the optionality and scenarios we need to consider are very much very current. Obviously, we need to look at that and look at the market for us.

Clearly, this is not something that is new to the market. Picard has been around a few times. But nonetheless, there is -- this is a business that is doing extremely well and highly regarded, and we will look at the various options to ensure that we get the best results for the Aryzta shareholders. I have no doubt that Lion Capital will look after its best interests as well, and between the two of us we have to find an outcome that works for both, because obviously, the company is owned by both of us combined.

We do, just to remind you -- we do have a call option, however, which is not insignificant in these circumstances.

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Jean-Philippe Bertschy, Vontobel - Analyst [41]

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Maybe to be precise, if I may, Gary.

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Gary McGann, Aryzta AG - Chairman [42]

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Yeah.

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Jean-Philippe Bertschy, Vontobel - Analyst [43]

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With no damage. So you mean just to follow the most proper exit, rather than saying there will be no damage in the financial outputs, let's say -- ?

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Gary McGann, Aryzta AG - Chairman [44]

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Yes, I mean --

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Jean-Philippe Bertschy, Vontobel - Analyst [45]

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The option to sell at the low price is not excluded.

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Gary McGann, Aryzta AG - Chairman [46]

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I think there's nobody going to - first of all, we're not going to find ourselves in a distressed sale mode, if I could put it like that. The only reason you'd sell at a low price if the business continues to grow and perform is if you're in a distress mode.

If the business isn't growing, and if the circumstances of the business were different, you might have different reasons to have a different value on it. But at this point in time, there's no reason -- there's no evidence as to why Aryzta should sell at anything other than fair value for this business, and this underlying company is doing well.

So I think if you put the two of these together, that's our starting point. We'll see where we get to, and obviously that may be something that works for Lion Capital, if the business is to be sold as a total, and if not, we have to look at it from our shareholder point of view, and our 49% plus the call option.

On your first question, JP, could I ask you to maybe just restate it, because I didn't quite get it.

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Jean-Philippe Bertschy, Vontobel - Analyst [47]

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Because, I guess when you have this negative press, let's say, in the past two years, probably some of your customers are a bit nervous. The question, to rebound on Alain's question, was whether it would be not, maybe better to make a capital increase to reassure all the players, all the stakeholders, rather than to wait and lose customers, and get into a vicious circle.

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Gary McGann, Aryzta AG - Chairman [48]

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Well, it would be extremely convenient. However, I'm a long time around and have been in a leverage position before, and I've certainly been in at least as challenging a position from the market's point of view, having lived through 2008, 2009 with another company, which we were leveraged and we came through.

What I found worked best for everybody -- customers, marketplace, shareholders and internally -- was to set realistic targets based on good quality business, with targets that people understood and believed in, and then deliver against them, and then de-leverage as a consequence of that. I see absolutely no reason whatsoever why we wouldn't run a similar type of model here.

Calling on shareholders to make life easier for management, or make customers a little bit more confident as is seen from delivering well for customers and getting paid properly, and making sure that the relationship is good, I think is probably the last place we would consider going. But I recognize that I'm 12 weeks into the place, but have no sense that would be a direction we would want to go, for any reason.

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Jean-Philippe Bertschy, Vontobel - Analyst [49]

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Very helpful, thank you very much.

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Gary McGann, Aryzta AG - Chairman [50]

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Thank you.

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Operator [51]

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Thank you very much. And now, from UBS, your next question comes from the line of Joern Iffert. And your line is now open.

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Joern Iffert, UBS - Analyst [52]

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Yes, hello, Gary, and thanks for taking my questions.

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Gary McGann, Aryzta AG - Chairman [53]

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Hi Joern.

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Joern Iffert, UBS - Analyst [54]

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The first one is, if you look in the company set-up, being active in the B2B business but also B2C. I know you are only a couple of weeks the new Chairman, but does this set-up make sense to you, or is it not rational to exit the B2C business, only focusing on B2B, and become a key outsourcing partner for key customers? This would be the first question.

The second question, the global footprint. Does this make sense for you, initially?

And the last question would be -- I mean, I of course know that you also are only a couple of weeks in the business, but if you look at potential cost savings linked to the utilization which is now at 65% to 70%, where do you think should be fair utilization level the next two to three years for this company? Thanks very much.

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Gary McGann, Aryzta AG - Chairman [55]

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Thank you very much, Joern. I think, at this point in time, Joern, bearing in mind that oneo f the major discussions we've had as a board, we've had with management, and given the relatively recent development of a number of these challenges, or the perception of these challenges, I'm not going to call out what the right outcome is.

