Aryzta AG Capital Markets Day
Oct 06, 2016 AM CEST
ARYN.VX - Aryzta AG
Aryzta AG Capital Markets Day
Oct 06, 2016 / NTS GMT
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Corporate Participants
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* Owen Killian
ARYZTA AG - Founder
* John Yamin
ARYZTA AG - President & CEO
* Ronan Minahan
ARYZTA AG - COO of Americas
* Tyson Yu
ARYZTA AG - President of ARYZTA Canada
* Andrew Brimacombe
ARYZTA AG - President of US Consumer Foods
* Tracie Sheehan
ARYZTA AG - Chief Health, Quality & Sustainability Officer
* Scott Fitzgerald
ARYZTA AG - SVP, Innovation
* Kristina Dermody
ARYZTA AG - President, Brands
* Patrick McEniff
ARYZTA AG - CFO
* Frank Kleiner
ARYZTA AG - Managing Director of European & APAC Bakeries
* Dermot Murphy
ARYZTA AG - COO of Europe & Managing Director of ARYZTA Food Solutions
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Presentation
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Owen Killian, ARYZTA AG - Founder [1]
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First of all, I want to say good morning and thank you very much for taking the time to be with us. It's a big undertaking to come so far and we want to make the most of your time. Our objective for the next five to six hours is to give you a deep understanding of ARYZTA.
We are going to focus today mainly on our North American business because it's here that we have recorded the weakest underlying revenue growth over the past two years. So taking a deep dive into North America will help you to understand who we are, what we do, how we work and how we intend to succeed. You should then be in a much better position hopefully to make up your minds on our investment case and if it fits into a portfolio for long-term value creation.
So we exist primarily to provide great food to people with busy lifestyles. It doesn't get much more complicated than that. Our mission is to be the leader in an attractive market, to deliver high quality memorable food experiences to consumers by partnering with food professionals and large-scale foodservice and retail customers.
19 years ago we evolved from an agribusiness by defining a niche in which we could profitably play in what was a food sector dominated by big brands and big retail. You need to understand why we focused on bakery, why frozen and why our obsession with the consumer.
You should also understand the essential components of value creation which have guided us throughout this journey. We were flour millers and bakers and food distributors before embarking on this strategy to diversify.
I guess we're in a bakery; it's important to reflect on the history of baking and its origins as one of civilized man's oldest foods. It's over 6,000 years ago that the Egyptians first discovered sourdough bread and its use spread across all of the Mediterranean, which was the center of the world at that time.
In 700 BC the Etruscans and later the Romans cultivated wheat in Europe and the ARYZTA or the ear of wheat became synonymous with the harvest and we took the name of this Latin noun primarily because of its significance.
In 1860 Parisian bakers first created the baguette so that wealthy Parisians could enjoy ultra fresh bread with a shelf life of only six hours. By doing so, a craft industry emerged from what was a very time-consuming domestic chore.
It wasn't until 1961 that the Chorleywood process using no time dough revolutionized the bread industry and transformed it from a local craft to an industrialized sector using very refined white flour with high water absorption properties to yield a soft loaf which was sliced, wrapped and distributed throughout grocery stores. I guess we are all familiar with it.
This marked the demise of many local bakeries in Western markets, particularly in English-speaking markets in North America in Canada, USA, in Ireland, UK and Australia particularly.
Increasingly the consumer came to rely on the convenience of this shelf stable bread which remained fresh without mold for many days after purchase. It was convenient for busy consumers to have long shelf life stable bread in their kitchens, but it was an enormous compromise when compared to the experience of freshly baked bread.
30 years ago there was another technological breakthrough which was to change the game again and bring freshly baked bread back to consumers. Par baking or baking to a 70% or 80% finish followed by ultrafast freezing to arrest the baking process allowed for the extensive distribution of frozen ready-to-bake bread followed by a bake-off process.
This technique facilitated oven fresh baked goods to be available to consumers wherever they shopped or dined and was particularly valuable for food-on-the-go as the bake-off could be carried out by very skilled but unqualified people without an expensive bakery investment and with a very small footprint in expensive high street locations.
It was discovered that freezing works particularly well for all baked goods and dough. ARYZTA has been leading the expansion of this sector for 19 years since IAWS Group PLC bought Cuisine de France in December 1997, coincidentally the same year that Freddie Hiestand listed Hiestand in Zürich.
We have invested over EUR4.5 billion to build out our strategic position over this 19-year period. La Brea Bakery from Los Angeles were among the early adopters in North America and introduced real bread to the American consumer by taking sourdough beyond what was then a local San Francisco tradition ever since the Gold Rush.
And if we talk about the Gold Rush for a moment, pioneers baked their bread daily and retained a piece of dough inside their clothes as they crossed the Rocky Mountains to keep it warm and fermenting as they traveled. And this became the starter for the next day's batch from which they retained another piece.
And sourdough using natural bacteria and wild yeasts to ferment the dough is the complete opposite to the modern bakery process introduced in the 1960s. No time dough means no time dough, no fermentation.
The fermentation breaks down the gliaden which is the least digestible component of gluten. So there is an issue in relation to the health characteristics of all of this. You are going to taste La Brea Bakery's sourdough later and you are going to taste the difference. I have yet to meet anybody who doesn't love La Brea Bakery breads. Thank you, John.
ARYZTA's business in frozen food -- so we should focus on the role of freezing in our business. First of all, we need to understand commercial freezing is not like domestic freezing. Commercial freezing reaches minus 20 degrees at core in a fraction of the time it takes in a domestic freezer. And it's the rapid freezing process which arrests spoilage, locks in nutrients and vitamins, flavors and textures.
Freezing is nature's preservative and it solves the shelf life problem without the need for artificial preservatives and mold inhibitors. Freezing overcomes the supply chain challenge of fluctuating supply and demand. Freezing dramatically reduces food waste in all stages of the supply chain.
And this issue will elevate insignificance for the connected, concerned, activist consumer that we see today as the global population expands to 9 billion people all expecting better nutrition and not just the 10% to 20% of the population who have probably been over consuming for the past 50 years.
Freezing extends seasonality, ensures local specialties can be more globally available without excessive preservatives or excessive air transport. Ultimately it is safer; and the consumer who understands frozen knows that only ultra fresh or ultra fresh frozen can deliver on a culinary experience.
Frozen has been the critical enabler for the expansion of par baking and the growth of this attractive niche market over the past 25 years. ARYZTA has now an extensive globally connected frozen supply chain as part of our core competence.
Most Western consumers, while enjoying the convenience of white sliced bread since the 1960s, have also enjoyed the benefits of processed food and the convenience of packaged goods known as fast-moving consumer goods in grocery stores.
I guess 1960 to 2010 has probably seen the golden years for big food and big retail supported by strong marketing campaigns with Western consumers becoming more detached from food origins, more urbanized and less connected with farming.
This period has also seen the growth of waistlines with increased obesity as foods succumb to the patterns of consumerism and more sedentary lifestyles. The recession which gripped consumers combined with the emergence of a very knowledgeable connected consumer has brought an abrupt end to the 50-year pattern of consumption and consumer behavior.
Everywhere we see a renewed engagement with food, particularly among the younger consumers classically labeled as millennials and Generation Z, but by no means confined to specific age groups. In fact they are more defined by their behavior.
This evolving consumer likes to prepare food, to connect with the food and with friends to socialize, to relax, to be creative and to be healthy. This consumer is informed by and motivated by experiences and by engaging with the unique and the bespoke. This consumer is skeptical, taking obesity and health issues very seriously and is concerned about lifestyle and quality of life issues.
In food, this consumer is motivated by and actively engaged in trends like local, seasonal, organic, free from, as well as issues like environmental issues, animal welfare, fair trade and labor practices. This consumer is an activist, is opinionated, and communicates to an ever wider social circle.
This consumer is channel irreverent, switching from online to off-line at will and blurring the lines between all traditional channels and is disrupting most established incumbents in every market. Every significant change in our market segment in the past nine years can be directly attributable to consumer behavior and how this has impacted our immediate customer.
The evidence of renewed engagement with food is all around us. Chefs have become superstars and celebrities. This chef can now easily reach out of his kitchen to connect with millions of consumers online using YouTube.
And preparing a meal immediately connects the consumer with food quality. The renewed interest in quality leads to a deeper inquiry into nutritional value, source, provenance, flavors and how food connects together.
Picard fits perfectly within the ARYZTA strategic guardrails. Uniquely the French consumer never lost their connection with food over the past 40 years; even sliced bread didn't hit the markets to any extent in France where you still have 35,000 boulangeries.
The French consumer is today exactly where the modern connected consumer whom I described earlier is trying to get to. They are passionate about food, they understand their food, they understand the power of frozen. Picard should claim some credit for this because Picard never succumbed to the temptation to become a frozen food retailer.
Picard is a specialty food innovator. They use frozen strategically to ensure a great consumer experience. They use brand strategically to connect with the consumer's values and they use retail strategically like a boutique.
Picard is one of France's most popular brands for very good reason. It resonates with the French consumer values and delivers on the experience every time. A brand is really only relevant if the customer owns it, loves it and desires it and Picard is unique.
Taking Picard to a wider market has its challenges. Most consumers have had a poor experience with frozen food in retail which is regularly over-processed and of poor quality. Being cheap or getting two for the price of one doesn't really cut it with this modern connected consumer will not compromise on personal values and who now really controls the conversation.
There are differing food cultures informing food preferences outside of France. The rapid expansion of online may require a different go-to-market strategy in different cities. The consumer engagement with food is an emerging trend compared with a deep cultural connection in France. And apart from that consolidating Picard from an ARYZTA perspective has its challenges including the financial performance of both ARYZTA and Picard.
We are also very conscious of the need for a broad shareholder support for the investment case and we are actively engaged with and listening to shareholders to understand the very different perspectives on the proposed transaction.
It's important for us to know that ARYZTA has a call option in relation to the outstanding shares in Picard exercisable in FY19, FY20 and FY21. There is no push option and no circumstance in which ARYZTA can be forced to acquire the balance. Our motivation to acquire Picard is future relevance in niche frozen food market and value creation for our shareholder.
ARYZTA has defined a space in which it can profitably operate and influence. Our strategy has been further refined by certain guardrails which have informed our decision-making over the past 20 years.
Center stage in our strategy is innovation and you will hear a lot more about this today. Innovation is critical to our future relevance and it's the reason why we are invited into the conversation by our large-scale customer partners who expect that we bring insights to improve their business.
Our strategy is to progress up the value chain with the scale to lead our niche market. Our strategy is to optimize our technology, our processes and our infrastructure. Our strategy is to expand our customer access, our channel access, our geographic access and our food capability. Our strategy is to grow organically. And we only acquire if an acquisition enhances our strategic position or helps us to achieve our goals faster.
Critical to our strategy is the culture within our business. We aim to be a learning organization in which our people can grow and develop by sharing best practices, continuous improvement, by being passionate about our food and about our customer service. We aim to be locally entrepreneurial and obsessively customer focused.
After 20 years ARYZTA has an international footprint in 29 countries, concentrated in Europe and North America. A revenue of just under EUR4 billion is just under 50% in North America, 45% in Europe and 6% in the rest of the world. Just over half our business is concentrated with our top 20 customers with the greatest concentration here in North America.
We service over 100,000 customers in total with almost 300,000 points of sale which we service with a globally connected frozen supply chain. We play in a niche segment of the food industry which is aligned with the values of modern consumers.
Our geographic concentration broadly mirrors the market concentration in the developed world. And that shouldn't surprise us because higher labor costs and higher incomes favors the development of specialty bakery. And this is because the economics works better for the 300,000 outlets we service where managing labor cost is model critical. Higher incomes usually are indicative of a consumer who may more highly value the premium specialty.
We over index with higher value foods as you can see. Since listing ARYZTA in 2008 our profile has changed dramatically from a largely European asset light business servicing independent customers to a more capital-intensive business serving larger customers with more sophisticated supply chains.
While our market share has expanded you will note that our growth was all acquisition driven and we even lost some market share in Europe over the period as independents were more severely impacted by the consumer recession. 50% of our business in Europe is focused on this independent channel.
It is entirely innovation lead in order to bring specialty differentiation to enable those independents to offer unique and differentiated food experiences to their consumers. This sector is now back in growth for us.
We also repositioned to service large customers in Europe including the discounters whose entry into the bakery market has been disruptive for most of their competitors. We needed the acquisitions to strategically position or business across all channels to reach consumers.
ARYZTA is the market leader in a largely fragmented market particularly in North America where we have lost market share recently through exiting certain businesses, SKU rationalization and contract renewals. You are going to hear a lot more about this and also about how we plan to win during the day.
Europe has become better invested partly due to the investment to support the rapid expansion of German discounters with in-store bakery in recent years. The frozen bakery market is one-third fragmented in Europe compared with two-thirds in North America.
This is our customer USP and it's really important and how we interface with our large customers. Again you are going to hear much more about this during the day and I expect you'll get a great appreciation for how we go to the market, the timelines involved in displacing competitors and the importance of every piece of this jigsaw when we are interfacing with customers. This jigsaw is not put together for the benefit of our investment community; it is put together for our shareholders.
Frozen specialty bakery has a relevance for every operator in the high street. The welcoming aroma of baking has an emotional impact on consumers and encourages more impulse purchase; more frequent visits and a larger basket of total spend. Operators can reduce waste, it can manage their labor cost, it can reduce their investment and offer a much wider selection of dough types.
The frozen specialty bakery is also aligned with consumer preferences for clean label, because with frozen you don't need the preservatives and additives necessary for long life shelf stable foods.
ARYZTA's business model is very responsive to innovation and trends which typically progress from fine dining, casual dining, quick service restaurant and specialist retailer to the convenience and the large-scale foodservice and retail stores. And there's maybe a three- to five-year lag between innovation at the chef level with the connected consumer and it being taken up at the end of that chain.
ARYZTA has a long history of value creation since listing in 1988 almost 30 years ago. 10 years after commencing our journey into frozen specialty bakery we believed it had sufficient momentum to separate it from the rest of the business which we listed as Origin Enterprises. The businesses within Origin have been flat for over a decade but were refocused and energized by the IPO and the separation.
Origin ultimately returned over EUR1 billion in cash to its founding shareholder by the time it was sold last year. We had financed our investment in Origin by issuing perpetual bonds known as hybrids and that's basically because we like to have our cake and eat it. We used the capital value of Origin to help grow our food business. Our current joint ventures are now financed by these same hybrids.
We saw Picard as an excellent way to progress up the value chain into a sector aligned with our strategy. And we saw the asset swap from Origin as a really attractive long-term value creator. We estimate that the equity value of our joint ventures will exceed the value of the hybrids within about three years.
It's clear from looking at the share price and its performance over a period that our shareholder has not reaped the benefits of our progress particularly in recent years. The enormous investment in infrastructure and capability has not yet converted into the underlying revenue growth that will give us positive operating leverage and increased return on invested capital.
This is the big opportunity for ARYZTA. We have started in financial year 2016 to invert the capital allocation of recent years so you can now see free cash integration. We believe this to be sustainable from a very well invested asset base. And the purpose of the next few hours is to give you an understanding about how we approach our customers and how we expect to deliver revenue growth beyond the market.
And I guess finally to level set our Markets Day, we have a fully invested capacity to achieve a 25% increase in revenue, 40% increase in EBITDA and to continue to show very strong cash generation. Clearly this requires a step change in underlying performance. It requires a rigorous capital discipline, but all the building blocks are in place.
So, ladies and gentlemen, I am now going to hand you over to my colleague, John Yamin, who last presented in this room, John, I believe six years ago as one of five CEOs in North America. So John is a survivor. He took on this leadership role in September 2012 just as we started our transformation journey. He was supported by Ronan Minahan whom you are going to meet later, Tyson and many of the executives who are going to present to you here today.
And while we share all of your disappointment with the financial performance of our business, including our business in North America, I have to say that this team have navigated a complete transformation, they have rolled out a single instance ERP with SAP. They have closed down our DSD with 50 distribution centers, delisted 1,000 SKUs to release capacity without allocating new capital. And have now navigated and secured our long-term contracts.
They have done all of this without losing a single customer or impacting our service levels. This team has a blue-chip reputation with our customers and I guess we hope to demonstrate today that they have the conviction and the capability to become blue-chip for you in executing on our investment case. So thank you very much, ladies and gentlemen. John.
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John Yamin, ARYZTA AG - President & CEO [2]
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Good morning and welcome to our bakery. You are about to see one of the world's largest donut bakeries in the world. We make 18 million donuts a week here, operating two shifts a day, 363 days a year. And later today you are going to have the rare opportunity to walk this amazing and impressive bakery.
Before it starts I wanted to introduce myself. I have more than 40 years in the industry. I have had the honor of working close with such great visionaries as Bill Marriott, Jr., Howard Schultz and Owen Killian for the past 15 years.
I'm going to go off script here for a second. We have been coached and talked about what you want to hear, how we are supposed to present it. But I do want to go off script. Having the ability to work with people like Bill Marriott, Jr. in the early days when Bill presented, and I was there when he was presenting that he wanted to diversify the Marriott chain.
They had successful hotels but he wanted to serve other needs and at that time that was insane. Why? They were successful. Why do that? Why create a Courtyard? Why go through that? But now they have a successful chain meeting every one of your needs.
I was there with Howard when he couldn't get funding to open up a Starbucks. They didn't believe in him. Now how do you get through your day without going to a Starbucks? There's 30,000 locations across the globe now. It is something that is very important to understand and that's about believing.
I know we haven't done as well with our numbers as we should, but you have to believe. As you look at our team as you go through this today I am confident that you will get an understanding and a belief of what we have accomplished.
So, at my first meeting when Owen gave me this opportunity, I met with the five different bakeries at that time; since it has been 10. They were very different businesses with different values and different focuses and I gave them one challenge: the challenge to create the best bakery ever. That's simple.
It wasn't a financial challenge to start with; it was a concept, it was a belief that we would be the best bakery ever. It's a challenge that today I still give to every new employee that joins us on this journey. And it is a never ending challenge and a never ending journey for us.
And while we may have underestimated the difficulties of this journey, we did not implode over an acquisition. We did not crumble putting in a single SAP system. And most importantly, we did not lose a major customer. Today you will be taken on a journey to become the best bakery ever. I am confident that after these next five hours you will believe in us and you will believe that we are well on our way to fulfilling the promise I made to Owen. So let me start with what we focus on.
So, how do we accomplish this? It's what we focus on. We will continue to develop and market foods that elevate the bakery experience. We will continue to invest in building our brands, specifically Otis Spunkmeyer and La Brea Bakery.
Over the past few years we have underinvested in our brands, but in 2016 we invested EUR10 million to build these brands. As Kristina Dermody will tell you later today, La Brea Bakery is the number one artisan bread brand in the world. And Otis Spunkmeyer is the number one foodservice cookie and muffin brand.
We see our opportunity to redefine the consumer experience by evolving the artisan bread category of La Brea Bakery and penetrating the retail center aisle with Otis Spunkmeyer. Our role is to make our customers and our business more profitable, so we will continue to focus on delivering quality and value.
We will maximize our capacity through our industry-leading bakery network. We will protect our brands and our customer brands through our best-in-class food safety programs and our ARYZTA integrated management system, AIMS. We will provide transparency in our sourcing process and we will deliver underlying revenue growth, EBITDA and ROIC growth.
Now I want to explain how we approach this. Our strategies include redefining the consumer experience through our brands, our food leadership, our unrivaled customer solutions, our supply chain excellence and the unparalleled entrepreneurial environment with our employees.
So what is ARYZTA? Our business houses four leading consumer brands, you will hear about two of them today. We have a portfolio of more than 2,500 foods sold to more than 2,000 customers and accounting for more than 22 million servings per day. Our brands and foods are produced across 90 manufacturing lines. All this is underpinned and operated by our under 10,000 employees. And all this is brought together enabled by a fully integrated single instance ERP platform.
As we will demonstrate throughout the presentations today, our route to market is focused on increasing our own branded foods, specifically La Brea Bakery and Otis Spunkmeyer, to a 50% mix of our sales. And just to be clear, the QSR channel continues to be a very important growth for us. The contract renewals that have been spoken about just serve to balance our revenues.
So how do we manage our business? We break our business into four distinct business units: brands, US consumer foods, US baking solutions and our Canadian division. The US consumer foods division is responsible for the retail channel, the foodservice channel and our distributor channel. US baking solutions is responsible for our larger QSRs and our partner manufacturers.
And how do we support those? They are supported by a best-in-class health, quality and sustainability program, our procurement, IT and finance departments, our human resource, legal and innovation. You will hear about these throughout the day. You will hear specifically in detail about our health and safety programs, about our world-class procurement program, and most importantly you are going to take a look inside of how we innovate.
I have a very strong dedicated management team of which I am immensely proud of. They took up the challenge of being the best bakery ever and they have been with me on this journey. We are not done. We are not close to done. But they believe that we will accomplish it.
So presenting to you today Ronan, Tyson, Andy, Tracie, Scott and Kristina. They will present you their business units. They will take you on the journey inside how we approach customers and how -- as Owen said, how we will win.
I want to make sure you understand that we fully acknowledge the challenging years we have. We have lived them. But despite what the numbers show you, I know that today after the presentations, after you walk my bakery, after you eat my food, you will see here that we built a Company positioned to win. You will have as much confidence and belief in it as I do, as my team does.
I want to introduce Ronan to come up who is the architect for most of this.
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Ronan Minahan, ARYZTA AG - COO of Americas [3]
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Thanks, John. Good morning. My name is Ronan Minahan; I'm the Chief Operating Officer. I have been with ARYZTA for 12 years; six years with group and embedded in the different regions and six years in North America.
So recognizing the attractiveness and strong growth of the specialty bakery market, in financial year 2012 we saw an opportunity to take the leadership position in specialty bakery. To benefit from this opportunity we needed to simplify and transform our business model.