I have listened and heard, and will continue to listen and take on board, as will the management team, and the feedback from people who believe certain parts of the business may not be sitting well with other parts of the business, or certainly may not sit well in the same channels as other parts of the business.

However, to basically pin something to the -- to pin my colors to the mast now, I think, would be to put it mildly, imprudent, given the relatively limited knowledge that I have. I mean, what I can reassure you is that this is the essence of what we as a board and a management team are setting out to do in the near term, to understand better -- to use my language, where we have the right to win, and to ensure that that's compatible with all parts of the business.

You never have the right to win if customers are not happy, and so therefore, whatever we do has to ensure that we have, for want of a better word, a USP with our customers. If elements of the business are incompatible with each other, it's something we'll have to address in those circumstances.

Global footprint, there are two ways for businesses to grow. One is to grow your product range, or the other is to have a narrower product range in a wider geographic base. Maybe we have a little bit of both in Aryzta. I don't know enough yet. But I wouldn't dismiss global footprint if there's either an international customer base and a product range that has the ability to travel, and whatever else.

But it does lead, to some extent, into your third question, and that is, at the end of the day, shareholder value is created by maximizing returns on invested capital. So the whole issue of capacity utilization is and will be a key focus. We have very, very significant assets. We need to drive those assets and sweat them fairly hard, and constantly engaging in massive capital investments with delayed returns on them is not a way to actually maximize shareholder value, so we have to find a way of getting in the right balance.

These are all part of the overall business model strategic review, and certainly you've called out a number of these in your questions.

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Joern Iffert, UBS - Analyst [56]

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Thanks. Thanks for your answers.

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Gary McGann, Aryzta AG - Chairman [57]

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Thank you very much, Joern.

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Operator [58]

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Thank you. Now, from ZKB, your next question comes from the line of Patrick Schwendimann. And your line is now open.

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Patrick Schwendimann, ZKB - Analyst [59]

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Good afternoon, Gary. Good afternoon, Paul. Is there any plan to abolish the adjusted earnings? That's my first question.

Second question; there are no--

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Gary McGann, Aryzta AG - Chairman [60]

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Sorry, Patrick, would you repeat that one please?

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Patrick Schwendimann, ZKB - Analyst [61]

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Is there any plan to abolish the adjusted earnings in the future?

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Paul Meade, Aryzta AG - Head, IR [62]

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Yes, we got that, Patrick.

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Patrick Schwendimann, ZKB - Analyst [63]

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Second question; there was no goodwill impairment despite the significant fallout of sales in the US the last couple of years, and a significant margin drop now. With you as the new Chairman, and the arriving of a new management, wouldn't it make sense to be a little bit more prudent now in terms of goodwill assumptions?

And third question's regard the former Head of Europe, Frank Kleiner. He was also stepping down. I was a little bit surprised to see that, because he was some sort of an outsider, because I think he came to Aryzta about two years ago. What was the reason for it? Thank you.

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Gary McGann, Aryzta AG - Chairman [64]

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So on the issue of the first one, on abolishing adjusted earnings, Paul, do you want to take that one?

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Paul Meade, Aryzta AG - Head, IR [65]

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We have reported our earnings on an adjusted basis as you know, Patrick, reflecting the amount of investment that has been taking place, etc. But you also know that the exceptional charges and the non-recurrent charges have been declining substantially. They would have peaked at just in excess of EUR100 million, so they're well back from that level. We have indicated in the past that the only difference between reported earnings and adjusted earnings would ideally be the treatment of goodwill, where we have made significant moves in that regard, and the cash non-recurrent costs were all clearly called out in terms of the change program as we moved through 2014 and 2015.

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Gary McGann, Aryzta AG - Chairman [66]

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And just to add to it, I think we've had initial conversations, but our clear objective is to have very -- as clean a set of numbers as is reasonably possible for any company in the PLC world, and you can take it that that's recognized as an objective and priority that would suit your needs and ours as well. So we take on board any concerns that you might have had on that.

On your point on goodwill, would it not be prudent to take it -- I mean, you need to rest assured, Patrick, that we will be acting prudently and we are acting prudently. But goodwill impairment is a very clear process which has a very well defined and understood mechanism involved in it. It is clearly something that you have to regard to, and did have regard to, and will at the year-end, and in the event that there's a goodwill impairment needed, then we will have to take it. It's not a question of whether we want to take it.