This section will cover the goals of our transformation, the complexities and challenges we faced during this transformation period, how we are addressing these, our financial performance during this period, and our sustainable growth model which will deliver improved and sustained financial performance.
Our transformation goals as we start on our journey were: to create the leadership position in specialty bakery; to enhance our customer relationships using a single point of contact and leveraging powerful portfolio for cross-selling opportunities; to establish one way of working with harmonized policies and procedures; to eliminate duplication and delayer our management structure; and to grow our revenue and margin. We are on the journey to achieve these goals leading to our stronger financial future performance.
As I said, we started our transformation journey in financial year 2012 with five operating companies. We also acquired five new companies during this period. These 10 companies had overlapping customers, foods, functions and leadership teams with numerous ARYZTA customer contacts selling individual foods from regional bakeries with different processes, policies, food safety and people safety programs and all operating on very different software solutions.
Our transformation was a sizable and unprecedented undertaking merging these 10 individual companies into one Company with four customer focused business units and having a unique nationwide specialty bakery network producing all bakery categories.
We consolidated our customer contacts into one leader with access to all our foods, innovations, brands, insights and capabilities in order to create a portfolio tailored to each of our customers. Enhancing our relationship we became the one stop shop for the entire bakery case, the in-store bakery for our customers.
Due to our 2,500 foods that John mentioned, we are able to create a diversified bakery solution unique -- unique to each of our customers that differentiates them from our competition, meeting their consumer needs and delivering growth. This is why we, ARYZTA, are able to partner with every -- that's every major customer in North America.
Leveraging our legacy companies we took the best policies, processes and programs from each and harmonized them into the best-in-class proprietary integrated management system known as AIMS. So rather than just integrating 10 legacy companies into one of those existing companies as is traditional, we merged -- merged all 10 companies into one new Company taking the best from each. That is what made this transformation unprecedented.
And we are the only Company -- again, I will say it again -- only Company in specialty bakery with a single instance fully integrated ERP platform. This is a state-of-the-art software solution that integrates our full value chain from initial supplier contact through manufacturing to the final customer service follow up to full financial analysis, business intelligence reporting, full business continuity planning, embedded food safety and people safety protocols and our people management. This integrated solution is underpinned by SAP and Success Factors.
Our transformation has been facilitated by cash nonrecurring expenditure. This allowed us to eliminate duplicative functions and reduce our headcount; and also allowed us to consolidate eight bakeries, 50 distribution centers and five offices into our existing network.
Our capital and acquisition investment programs also increase our relevance to our customers by adding additional capacity and capabilities for our branded food and by facilitating the implementation of our ERP solution. We look for a 15% return from our investments within a five-year period and do expect that these investments will deliver this and further support our future growth.
However, during our transformation we faced some challenges. During financial year 2014 we exited our declining direct store delivery business in order to focus on the growth of our core business. Our DSD model was focused on an amenity offering in nontraditional locations. It was in steady decline for a few years as more locations stopped offering free cookies and muffins.
Although still profitable at the time of exit, the decline was actually turning the DSD business unprofitable due to the heavy fixed cost base relating to the trucks and distribution centers. During our transformation our capital investments were increasing each year to sustain our growth.
In financial year 2015, in order to release valuable capacity and reduce our capital expenditure, we decided to rationalize 1,000 underperforming SKUs. This released EUR500 million of revenue capacity and reduced our capital investment expenditure from EUR175 million in 2015 to EUR81 million in 2016.
Finally, during the year -- financial year 2016 the contract duration term for our two most significant customers were nearing expiry. We renewed these long-term contracts with duration terms of circa nine years. There were some volume losses as, per our customers' supply policies; they needed to reduce their dependence on ARYZTA.
However, our customers still fully recognize the enormous value we bring and awarded ARYZTA the majority share of that volume. So we still retained the majority share of all their volume. These volume losses impacted our revenue in financial year 2016 by EUR90 million and will impact financial year 2017 by a further EUR40 million. No other long-term contracts are up for renewal.
Our financial performance over the last three years was impacted by these challenges we faced. Looking at the top of the slide, the yellow line on the graph is our reported underlying revenue growth. The Brown line is our underlying revenue growth excluding contract renewal customers.
You will see that our reported underlying revenue growth has been constrained. However, once we strip out the impact of the contract renewals in financial year 2016 we are back into underlying revenue growth from Q2.
The fluctuation from 4.7% in Q3 to 2.9% in Q4 is due to the timing of promotional activities. We will continue to see this lumpy growth by quarter due to the timing impact of promotional activity and new food launches in our large customers. For example, a promotion in one of our customers could be EUR5 million to EUR10 million. That alone is worth 1% to 2% underlying growth in a quarter.
As we focus on our branded food to drive more predictable revenue and increase profit, we will need to continue to free up additional capacity from our unbranded business, which also may have some negative effects in the quarter. Therefore promotional activity in our brand focus may cause some quarters to touch into negative territory with a rolling -- rolling four quarter view is best to look at our business.
We delivered 2.2% growth during financial year 2016. This is higher than the market growth of 2% here in North America. Our brand launches, our cross-selling and our overall extension of our customer base delivered this. This will develop in the range of 3% to 5% annually in future years as we exit the contract renewal periods.
Our key financial results are presented at the bottom of this slide. We saw dilution of our EBIT margin by 140 basis points and by our ROIC by 80 basis points during financial year 2016. This dilution was caused by our brand investments and our contract renewals that I just discussed.
In order to accelerate our future growth and profitability we have invested incrementally in our brands, primarily focused on the rollout, as John mentioned, of the Otis Spunkmeyer retail range and the enhanced offerings from La Brea Bakery. You will also see these later today.
This incremental investment accounted for half of this dilution. The contract renewals, the related volume reductions and the negative operating leverage account for the other half of this dilution.
So, although we had three challenging years, we have, as John mentioned, built a sustainable growth model with the leadership position in specialty bakery in North America. We established our leadership position by energizing our four leading specialty bakery brands to drive more predictable and profitable growth.
By enhancing our customer partnerships with our customer focused business units we expanded our customer base, as John again mentioned and Owen mentioned, without losing any relationships over this period -- by establishing the industry best innovation team delivering the most successful launches in the shortest commercialization timeframe.
We also focused on our optimization by building the most efficient and flexible bakery network in North America. We are the manufacturing leader in our core categories. Our transformation has delivered us as a clear leader in our industry having reduced our complexity and the complexity within our customers.
By harmonizing our bakery policies and processes through our industry recognized AIMS programs our customers actually regularly ask us to present an overview of AIMS at their supplier conferences in order to highlight the best-in-class programs they expect from their leading suppliers.
By crafting the best-in-class safety programs for our people and food, we have industry-leading results and have received recognition for our programs from our customers, regulatory agencies and advocacy groups.
Increasing government regulations covering food safety and people safety are placing more demands today on food manufacturers. Our transformation and capital investments puts us ahead of the specialty bakery industry in relation to our preparedness for these regulations, allowing us to be more aligned with our customer expectations.
So we are the best specialty bakery in North America. We have the best partnerships with every major customer. Our customers are recognizing the differentiation and the tailored solutions we can bring them to grow. This positions us to win in our very attractive specialty bakery market. We are very confident that this will deliver revenue, EBIT and ROIC growth and shareholder value.
So I will hand over to our team as they go through in more detail our sustainable growth model throughout the rest of the day. Tyson will now present our attractive specialty bakery market, how we are going to maximize on our opportunities and deliver our growth. Thank you very much.
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Tyson Yu, ARYZTA AG - President of ARYZTA Canada [4]
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Thank you, Ronan. Welcome to Canada. I am Tyson, the President of ARYZTA's Canada business unit. I've been with ARYZTA for almost 10 years and have been here since the beginning of the North America transformation, as Owen, John and Ronan just mentioned.
As we just heard Ronan bring you through our journey and positioning the sustainable growth model, I'm going to show you why ARYZTA is the best to be positioned to capitalize on a highly attractive specialty bakery market in North America. ARYZTA is the leader in the specialty bakery market. And as Owen showed you the overall global market, I will touch on the North American market.
The total bakery market in North America is EUR38 billion. This includes all bakery, fresh and specialty. And within that market specialty bakery is the sub segment if you exclude pan bread. And the total size of the specialty bakery market is EUR17 billion. And in that smallest circle with almost EUR2 billion in sales in 2016, ARYZTA owns the leading share with 11% of the market.
Specialty bakery is a very attractive market segment driven by the primary factors. Attractive market dynamics are supporting the long-term specialty bakery growth, evolving consumers are creating brands and foods they trust, and customers are also evolving, demanding innovative solutions. And the operating environment is becoming increasingly rigorous and that is presenting challenges and opportunities for food companies.
ARYZTA is uniquely positioned to take advantage of those last three drivers in particular. Rising incomes are driving increased consumer spending on food. And as the disposable incomes have risen since the last recession ended in 2010, this rising income is also translating into per capita food consumption. And going forward that growth will continue through 2020 and we expect at 3% annually.
In terms of market growth, ARYZTA will outperform both total bakery and specialty bakery. The total North American market grew modestly at 1.6% over the past five years and over that same period pan bread only grew at 1%. As Ronan mentioned, the specialty bakery outpaced both of that at 2% and we expect that to keep on growing. That is why the specialty market is so compelling.
At ARYZTA we expect to grow faster than the total bakery market and the specialty market at 3% to 5% annually to 2020. During the course of the day you will hear from my colleagues on why we'll be able to grow faster than the market.
As Owen mentioned earlier on the evolving consumer globally, I'm going to talk to you about the evolving consumer and how it is creating opportunities for ARYZTA in North America. Traditional drivers for consumers of price, taste, convenience, they are all still relevant, but there are new factors driving food consumption.
Today's consumers have unprecedented access to information via the Internet, social media and this is leading to more informed choices based on transparency. Those consumers have new definitions of quality and they are gravitating to foods and brands they trust. With health, wellness, safety, consumers are moving away from processed foods. For social impact they care about the ingredients, they care about how their food is made.
And consumers want new experiences. They want flavors and tastes and inspiration from all around the world. This new consumer presents tremendous opportunity for food companies to gain that significant share of their purchases. And at ARYZTA we have been proactive to address these evolving consumer demands.
As you can see here on the right-hand side, from organic, non-GMO, cage free eggs, sustainable palm, those are just to name a few of the examples that we have been proactive at. And these evolving consumers, they are also impacting the customer landscape. Retailers are repositioning to adapt.
As those consumers evolve the locations where they purchase foods are also shifting. The perimeter of the grocery is seeing where the most growth is for consumers. As they move away from those processed foods in the center aisle to fresh offerings in bakery, dairy, produce, this is an example of a bakery in one of the US retailers.
As fresh becomes a greater focus there is also rising relevance of grocerants which are essentially restaurants in grocery stores where consumers are able to eat and drink. On the bottom of the page here nontraditional channels like drugstores and nonfood retailers are also expanding their food offerings as those consumers' lifestyles are changing and with demanding lifestyles of on-the-go.
Another channel exhibiting strong growth is the digital and online channels, as you can see here with Amazon Fresh.
The foodservice industry is also innovating. With consumers' new definition of quality QSRs are adapting and focusing on simpler and healthier menus. They are customizing their offerings to create their own experiences. As you can see here, this menu is from McDonald's and this is their Create Your Taste customization and you would see that just like in a restaurant here in Canada.
Foodservice operators and distributors are also growing as places expand food offerings in nontraditional places and growing such as businesses and institutions. This is just a representative foodservice truck in New York City that's owned by Sysco and, as you can see, they are focusing on fresh offerings in the urban market.
With our balanced portfolio and solutions, we are strongly positioned to continue partnering with our customers to meet those evolving consumer demands. Here are the biggest customers in the channels. The top 50 customers account for approximately 80% of the market. All of these leading customers are ARYZTA's partners.
Our customers are the Who's Who in North America. As John mentioned earlier, we partner with 80% -- sorry 68% of the entire market and our leadership is 80% of the top retailers, 88% at the top QSRs 50% of the top casual dining restaurants and 100% of the top foodservice management and distributors. And as John mentioned, the top 20 customers account for 68% of our total sales.
We are that leading specialty bakery with those top 20 customers. And no other competitor has as prolific of a customer base in North America. This is why we integrated our businesses and developed our customer centric strategy. Our sustainable growth model focuses on driving consumer opportunities as one ARYZTA. We will continue to leverage our existing partnerships and grow more in the future.
The industry operating environment is also presenting challenges and opportunities and where ARYZTA operates in is becoming more increasingly rigorous. There are more government regulations with food safety, as you can see here, with the Food Safety Modernization Act in the US and Safe Food for Canadians Act here in Canada. In health and safety OSHA in the US and the Ministry of Labor here in Canada, they all have increased their visibility and requirements.
Labor markets have come under pressure with the shortage of skilled labor, rising wages. And with that consumer landscape changing, as I mentioned, that's driving new demand of specialized commodities and that's constraining that supply as organic and non-GMO ingredients become more popular.
These stringent demands across all of these areas are forcing food manufacturers to adapt their business models and infrastructure. And at ARYZTA we have been proactive again at addressing these solutions. John mentioned our AIMS program and, as Ronan mentioned our capital investments since 2011, that has addressed this rigorous environment.
Our proactive approach has best placed ARYZTA to maximize all of our customers' expectations in dealing with suppliers. The food safety is incredibly important. For example, a US retailer excluded 70% of its existing supplier base from future business opportunities just because they weren't food safety compliant.
And finally, in North America we are the leader in specialty bakery. And we will increase our share by understanding the evolving customers; understand the evolving consumers, partnering with our customers to meet evolving consumer demands, leveraging our bakery network and infrastructure.
And on top of all of this we are going to extend our leadership as we focus on brands, our winning portfolio and our leading innovation team. No single competitor in the industry has all of this to win in the market. We are simply the best specialty bakery in North America. And now we will take a 15 minute coffee break and come back and continue.
(Break)
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Tyson Yu, ARYZTA AG - President of ARYZTA Canada [5]
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Thank you, John. Welcome back. So now I will talk to you about our customer promise. With our customer centric strategy ARYZTA built its sustainable growth platform to help our customers grow. And we will present our North American business to you today as if you were one of our customers.
ARYZTA is dedicated to helping your business achieve sustainable success through customized, scalable and efficient bakery and snacking portfolio solutions. Our commitment to building your trust as a valued partner is as strong as our passion for good food. This is ARYZTA's customer promise. It's why our customers have made us the leading specialty bakery in North America.
In order to deliver on our promise every part of our business is focused to help our customers grow. Our leaders of our business units and functions today will show you how ARYZTA combines all of our world-class capabilities to be the leading specialty bakery Company.
Andy Brimacombe will kick off and show how we start with our customer. He will then walk through our industry-leading bakery network and our strategic sourcing capabilities.
Dr. Tracie Sheehan will show our best-in-class food and people safety and quality programs. And then she will also show how we lead the sustainability.
Scott Fitzgerald will then put our passion for good food in action with our pioneering innovation, bakery expertise and winning portfolio.
And lastly, Kristina Dermody will show you why brand is so important. And with that, I will pass it to Andrew who will introduce our customer promise. Thank you.
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Andrew Brimacombe, ARYZTA AG - President of US Consumer Foods [6]
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Thanks, Tyson. Good morning. I'm Andy Brimacombe; I am the President of our US consumer foods business unit. I have been part of the executive team here at ARYZTA in North America for the last two years, having transferred from our business in Europe. Prior to working for ARYZTA I worked in management consultancy for Deloitte and Accenture.
It's great to have the opportunity to be able to share with you our customer first philosophy and to discuss our extensive supply-chain capabilities. So customer first. Our customers are simply the reason why we exist. Talk to anyone at ARYZTA and they will tell you that our customers are the heart of our business. They are why we do what we do and why we do what we do.
Our customer first philosophy is so deeply ingrained within ARYZTA that it's a core value. Our customer first approach means that we focus on making our customers successful by doing the right thing for their business and building their trust.
We do this because we truly and passionately believe if we help our customers to grow and be successful it follows that we in turn will be successful and we've proven this many times. Scott Fitzgerald will discuss how our blockbuster innovations are featured in many TV ads for customers and driven huge sales for both them and for us.
We believe that protecting our brands and our customers' brands is our most important responsibility. We do this through our extensive people, food, environmental, safety and quality programs. Tracie Sheehan will discuss this further during her presentation.
Our largest and most strategic customers are served by dedicated cross functional teams comprising experts from customer development, R&D, marketing, bakeries, quality, finance and procurement to name just a few. These teams develop and execute specific customer plans based on a deep understanding of the customers' needs.
Expert-to-expert connections are the cornerstone of our winning customer first formula. It's when our quality team works closely with the customers, our procurement team collaborates on hedging, or when our chefs work directly with the customer chefs that the magic really happens.
By way of example, for one of the largest global restaurant chains in the world, our experts contribute to their best practice forums on HR, quality, sustainability, commodity risk management as well as partnering with them on innovation.
We have been given supplier awards for many of our contributions to their system, but most importantly we have been rewarded with significant additional volumes on all their new bakery launches over the last four years.
We are winning with our customers because we collaborate with them to understand their needs and focus our time and resources on those needs. And we bring together the right experts to deliver on them.
Our focus is always on delivering the right solution for the customer. Nothing less than a compelling and unrivaled food and service offering that will differentiate both them and us will do. In many cases our brands provide this, as Kristina Dermody will discuss. In other cases we work within our customers' guardrails to deliver a food that differentiates and delivers on their brands.
Our commitment is to continue to earn the right to be the first call for our customers through our focus on their needs, bringing together the right team and delivering the best of ARYZTA in every interaction every single time. This is the formula for growth for our customers and for ARYZTA.
Switching gears a second, our business has great scale, which makes us a significant player within the food industry and provides leverage for sourcing, manufacturing and distribution. To share just a few statistics, we buy nearly 1.5% of the flour used for food here in North America and nearly 2% of cocoa. We have 9,500 team members who produce over 2,500 foods, distributing them across 1,500 trucking lanes to 2,000 customers who provide 22 million servings every day.
We have worked hard to rationalize and simplify our model over the last few years, as Ronan touched on. Common processes, systems, suppliers and logistics have been embedded, which dramatically reduced operating costs and have improved service to our customers.
Our common supply-chain model is a critical success factor to deliver to our customers every day and to generate the returns that we and you expect. The backbone of our supply chain and business model is our single global instance of SAP.
I've had the privilege through my career of seeing the supply chains of many large global companies up close. And there are very few who can access harmonized, accurate and detailed data with the ease and speed that we can here at ARYZTA.
As SAP is our system of record and all of our key processes are executed (inaudible) in it, we are able to access detailed financial and operational performance information. This allows us to measure and analyze the business at any level which we wish. Why is one customer more profitable than another one in the same channel? Why is one bakery performing better than another bakery? Or why is an ingredient cheaper in one bakery than another?
The information we are able to extract from SAP allows us to be focused and nimble by empowering our teams across the organization to make the decisions that need to be taken on a quick, consistent and reliable basis. It also allows all of us as an executive leadership team to challenge performance and to deploy or redeploy resources to the areas in which they have the greatest impact.
As John discussed during his presentation, we have 24 state-of-the-art bakeries in North America and over 90 manufacturing lines. It is a network we are very proud of. These are among the most efficient and flexible bakeries in the industry and I'm really excited that you are going to be able to see this for yourself later on.
We have made investments in many of our bakeries to bring them up to the ARYZTA standard and to fulfill that customer first promise of protecting their brands and business. Our aim is not only to meet but to exceed industry standards for quality, efficiency, food, people and environmental safety; and you heard earlier from my colleagues about the importance of that.
We have and continue to invest in automation to increase the efficiency and flexibility of our bakeries. In an era of rising labor costs this provides a source of competitive advantage as costs and risks are reduced and efficiency increases. Examples of our most cutting edge automation includes robotics for ingredient delivery systems, for muffin extraction, for cake decorating and packing.
With consumers demanding more customization and more value, this combination of flexibility and efficiency across our lines is serving us well. Our aim is to protect our customers and our business through our proactive approach to business continuity and crisis management.
We have designed and developed our network and supply base with secondary points of supply to mitigate the impact of any supply disruption. And each bakery and location has a business continuity and crisis management plan in place which is regularly reviewed and updated.
Our strategically located bakery and distribution network is a core part of our customer first proposition and a true differentiator. We have a strong presence across categories in key regional hubs, which means we can get food to our customers quickly and cost-effectively. This also enables us to provide superior service targeting and delivering 99% or above order fill rates.
Moving to procurement, a core part of our value proposition to our customers is providing stability of pricing and assured supply through our strategic supply base. As you may be aware, the volatility of commodity prices has increased significantly in the last decade and particularly since the financial crisis with more speculators and systems trading.
With up to half of a bakery's costs coming from ingredients and packaging in some food categories, the ability to manage and mitigate commodity risk is a critical capability. We have developed a strong procurement and commodity risk management capability to protect our business and the customers from market shocks.
Our procurement team is core to our customer first approach. They have direct relationships with many of our strategic customers and work in partnership with them to help manage commodity risk. These partnerships and the level of integration into our customers' business is a critical advantage in building long-term trust-based relationships.
We conduct competitive bidding for the categories we buy through our SAP Ariba procurement system. We streamlined and rationalized our spend around key supplier partners by category and we've built relationships with key suppliers at ingredient origins.
Each supplier must sign up to ARYZTA's code of conduct and any supplier providing food or food contact items is initially and regularly audited by a highly experienced food safety and quality assurance team. This approach provides visibility and control of our broader supply chain.
Our supplier relationship management program is focused on building strong relationships with our top suppliers to ensure that they are vested in our business at the most senior levels, that they bring additional value and that they prioritize supply when constraints occur.