Volunteering for goodwill impairment unnecessarily is, to my knowledge and my view, not necessarily prudent per se, so I think we are mindful of it, and what we've called out today is a reality of where we are today.

Clearly, headroom is not as good as it was, but there's this clear mechanism, and we are engaged already in reviewing the business model and the direction of travel of the business, and we confidently expect to be able to improve things, and therefore if you improve things then a goodwill impairment doesn't arise.

And then your third one, on Frank Kleiner. I can say to you that just before I joined the board, indeed, I was informed about the CEO who had left for absolutely personal reasons. Frank was planning to step down. It pre-dated anything to do with profit warnings etc. and while we are disappointed that Frank is stepping down, we fully understand his reasons and wish him absolutely well. He's held in high regard, and leaves us with our best wishes.

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Patrick Schwendimann, ZKB - Analyst [67]

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Okay, thanks a lot.

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Operator [68]

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Okay, thank you very much, sir. Now, your next question from Davy comes from the line of Cathal Kenny, and your line is now open.

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Cathal Kenny, Davy - Analyst [69]

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Thank you. Good afternoon, Gary. Good afternoon, Paul.

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Gary McGann, Aryzta AG - Chairman [70]

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Good afternoon, Cathal.

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Cathal Kenny, Davy - Analyst [71]

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Three questions from my side. First of all, to yourself Gary, I know you're only in there 12 weeks, but Aryzta's history, I guess, has been one of acquisition and intensive investment. How integrated do you think those actual acquisitions are within the overall enterprise?

My second question relates to the role of COO. Just wondered have you given that any consideration, given that was under the remit of Patrick.

My final question, just a clarification. I think in your opening remarks you suggested that there was a detailed business review that was going to be put in place. I'm just wondering, is there a timetable around that, and when you'll be in a position to share the output of that with the markets. Thank you.

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Gary McGann, Aryzta AG - Chairman [72]

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Thanks very much, Cathal. I mean, firstly, on acquisitions, investments etc. I think what I said earlier was, there's a heck of a lot of activity that's gone on, all of which were challenging in their own right as acquisitions. Capital investment programs are very substantial in nature. SAP implementation, SKU rationalization, etc. and I think there's probably no doubt that there's further room for integration in all of those.

It's enormously challenging. For any of you who have been in business, all of those of which I've been involved in in one form or another over many years, each of them in their own right are challenging to complete and execute to the pro formas. So putting them all together in a relatively short period of time is a monumental task, and my guess, and this is again back to -- I don't have forensic knowledge of it -- my guess is there's further distance to travel on those in terms of integration and optimization.

In terms of COO, , I don't want to call out what the structure will be going forward, because obviously one of the challenges is to ensure that we continue to run the business, serve the customers, stabilize the organization, start to improve the morale. It's not just externally people are taken aback. Obviously, internally people are as well. So we've got a very experienced, strong, senior executive and executive management team in place, and their roles are as COOs of the three main regions.

We aren't out recruiting a CFO/COO. We're out recruiting a CFO. So, while I don't want to call it out as never say never, because a CEO needs to have the freedom to be able to at least make a very strong pitch to the board as to how he wants to run the business, my sense is we probably will not have a CFO/COO, and certainly we're not out recruiting one. I think what we will have is COOs of the regions as we've appointed, and these are long-experienced people in the space.

Then the review, Cathal, I don't want to create a ticking clock here, but I equally recognize we're not guiding the market because -- or they're not in a position to. But the circumstance in which all normality will prevail for a PLC is when we have a management team leading the business against a business model we believe we can win with, and giving a sense of direction to investors as to where we think we can take that business.

There isn't any particular piece of work that we're doing that has a eureka moment at the end of it that we say the review or the appointments are all done and dusted. But what I think is reasonable for any analyst or shareholder to expect is, probably by the end of this year, we need to have a sense of direction of where we're going from the business point of view. Ideally, in a perfect world, we'd have new management on board and be starting to carve out and craft the footprint on which we're prepared to operate in a progressive and broad fashion, but that's work in progress.

So it's not that there's a big review that will have a beginning, a middle and an end, but there is certainly a need to look at where we can integrate more, where we can optimize the sweating of the assets and capacity utilization, how some parts of our businesses sit side by side, or not as the case may be, and so on.

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Cathal Kenny, Davy - Analyst [73]

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Thank you.

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Gary McGann, Aryzta AG - Chairman [74]

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Thanks for coming.

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Operator [75]

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Thank you very much indeed. And our last question, from Investec, comes from the line of Ian Hunter, and your line is now open.