There is no better example of this than the avian influenza crisis last year which affected egg supply. Prices rose threefold and supply was significantly constrained. Actually 40% of the market supply disappeared in a matter of almost days. Our long-term partnership with our primary egg supplier meant that they honored our supply and our contract price, helping us avoid significant additional costs and disruptions that many in the industry had to bear.
We also tap into our supplier partners for innovation, accessing deep technical experience in categories as well as broader insight -- industry insights and opportunities. As we brought together our businesses we have built industry-leading capabilities across our supply chain and they are focused on delivering our customer first philosophy.
I'm now going to pass you on to Dr. Tracie Sheehan to explain how our food safety, quality and sustainability practices help to further differentiate our supply chain and our goal of customer first. Thank you very much.
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Tracie Sheehan, ARYZTA AG - Chief Health, Quality & Sustainability Officer [7]
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Thanks, Andy. Hi. My name is Tracie Sheehan and I am the Chief Health, Quality, and Sustainability Officer with ARYZTA. I've been with ARYZTA for five years; and 32 years in the industry, mostly of that with major food manufacturers. I, like all of you, am an investor. And with my background in analytical chemistry, I analyze everything before I decide to invest in a company. I do have a few food-related stocks. I only buy those that have strong food safety programs and strong people safety programs.
At ARYZTA, our promise is to build trust and protect brands through protecting our people, protecting our food, and protecting our environment. We have proactive safety audit programs and have invested in protecting our people through machine guarding, personal protective safety equipment, and significant training. In fact, we invest over 125,000 hours annually through an interactive Alchemy system training.
Our people safety and our food safety training includes a test at the end of the training to verify learning. Pay attention now, there's no sleeping through our classes because you have to pass the test to the end. In order to have the highest safety and quality of foods, we conduct about 50% more Alchemy training for our employees than most competitors.
We also require that every single bakery in the US and Canada be certified under the Global Food Safety Initiative. So, just like you might hire an accounting firm to audit the financial statements of a company, we hire third-party experts in food safety specifically in the bakery area to audit our bakeries every single year.
The bakery you are about to tour, this beautiful bakery, was just audited last month and received a AA rating, which is the highest rating that you can get in the BRC certification system under the Global Food Safety Initiative, and you'll see the certificate proudly displayed in our lobby. But we don't stop within these four walls. Instead, we require our suppliers and our bakery partners to be GFSI certified.
As a savvy investor, you know that ARYZTA grew through acquisition and every single bakery have their own food safety program, people safety programs. You've heard a lot that we've combined all these into an ARYZTA integrated management system we call AIMS. And it's a group of 28 programs, and they include multiple policies and procedures every single bakery must follow every day, including food safety, people safety, maintenance, sanitation, sustainability, even procurement and finance procedures. One standardized approach to how we manage our business.
Our corporate and AIMS programs not only include the regulatory requirements but we also include best-in-class procedures on how to protect our people, protect our food, and our environment, and also deliver the highest quality foods.
In 2011, the Food Safety Modernization Act was passed by Congress as the most progressive, comprehensive overhaul of the Food, Drug, and Cosmetics Act since 1906. And yes, that was 110 years ago the last time the US Congress passed a food safety legislation. FDA is still finalizing the regulations that go with this Food Safety Modernization Act.
But they have finalized the current good manufacturing practices that you'll follow today, the hazard analysis and risk-based preventive controls, and the food supplier verification program for importers. And all foods companies in the US must comply now.
It will require every single facility making food in the US to establish a food safety plan that considers the microbiological, chemical, and physical hazards associated with foods, and implement critical control points or preventive controls to reduce or eliminate those hazards.
For example, in order to validate our doughnut lethality step, which most of you just call frying, we insert metal buttons into the raw doughnuts and pass them through the fryer to look at temperature profiling of the process to assure that we have the best-in-class food safety for our bakery.
In addition, we maintain a separate ready-to-eat area after the lethality step to assure that the food does not become re-contaminated, and this is for food safety reasons. This is a best-in-class practice in the industry.
At ARYZTA, all of our bakery directors as well as our food safety and quality assurance managers, including our executive leadership team, have gone through the Food Safety Modernization Act training and been certified in these rules by an external qualified law firm. And when Canada finalizes their Safe Foods for Canadians Act, we will do the same thing for Canada but we will be ahead of the system. Because the Safe Foods for Canadians Act mirrors the FSMA act, and we'll be already pre-trained.
I mentioned the requirements for GFSI food safety certification, which meet the requirements of -- set forth by FDA, but also go an additional step. We audit our own programs for all of our suppliers and we have certified food safety auditors for suppliers and bakery partners.
We have these proactive programs in AIMS. But in the event of a supplier issue or other issue, we have in integrated ERP system called SAP. So we can immediately trace all the ingredients back to the suppliers and all of our ingredients forward in our formulas through to the customers. So within minutes I can know what food, what ingredient, went to what customer. And that's an immediate -- taking care of that out of the marketplace if it were to happen. But the point is to build transparency and trust for our customers.
I want to spend just a few minutes talking about the quality of our delicious foods. Because after all, quality is what keeps our consumers coming back for more. At ARYZTA, we evaluate our foods initially at the bakery through professionally trained sensory panelists before we even ship any food out of the bakery. We also have a shelf life program to assure that the food remains at the highest quality through the expiration date.
However, we measure our ultimate success by the consumer and customer feedback received through our professionally trained ARYZTA customer relations team. ARYZTA ranks best-in-class -- and I'll repeat that, best-in-class -- in consumer satisfaction metrics based on the Society of Consumer Affairs Professionals. It's not just us saying it.
I'll switch gears just a moment to talk a little bit about sustainability. At ARYZTA, we believe that creating the best-in-class sustainable and responsible business practices is our responsibility to support our customers and our consumers.
We focus on these five key sustainability areas of transparent food solutions: sustainable sourcing, enhancing our communities, and protecting our people to drive growth. As Tyson mentioned, we offer best-in-class food solutions with our new non-GMO verification program, our organic certification program driven by the consumer trends.
Our La Brea bakery branded breads have a tradition of long -- a long tradition of no artificial ingredients. And we are taking steps to remove artificial ingredients with our new No Funky Stuff lineup of Otis Spunkmeyer foods and snacks cakes, as well as other customer-requested changes.
For the past six years, we were well ahead of consumer trends in that we bought over 1 million cage-free eggs every single year that were already sustainably sourced. We also purchase palm oil that is RSPO sustainably sourced. And we have other strategies that we're developing around other ingredients to ensure sustainability, and this is really what consumers are asking for.
We have achieved the Energy Star challenge as well as other local sustainability awards for their zero waste-to-landfill in our bakeries and our recycling programs. Through our support of the No Kid Hungry organization, we've provided over 4 million meals to feed hungry children.
We support our customers' charities, and donate food and employees' time to the Feeding America organization. All of these efforts are through our people living the ARYZTA code of conduct and protecting each other every single day, as demonstrated through our award-winning safety programs.
We have a comprehensive benefits program, including retirement, tuition reimbursement, healthcare, and a bakery profitability sharing. To highlight our commitment to sustainability, we have created a short video for our customers and our shareholders.
(video playing)
What did you think? All right. Now for the fun part. We're going to do a bakery tour. Now, if you look at your badge, on the back side you should see a number: 1, 2, or 3. So I'm going to start by asking group 3 to stand up. You can leave all of your things in the room, and we're going to step up and follow John to enjoy some delicious food items. Group 1 and 2, stay seated, and we'll go through the tour directions. Thank you.
Okay. For groups 1 and 2, as you prepare for your tour, our utmost concern is for your personal safety. We have a lot of moving equipment out there and we just want you to be safe out there, but we also want to protect our food. So we're going to ask you first to remove all your jewelry, including wedding rings, and you can leave that in this room.
We need to empty your pockets so we don't have anything fall into the food. And we have a no cellphones policy, so you'll need to leave your cellphones or cameras here in the room. Now, if you can't get your ring off, we ask that you wear a glove. Or if you have nail polish, we ask that you wear gloves.
And as we follow the tour out, I'm just going to tell you: the first step is to put on your hairnet. And the reason we do this is to keep hair off your frock. And the reason we -- it will also prevent hair from getting in the food. If you have a beard, then we'll need to put on a beard net. And then we'll snap up the frock. And then downstairs you'll get a headset as well as safety shoes to put over your regular shoes.
Next, we will wash our hands and sanitize them just like before the doctor goes into the operating room. However, you may not touch the food or the equipment since you have not received proper training.
And I know logic might dictate that we start at the beginning and work our way to the end, but for food safety reasons we don't do that. We're going to start in our ready-to-eat area where everything is fully cooked, and then work our way towards the raw areas.
Please stay with your tour guide. And for your personal safety and the safety of our food, if an alarm sounds, please follow the tour guide out of the building. And with all those precautions, please enjoy yourselves out there. And when you return, we will have some delicious foods to share with you.
Group 1, if you could stand and follow out of the back of the room, you'll begin your tour. And group 2, in about seven minutes, we will start your tour. Thank you.
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Scott Fitzgerald, ARYZTA AG - SVP, Innovation [8]
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Was that a great tour? Pretty amazing bakery. My name is Scott Fitzgerald. I'm Senior Vice President, Innovation, for ARYZTA. What you just saw over the last hour is my playground. That is really where the art of food and execution comes to life.
You know, what resides outside is our best-in-class-bakeries. I'm sure you can feel the pride and passion of our people that deliver only the highest-quality foods that you see here and that you've seen in the room today. That's what really pioneering innovation is all about. You'd be hard-pressed to find this level of pride and precision outside the walls of an ARYZTA bakery. This bakery is just one example of where we bring our customers pioneering innovation.
For the balance of my presentation, I want to take you down a real-life journey with an ARYZTA customer. Funneling success. Now, this type of execution really comes to life when you can leverage the ARYZTA pillars to drive a portfolio of food platforms to the marketplace. Everything in life today seems to be about time and place. Some ideas are great today, but maybe people aren't ready for it yet. Or maybe we are in the right place at the right time.
This is where ARYZTA really shines in the marketplace. We continue to maintain a pipeline of cutting-edge food platforms and our market ideas that we deliver against the balance of our customers' individual strategies. It's this intersection of ARYZTA proactive approach along with our customers' need state to be distinct in the marketplace. This is really where our customers stop and they leverage ARYZTA to go to market.
On average, we will maintain over 1,000-plus food platforms and/or concept that will drive through our commercialization process. We will drive these through design and development. We may stop there. We'll take some foods all the way through to consumer trials and focus groups. Some of these are perfect for today. But the best result is some of these are perfect for tomorrow.
The results are clear: ARYZTA delivered over EUR150 million of incremental revenue across 200-plus new foods with a 70% success rate, last year alone. Ideas in general for my team are easy to come by, but executing on them is where ARYZTA rises above the competition.
Pioneer innovation: simply put, it's driven by a passion for our food. Everybody can and will benefit from what our innovative foods deliver in the marketplace. We step inside with our customer. We really learn their business. We can match our portfolio to their needs. We can customize something for them or we can drive revenue and profits. We do it all for them.
We do this through our passion of distinct platform and food development approaches. Whether it's leveraging our La Brea bakery brand and driving, let's say, a non-GMO into the marketplace -- I saw some people with some gluten-free bread -- or it is launching a premium range of filled cookies or clean-label cookies for our Otis Spunkmeyer brand.
This type of platform thinking is not only on the forefront of food development but it's really on the forefront of partnering with our customers. We want our customers to fall in love with our food. That is what ARYZTA R&D is all about. So why should we stop there? Why not pass this passion for great food to the foodservice channel? We continue to drive profits in this channel by being the first to market for our customers.
Scale and differentiating innovation is a recipe here. Our responsibility to our customers is to drive food solutions with a supply chain that can support it. We can develop you the best cheesecake in the world. But if we can't get it through your supply chain, we have wasted a ton of time. But yet so many companies continue to do this. They try to push that square peg through the round hole.
Portfolio solutions, customized solutions, either way, they need to be delivered at scale, each and every time. I call this the repeatable model. And repeat is what ARYZTA continues to do. Just look at the customer portfolio that Tyson showed earlier. We manage the top brands in the world with high-quality foods delivered each and every day, but with their own personality. We should be your partner also, because we have the proven success that we can execute at the largest stage, better than anyone else.
So, what should customers expect from the pillars that represent ARYZTA's pioneer innovation? Well, you'll find that we spend a lot of time listening. Amazing. Amazing concept: listening. We need to understand what's important to our customers. Why? Because they are paying us to execute on their behalf. It's a pretty easy concept. But truth is, not many companies are delivering this. And how do I know that? Because my team sits on a lot of culinary councils with large customers with our competition, and they keep coming back to us to develop their food. Plain and simple, ARYZTA delivers more for you, our customer, what is relevant in their marketplace.
You have a complete access to our vast set of culinary resources across every major food channel or category, and they are at your disposal. As I said, my chefs sit at not only the table of our branded leadership, but on the table -- they also sit at the table with some of the top brands in the world. They will deliver your concept or tap our winning portfolio to bring you a solution at scale, at whatever that scale may be.
So, a lot of people talk a lot about insights. Well, insights are only great if you know how to deliver against them; or, better yet, create your own. ARYZTA holds industry-leading insights as a way to enlighten your thinking and/or validate your strategies on path with delivering you success.
This market information is vast and extensive, but we tailor the information to get the most of it to help our customers succeed. You may want to slot your business into a trended activity. Gluten-free; we can do that. You may want to explore ideas that are just surfacing. We can do that also. Or maybe you are looking for us to develop a whole new trend that consumers have never seen.
Well, let's walk through that. In the last year alone, we have seen every major pizza chain in North America launch innovative dessert platform on their menus. 16,000-plus restaurants delivering their consumer a whole new way of enjoying dessert with their pizza. This activity has driven more than an 8% mix on their menus.
Take a step back for a second. When was the last time you saw a pizza chain deliver dessert that wasn't leftover pizza bread that they put a little bit of cinnamon sugar on? You want to know why? Because operationally it doesn't work. They are baking pizzas in a 500-plus degree oven in eight minutes. There's nothing in that operational platform that allows for a fresh-baked dessert to hit the market. We said we can do it.
We were the first to deliver dessert platforms that a consumer could order a pizza and a dessert and run them through their ovens of exact same time. No one in the industry has done that. Why? Because we figured out exactly what the right par-baking technology was and freezing technology to allow it to come from a freezer, to the oven belt, out the other side. That's what ARYZTA does.
And the key here is that each platform was distinctly different, yet common for each consumer. Each partner had their own distinct position in the marketplace. This is why these big players trust us. They trust us with their foods because we can provide each their own recipe for success. As their partner, it's our responsibility to leverage our scale to provide them sourcing opportunities as well, unparalleled in the industry. Due to this scale, nothing is too large or too small if it brings them success.
We talk a lot about success. Well, with each food launch that's happening in the marketplace, ARYZTA is bringing our customers success. That's why they keep calling us back for more. We will bring -- we will continue to bring our customers this level of partnership, because, at the end of the day, we treat them like they're -- like we're one of them. We're one of their employees.
Those pizza chains, we got in their restaurants, we worked with their people, we baked pizzas with them because we wanted them to succeed. It may be a food, it might be a supply chain solution, it may be a specific ingredient, or it may be as simple as tapping into our winning portfolio. We will continue to work each and every day to drive their success, because that's what we're driven to do.
Everyone talks about speed to market: how fast is fast? Well, there really isn't one answer to that because every one of our customers has a different need state. Some want to go quick; some want to go through consumer surveys. But we balance it all.
But to give you a perspective, my team's deployed resources to commercialize foods on a national scale within weeks. And I did say weeks. We were able to put four bakeries running over 250,000 pounds of food per day to bring them, our customer, to market first, 24 hours a day, every day. Because our teams want -- you saw the team outside. They live and breathe the customer, to bring them to the market first. We can go slow and steady also. But either way you choose, we take the same passion to execute. Because at the end of the day, their success is our success.
Winning portfolio. We've talked a lot about winning portfolio. We break it down as simply as bread, sweet goods, snacking, and savory. Solutions will come in a depth of range from traditional foods in our portfolio with proven success, to what I just talked about with fully commercialized solutions that drive a difference for the customer in the marketplace.
The key message here is our success. It's really about our customers succeeding. It's a very simple concept, but yet so many others overlook it. They are looking inward versus looking at the customer. What's right for them? Who cares what's right for us; what's right for the customer? When you can change people's lives, that's when you know you are succeeding. We help you get closer to your consumer through our food, our people, our insights, our execution. We want to make that difference and we'll do it together. That is the ARYZTA innovation team's promise.
So, where does all this passion -- I know Tyson said I was going to be very passionate, which I am. In the process that at the end of the day, what does it bring us? At the end of the day, ARYZTA has launched more nationally recognized foods across North America than any other food provider in our segment. EUR150 million, over 200-plus foods.
I'm sure you've seen the commercials of some of the top recognized brands promoting their foods during major sporting events. Each of those commercials probably has a one of our foods included. Maybe it's a perfectly toasted English muffin with melted butter. Maybe you've seen that cookie oozing with chocolate added to that box meal.
Or maybe it is that injected donut with that nationally recognized branded filling. Or maybe you just saw the centers of the cinnamon roll baked and being drizzled with icing with one of the most recognized professional football players in the industry.
Well, let me tell you, that's just not an average English muffin. That English muffin is baked with pride and then quickly frozen. Why? Because it's got to make it through a supply chain. And it has to be made through a supply chain that not many other people can do. It gets loaded on trucks, gets loaded off trucks, goes to the back of a restaurant, and then it's toasted. And it delivers the perfect experience.
That cookie in a box, you may think it's a traditional cookie in a box. Well, it's not. It was made with cocoa butter added to that chocolate, so that when our customer bakes that two hours before they have to actually serve it, that chocolate still strings as if it were just made.
You got to remember that some of our customers, their core competency is not delivering an incremental food like a cookie. They want to concentrate on chicken. Our responsibility is to make sure that our foods make it not only through the supply chain, but deliver on their brand expectations as well.
This type of execution can only be driven by a team committed to executional excellence. My innovation team is here to deliver on executional excellence. You're really not recognized by national promotions unless you are truly delivering on execution excellence.
I have six master bakers, a dozen culinary chefs, the support staff of food scientists and technicians that help to bring the art of food and some science to life for our customers. You don't play on this stage without the best teams in the marketplace. But these teams do not work in a silo. They work in alignment with our customer, with a toolbox as you've just seen: pioneer innovation, executional excellence, and a winning portfolio.
That's the recipe. No pun intended. But that's what drives success. And with their success comes our success. With our team's promise we need to believe in a vision. And our brands drive our day-to-day activity so we can be passionate to deliver the best foods in the marketplace.
I'm proud to introduce Kristina, who creates and molds the vision for you and your consumer. Thank you for your partnership.
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Kristina Dermody, ARYZTA AG - President, Brands [9]
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Hi. I'm Kristina Dermody, President of Brands here at ARYZTA. I've been with ARYZTA for almost 5 years and pretty much in the industry for about 20. Today, over the next 20 minutes, I'm going to take you to how I approach brands here at ARYZTA. But first let's talk about brands.
What is a brand? Is it a logo? Is it a thing? Is it a food? Is it a pair of nice shoes? Is it a feeling? A wise woman told me a long time ago that the brand is not a logo, but a promise. And as I evolved in the brand world I came to realize that the promise is the emotional connection we make each and every day with our consumer.
And just when I started to get confident, I realized that it's not who I say we are or who our brands are; but it's who they, the consumer, says our brands -- who our brands are. And that puts the ego in check. So knowing that the consumer defines our brands, why should we focus on our four consumer facing brands today? Well, that's easy: a sustainable future.
For you see, when I own a brand I have the opportunity to build that emotional connection with the consumer. I get the build the trust. And it is through that opportunity I can command a price based on that promise I deliver, each and every experience. It's to prevent us from falling into the commodity trap. This is why we do it.
Our brands have very different personalities with very different consumers. We at ARYZTA can touch almost every single demographic with our brands. La Brea Bakery, Otis Spunkmeyer, Big Texas, and Oakrun Farm Bakery are critical to our success.
Today I have the pleasure to introduce you to two very distinct and very exciting brands. Otis Spunkmeyer founded in 1977. Our mission, quite simply, is to elevate the sweet snack experience by always delivering a quality and great taste.
So let's talk a little bit about that snacking market. The snacking category is a huge opportunity for Otis Spunkmeyer. It is estimated that the snacking industry will hit $200 billion by 2020. That's great news for us. Even better is our positioning of No Funky Stuff, which some of you saw earlier today, resonates with the largest group of snackers, both Boomers and Millennials.
And snacking truly is universal. In fact, 94% of the people say that they snack, and 6% say that they don't. And let's be honest, those 6% are lying. Better-for-you, that's a hot topic. And as a mother, I can tell you that I'm not thrilled with most of the items I find on the shelf. So providing transparency and better ingredients, as Tyson mentioned earlier, are incredibly important. And despite the call for healthier living, sweet snacks are here to stay.
So for those of you not familiar with Otis Spunkmeyer, we were created in 1977, as I mentioned before, and we're considered a brand with a heart. It doesn't matter if you're on your 60s or you are a kindergartner, people love Otis Spunkmeyer. I'm sure you might remember your first Otis Spunkmeyer cookie or muffin. I always have people coming up and telling me their story. And the emotions that are conveyed every time I hear a story from back in the day are always telling. Good memories.
And looking back, we were the original cookie retailer. We established ourselves in foodservice. And we entered into fundraising to help kids raise money for things they were passionate about. And today we are the number-one foodservice muffin and cookie brand. But for me, for us, it's not enough.