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Ian Hunter, Investec - Analyst [76]

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Good afternoon, Gary.

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Gary McGann, Aryzta AG - Chairman [77]

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All right, Ian.

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Ian Hunter, Investec - Analyst [78]

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Maybe just a follow-on from that last question, just to clarify when you were giving out general guidance on the timeline, by the end of this year, is that fiscal or calendar?

And then secondly, we've talked a bit about Picard, but I was just wondering if you'd had time to look at the relevance, and again it's following on from an earlier question which maybe wasn't fully picked up on -- the relevance of Signature Foods and La Rousse foods to the business, or maybe it's too early. I'm not sure whether you can give us a comment on those two things, Gary.

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Gary McGann, Aryzta AG - Chairman [79]

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Sure. I think it's more likely to be around the fiscal rather than the calendar year end. I think we would reasonably hope, by the time we're talking to people at the yearend on our results, that we would certainly have a lot more clarity on appointments, a lot more clarity on some of our businesses, etc. But that's kind of in our mindset, but it's not a drop-dead position. Obviously, we've got a lot of work to do between now and then just to get our heads around it.

On the other companies -- Signature and Larousse you called out, et cetera, I think again they'll be part of the overall review, which is what you would expect. But I think the reason that Picard has been calling out specifically is A, the size and scale of it, and B, the fact that the investor marketplace has unequivocally pronounced on that one, and at the end of the day we need to listen to shareholders and action it in the appropriate manner.

We believe the appropriate manner in these circumstances is, in the right circumstances, to seek to monetize the investment to our value, the proper value.

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Paul Meade, Aryzta AG - Head, IR [80]

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Just on that, Gary, may I add, Ian, there has never been any mention of La Rousse. So in terms of our -- so it's not on, in terms of what has been called out. We've primarily highlighted the joint venture investments, which relates to Picard, which Gary has explained around the investor feedback, and Signature Foods. So any reference to La Rousse is primarily a fishing expedition by yourself.

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Ian Hunter, Investec - Analyst [81]

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Cool, thank you very much. I'm nwt a fisherman as well as a hunter. Finally, am I right to think that when you've got an interim CFO in place, he will just be that? Or will he be part of doing the rigorous process, or are you leaving that until you appoint a full-time CFO?

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Gary McGann, Aryzta AG - Chairman [82]

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Let me just add to Paul's one theme, because I hadn't quite (inaudible). One of the things, and you forgive me if I push back on this, but one of the things that is unhelpful to any company that is in flux is for people to be publicly talking about pieces of it, as if it were almost kind of a coconut shy.

This is an integrated part to our business. It is an important part of our business, and it's a core part of our business, and the only piece that shareholders have been focused on is primarily Picard, not even Signature. But we will look at Signature. So just to re-emphasize, it is not -- it hasn't -- I can tell you, with hand on heart, it has not even been a subject that has been mentioned at the board, and it wouldn't because it doesn't fit there. So I just wanted, for the sake of absolute clarity.

On your point on the CFO, the CFO is and is precisely that. However, he's not there just to occupy a chair, but equally he is not a candidate. Absolutely, unequivocally, not a candidate for the CFO role, and actually it's part of the contract of engagement with him and with KPMG that he would not be.

But he is an experienced person, knowledgeable in the space of business transactions, an asset and a support to the executive management team and the finance guys, an extra pair of hands and an experienced head, and we don't expect him to be basically an observer. So he will be actively engaged with the team, whilst trying to ensure that any of the good value work is embedded in our longer-term permanent team, as distinct from in his head and walking out the door with him.

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Ian Hunter, Investec - Analyst [83]

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Okay, thanks very much.

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Gary McGann, Aryzta AG - Chairman [84]

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Many thanks.

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Operator [85]

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Thank you very much indeed. I would not like to pass the floor back to Mr. McGann for closing remarks.

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Gary McGann, Aryzta AG - Chairman [86]

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Thank you very much indeed, and again thank you all for taking the time to participate in today's call. We hope to meet with many of you over the coming weeks and months, and I can say as a board we carefully consider the views of all shareholders, and we've set a direction we believe to be in Aryzta's best long-term interest, which in turn is in shareholders' long-term best interest.

Again, thank for the time, and have a good day.

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Operator [87]

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Thank you very much indeed. So with many thanks to our speakers today, that does conclude our conference. Thank you all for participating, and you may now disconnect. Thank you, gentlemen.

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Gary McGann, Aryzta AG - Chairman [88]

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Thank you, Jenny.

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Operator [89]

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All the very best, thank you.