So last year we decided to do something a little bold. The sweet snack aisle has been dormant for decades. Sure, we've seen some new flavors and some new shapes. But for the most part it's been the same old thing. We were not about to be a me-too. And as a leader in the industry we had to take it a step further. We removed high fructose corn syrup, partially hydrogenated oils, artificial colors, and artificial flavors. You know -- the funky stuff.
Believe me; we're just getting started, though. And you might be thinking, yes, that's great, but how does it really taste? And that's a good question. So we decided to try it out on a few consumers. Let's see what they had the say.
(video playing)
Okay. So, we definitely delivered on taste. So our consumers love it and our customers want it. They don't want to miss out. So let's take a look how that translates. Look what we've done in less than a year. It's been one of the most successful food launches in the bakery category. We're well on our way to success. And this is what 27% ACV looks like on a map, with a goal of 49% by 2017.
Now, in order to hit this distribution and sales goals, we have to have a 360-degree marketing approach to all of our campaigns and food launches. This enables us to reach our consumers where they live, work, and play.
We need to remind them of us while they are at their football game where I'm passing out their food; or at a Disney Mother's Day celebration where they get a gift basket of Otis Spunkmeyer treats; the grocery store or online; checking their Facebook; or our latest picture on InstaGram. And it's not just to highlight the latest food or promotion, but also to remind them that Otis Spunkmeyer is a brand with a heart. And as a leader, it's our responsibility to give back.
I, like other consumers, want to show support for companies who I believe are doing the right thing. In fact, 40% of consumers purchased a product or a service in the last six months from a socially responsible company. We are proud of our partnership with No Kid Hungry and our commitment to ending child hunger.
And let's not forget our latest commercial. If you are going to do something bold, you better shout about it. Let's take a look.
(video playing)
I'm that confident we will win.
Changing gears now. La Brea Bakery, founded in 1989. And our mission at La Brea Bakery is to make food -- to always make delicious food with integrity, simple ingredients, and a patient process. We don't take shortcuts and I'm very proud to say that.
So a quick look at our history. We were small -- just a small, 1,400 square foot -- think about that: 1,400 square foot bakery -- with $40 million in sales. We invested; we built Van Nuys bakery, and then our Swedesboro bakery. We added more lines, more capacity, which helped us to invest in other capabilities which we own.
And although we've grown bigger, we still stay true to the values that we've held since day one. We even still use the same starter we began with 27 years ago. And today we are the largest artisan bread company in the world. And with that honor comes a great deal of responsibility.
It's this responsibility that requires us to always push the industry to be better, to evolve. In 1989 we took a step to say no to bad bread, and introduced artisan bread to the US. These are just some of the examples how we've led the evolution.
It is our responsibility to educate the consumer and to be transparent. And this year, we committed to converting our artisan breads to non-GMO. We committed to using cage-free eggs. And people noticed. Not only did we win best new snack, best baker, but also creative awards for our marketing efforts. But we're most excited about is our 2016 bakery of the year award.
So how does that translate? These are our goals over the next few years. We're in a good place. In fact, we are five times greater than our closest competitor. Five times. And on a map, this is what it looks like. Penetration is key through new line extensions in categories. Okay.
So what's next? What can we possibly do next with bread at ARYZTA and La Brea Bakery? Michael Pollan, a great author, has a new series on Netflix called Cooked. And in this series, he preaches the need to return to basics. And in this episode, Air, he takes -- he talks about what bread used to be versus what it is today.
As Owen mentioned earlier, wheat grain has been used by humans for thousands of years, with evidence of man grinding wheat with rocks to make flour. For 7,000 years, we cultivated, we stored, we milled and consumed wheat. And the system worked and it nourished civilization.
But these wheats were tall and heavy and difficult for farmers to harvest. So through the years wheat has been crossed again and again, modified specifically for higher yields, disease resistance, but not for flavor. And this conversation just isn't what's happening in the foodie circles. No; this is a conversation way beyond this.
Ferris Jabr, a scientist, wrote a very insightful article that appears in the New York Times called Bread is Broken. And if you haven't read it, you should. It basically talks about how we used to enjoy a diverse range of regional wheats with superb flavor and nutrition, but for the most part has all but disappeared from the food chain.
There are over 30,000 cultivars recorded. However, you and me? We're just exposed to a few. There's a small movement of farmers, agriculturists, bakers, and consumers who want more from wheat today. We want more from wheat today.
As a leader in this industry, I proud to introduce La Brea Bakery Reserve, made from Fortuna, a single origin heirloom grain. This game-changing line of heritage breads are truly farm-to-table. No other national or international artisan bread company can say that. This wheat is unbelievable. You can actually taste the difference.
And what makes this bread even more special is our process: single origin, a varietal. Think of wine, for example, a Cabernet Sauvignon. Fortuna is the varietal that we use in this line, but varietal is only half the equation. Now, terroir, a secret ingredient, the fact that soil, climate, topography, and weather can create all the difference when it comes to a varietal, well, Montana has terroir like no other.
The area where Fortuna is grown sits right at the headwaters of the Missouri River where the three rivers meet. The high mountains and the valley farm sits at almost 5000 feet, which is some of the highest elevation where grain is grown in America. Very cool nights, hot days, and extremely low rainfall stresses the grain and produces some of the highest quality wheat in the world.
Varietal and place. Add to this perfect equation sustainable farming practices, our original starter, our fermentation process, and a group of excellent bakers, and that's a recipe for success. We've come a long way since 1989, and we have so much more in store.
I'm proud to introduce our vintage line 2016 La Brea Bakery Reserve. In order to appreciate wheat this good, we have to have a bread tasting. So as the team comes in I'll just tell you that we will taste some bread, which is very exciting.
We're going to review two components about this bread. We're going to taste -- talk about aroma and we're going to talk about flavor. And aroma is about a distinct smell that you'll get. And flavor is the blend of your taste and smell sensations.
Now let's get to the fun part. How many have actually had a bread tasting before? Anybody done a bread tasting? You've done a bread tasting? Excellent. Would you like to come and join me up here? No, you would not. Okay. All right. So before you dip into your butter, just hold up for one second. I know it's tempting, but we'll do two ways first. I'll wait till everybody has theirs.
I'm proud of our bread; that's why I like to do bread tastings. All right, who doesn't have a bread? Right over here, third row. Thanks, guys. Great. 2016 La Brea Bakery Reserve Fortuna loaf. All right, so take your bread, take a look at it. What do you see? Nice texture, nice pores. I like the crust, very even. The color even.
Okay. Now the fun stuff. We're going to smell it. And this is where we're going to smell -- put it right up to your nose and I want you to take a deep breath. What do you guys smell? I get some sweet notes. I'm sorry? You get bread okay -- oh, bran -- sorry (laughter). It's very grainy. It's slight bit -- I get a touch of molasses. I don't know if anybody else does. And it's okay. Remember, we all smell a little differently, and we all taste a little differently, so there's no truly wrong answer.
Okay. Now, take a piece and go ahead and put it in our mouths. We're going to smush it around a little bit with a little bit of saliva, chomp on it a little bit, and then you're going to swallow. You can breathe a little bit. Okay. So what do you taste? Was it different from what you smelled?
I get -- that's when I start to be able to taste a little bit of the sour. That's the fermentation process that we do. I get sweet. Anybody get nutty? Well, you guys got to get something. Oh, you get nutty. Thank you, I appreciate it. All right, so that's one way to taste bread.
Now, you also have some lovely European butter and fleur de sel. So what's interesting is that all grains, especially the grains that are starting to look at, have all different personalities. They all taste different. You can actually taste the difference between these breads that we're making, and we are very excited about that. And I want to make sure everybody understands that as well.
When you add the butter, which is the fat, and a little bit of the salt, you're actually complementing and enhancing the personality of the bread, and it changes it. It actually -- if you go ahead and you put a little bit of butter on it and a little bit of salt, it actually brings that sour note a little bit more. And actually you start to get more of an earthy flavor. It starts to balance out a lot of the grain, or almost the earth -- we say earthiness of that.
And that's what's exciting. Because if you did this with regular bread you wouldn't get the same effect. This is merely a complement to what you're eating, not just a vehicle for which you are eating. This is exciting stuff. This is what gets people passionate: bakers, agriculturists, a foodie, a farmer. Because it's something that people -- it's wheat with a purpose.
So, as you enjoy your bread, I will leave you with this. Thank you.
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John Yamin, ARYZTA AG - President & CEO [10]
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So, I'm a bit biased, obviously, but that was pretty impressive. So I want to thank my team. I think they did a great job of explaining the who, what, where, and why that we set out to do of ARYZTA North America. I know I'm off-script, and I'm sure my boss is a bit nervous about what I'll say.
But, to me, we gave you the variables. We walked you through how we approach this business, and that was all the facts. And we went into detail of how we're innovating, and why we take food safety -- important; why it's part of ourselves. We talked about the market. We tried to show you an insight of how we look at our business and where we are positioned.
One thing that wasn't on the agenda that hopefully that you got today was the passion and commitment from my team to deliver on this. They are committed and they are passionate. And listen, I'm a New Yorker. I was born and raised on the streets. I don't believe all of you are believers. I get that. I believe some of you are. And some of you, I was told, may be on the fence.
I don't think I'm going to convince everybody to believe in us. For my perspective, if you don't, you'll miss out. We believe in us. It's been a challenge; we get it. We built a model through this time.
I was asked the question, it was a great question. I was asked: how is your team doing, because you've been beaten up for the last couple years? It's part of the game. We believed in what we were doing. We believed in our journey. So the shots we took, so what? We're still standing. And we do believe, we do believe, that we are best positioned to win. So I'm confident in my team. I'm confident in the position we've done, what we've done. I am confident in my customers.
And more importantly, more importantly -- and I said this to one of the questions -- my job, is to lead this team to make sure we're relevant to the consumer -- not even the customer, but to the consumer. The customers exist because the consumer is right. Consumer is the one that tells us what to do. Tyson detailed that. Kristina brought that back up again.
We are here for the consumer. And as long as we are relevant to the consumer, and you saw that we're addressing that, we will be relevant to the customer. And as long as we're relevant to the customer, we're relevant to our shareholders.
So yes, it was a bump. I get that. And I got the welts to show it. Didn't deter us; doesn't deter us at all from what we're doing and what we went through. We're excited about the future, we truly are. And we are confident in what's going to happen with it. So, I hope you got a good perspective of ARYZTA North America. And I hope you saw the passion and commitment for my team.
I'm going to switch gears a little bit right now. And I'm going to turn it over to Patrick. Whenever you're ready, Patrick.
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Patrick McEniff, ARYZTA AG - CFO [11]
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Thank you, John.
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John Yamin, ARYZTA AG - President & CEO [12]
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Thank you.
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Patrick McEniff, ARYZTA AG - CFO [13]
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Okay, we have switched gears now, so we're going to talk about the group. Up until now the presentation has been about North America. And we're going to have a quick reminder of what's happening at the group, a quick reminder of what's happening in Europe.
We've got two senior executives here from Europe also; we'll introduce them. And at a group level we have recent set of results. It will take time to have a quick look at those. Many of you have not seen the results, so it'll give you an opportunity to see the results and ask questions.
And we can also recap on the historical performance across the group. And we can also take questions. And, firstly, we can deal with this European business. It's the next biggest part after North America in terms of our business.
In Europe, we've got EUR1.75 billion of revenues, two routes to market, and across many different countries. A region where the main drivers are different countries, different economies; and it's very important to be local. Within the countries we present our go-to-market strategy under food solutions and under bakeries, designed around the required service levels of the different customers.
Frank Kleiner is here today beside Dermot Murphy back there, and he runs the large bakery strategy across Europe. And this requires being very close to bakery assets and introducing the large customer to the bakery assets.
Dermot Murphy runs in the food solutions strategy, and this is more about being close; close to smaller customers, higher service levels, and a food offering that is expanding, being more relevant to smaller customers. Over the last four years, there have been significant improvements made in the European business: market extension, cross-selling, product development, efficient capacity acquisition, and addition.
The European revenue analysis here, the revenue grew 4%; volume, 2.8%; price/mix, 1.2%; acquisitions, 7.4%. Buying market extensions, product extensions, and being relevant -- making the proposition more relevant across the markets.
The Company's acquisitions in the period were Fornetti in Eastern Europe and La Rousse in Ireland. Disposals, 5.5%; two noncore businesses, [Carol's] in Ireland and Fresca in France. These were the drivers of the substantial -- in the period. One was a meat processing business in Ireland and the other one in food distribution company in France. The total revenue growth was 6.1%.
So at this point I'll hand you over to Frank to talk about Germany, and he'll pass you to Dermot to talk about the solutions business.
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Frank Kleiner, ARYZTA AG - Managing Director of European & APAC Bakeries [14]
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Thank you, Patrick. Good morning, ladies and gentlemen. Let me first introduce myself. My name is Frank Kleiner and I'm responsible in ARYZTA for the bakeries business in Europe. I would like to start my presentation with Germany, the largest economy in Europe, and our biggest bakery market in Europe.
We have built over the last 24 months a brand-new bakery with five lines at our campus in Eisleben, Eastern Germany. At the same time, we have closed our older facilities in Immekath with more than 500 employee in August 2016. Unfortunately, not many of our people wanted to move to Eisleben, which is approximately two hours drive away.
The transfer of around 225 SKUs into the existing network was a big, big project for the whole product development team in Germany. Revenue of around EUR80 million were transferred from the closed bakery into the existing network in Germany.
Also, packaging technologies came new into Eisleben which were never used there before. The newly built Work 7, as we called it, has still capacity of around EUR80 million to EUR100 million revenue growth. As mentioned, we ran the whole second half -- or second half year of financial year 2016 and the last months through a big commissioning phase with all new product development resource. This will be done in a couple of weeks and we are expecting NPD recovery starting revenue growth back in Q2.
If we come to the market situation in Germany, we can still notice that the discounters are a strong driver for the in-store bakery business. As the leading two European discounters, naming Lidl and Aldi, are operating across Europe, this supports also growth into other territories. We have to notice as well that some discounters, and retailers with discount formats, have started producing breads and rolls themselves. In Germany, that's for example the case for Lidl, for Edeka-Netto and for REWE-Penny.
For us, as the leading frozen bakery producer in Germany, it's key to have efficient manufacturing -- this manufacturing environment, to be a partner of this leading format. As we are not just the biggest frozen bakery, we also have a big variety of assortment, including new packaging and approval for organic consumer packaged organic rolls. This is just one example of staying relevant and finding new areas where we are not easy to be copied.
As you can see on this map behind me, CEE, Central Eastern Europe contains, in our definition, out of several countries in Eastern Europe. The biggest market for us in that region are Poland and Hungary, but we are also producing in the Czech Republic, Romania, and Bulgaria. The last year's acquisition of Fornetti is performing really well. The Hungarian-based franchisee model is working in most of the market countries -- [mark] countries within Eastern Europe.
We also see synergies with the already existing ARYZTA operations in that region. But it's not just a franchisee model we are looking in. With our businesses in Eastern Europe, we are a key driver of the in-store bakery business development in modern trade in discounters in most of these territories. We are able to leverage our local consumer insights in that region with a benefit for the entire ARYZTA bakery network in Europe.
On the other side, our Czech bakery, Rina, or the Polish bakeries are producing new concepts and lines for the well developed markets in Western Europe. All in all, we are establishing our business in the CEE aligned with our ARYZTA values and our strategy. So let me please hand over now to my colleague, Dermot Murphy.
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Dermot Murphy, ARYZTA AG - COO of Europe & Managing Director of ARYZTA Food Solutions [15]
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Thank you, Frank, and good afternoon, everybody. And Dermot Murphy is my name and I have responsibility for the food solutions business in Europe. I'll now lead you through the key aspects of our business in France, Switzerland, Ireland, and the UK.
France, the business we acquired in December 2004 is very well established and has maintained its relevance within the key independent foodservice channels. This is achieved through our innovation hub, where products are launched every six months through a new catalog. With the emergence of chain bakeries throughout France, the model continues to evolve and more and more of these chains are looking at our business as an outsourced innovation solution.
The Coup de Pates name is synonymous with innovation across its 35,000 customer base, and it's a very strong platform from which to return to growth. After years of growth, this business, which has a 30% weighting in Paris, has seen challenges over the last 18 to 20 months.
This kicked off with the first terrorist attacks in Paris in January 2015, and after these attacks and further attacks throughout France, tourism and the food undergo consumption has been impacted significantly. And this has directly impacted our core customer base.
However, having been through our business challenges, we expect to return to revenue growth in the coming year as people continue to get on with their daily lives, even though there may be continued nervousness about further attacks.
In Switzerland, our business has operated a joint venture since 2001 with our largest customer. We will lose approximately EUR80 million of revenue over the next 12 months. This customer has built its own bakery and will in-source most of its bread requirements. We will acquire the assets of this joint venture at their net book value of approximately EUR15 million, and we will remain a key supplier to this customer as we continue to service the majority of their [venwazarie] requirements.
These requirements tend to be higher value products and are supported by different baking technologies. As our bakeries in Switzerland are very close to maximum capacity, the challenge now is to find new customers for this spare capacity that will come online. And obviously this will impact profitability in the short- to medium-term, but it also offers up significant new opportunities for future growth in that market.
In Ireland and the UK, we have seen our businesses recover over the last 24 months, assisted of course by the overall economic recovery. All economic metrics are improving, such as improved GDP, lower unemployment figures. Our recently acquired business in La Rousse Foods is performing very, very well for us at the premium end of the market, and has plenty of opportunity for growth.
The biggest challenge facing these businesses is the foreign exchange between the euro and UK sterling after the Brexit vote. Our bakery in Ireland sells approximately EUR50 million of bakery products to large retailers in the UK and. Our food solutions business imports approximately EUR50 million of food products from mainland Europe.
With a 10% to 15% move in currency over the last few months, price increases are on the agenda with all of our customers and the outcome of these discussions will be determined through H1. But we're confident, due to limited specialty bakery capacity in the UK, this channel will not be able to avoid the inflationary impact.
So in summary, with our fully focused management team in Europe, we expect to maintain underlying growth outside of our one customer contract loss. While there are challenges in our business, there are also significant opportunities for our business and we are very, very well positioned to deliver on those. Thank you. Patrick?
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Patrick McEniff, ARYZTA AG - CFO [16]
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So, we take a quick step back now and take a look at the group business, 2009 to 2016. Look at the group and its financing, its joint ventures and speak to those briefly. This is a summary slide of the business of ARYZTA. In the background to this picture on the screen, the business has gone through substantial restructuring.
The business is geared 2.9 times net debt/EBITDA. The business has maintained its investment grade credit status through the eight-year period. The business has a hybrid equity also mentioned by Owen earlier at EUR790 million. It has had an investment and origin in agricultural business.
It has replaced that investment now with two JV investments valued at EUR490 million on the books, Picard and Signature. The value of these JVs are expected to exceed the hybrid within a three-year period. And the revenue growth of 12.4% was mostly fueled by acquisitions.
The revenue absorbs the contract renewals of EUR90 million in 2016. As Ronan mentioned earlier, it absorbs the repositioning decisions of North America, EUR150 million; DSD rationalization, 1,000 SKUs rationalized over that period; EBITDA growth of 13.1% resulting in underlying EPS growth of 9.1%.
And on the cash flow generation there have been nonrecurring costs. The highlight of our 2016 results was the turnaround of the cash performance to EUR267 million. Prior to this, the free cash was absorbed by restructuring and repositioning of the business, and we see it as short-term pain for long-term gain.
The new free cash flow dynamic allows the business to quickly pay down debt and move forward. And if we look at margin movements, the margin in the period was down 100 basis points. Half of the group margin decline related to investments in brand marketing. The remaining margin declines primarily relate to negative operating leverage from contract renewals. The nominal value increases in selling and administration expenses are also driven by acquired business expenses.
Looking at the return of capital invested, it fell 40 basis points in the period. The group has deployed capital of EUR4.6 billion. This capital represents additional capacity of circa EUR1 billion of revenues. The group would aspire to margins of 14% to 15% on these assets. The group would aspire to revenue growth in excess of the 3.4% recorded in 2016, excluding contract renewals.
The customer contract renewal impact; our long-term contract renewals that refer to three customers who contract renewals coincided. Two of these contracts relate to joint ventures or associate investments. ARYZTA still supply all of these customers. ARYZTA has secured two nine-year contracts with the North American customers, as you heard earlier today.
These three renewals and their volume decline margin impacts moderate to a completion by 2018. The cumulative revenue impact from the contract renewals is circa EUR210 million over the three-year period, and the cumulative impact on the EBITDA is circa 35% due to negative operating leverage. And ARYZTA is able to redeploy the capacity associated with these investments across other business going forward post contract renewal.
Quarterly underlying revenue growth. The group revenue of 0.5% increases to 3.4% once it's adjusted for the contract renewals. The North American decline of 3.1% results in growth of 2.2% post adjustment.
The European business was absent contract renewals in the period. And the record of underlying growth of 4% was recorded in the period. Europe will be subject to contract renewals, as mentioned by Dermot and Frank, of circa EUR50 million in 2017 and EUR30 million in 2018. There's an industrial growth across the group of 2% to 4%. And this growth can be referenced through [Gira] in Europe and ACNielsen in North America.
The underlying growth of 3.4% is expected to step up for ARYZTA to fill the capacity and continue to outpace the market. The growth could be volatile due to contract renewals and new product launches. We would always recommend looking at the quarter in the context of the trailing four quarters. Both Europe and North America run rates slowed substantially in Q4.
Financial year-end [27] metrics. We've laid out the financial metrics on this slide. The revenue growth of 1% to 2% is expected, including the EUR90 million of contract renewals. This equates to 3.4% growing to 4.4% excluding the contract renewals. This is a circa 1% improvement on the revenue, which grew at 0.5% in 2016, including the contract renewals.
The EBITDA margin decline of 100 basis points in 2016. The current estimate is for 50 to 100 basis points in 2017. The joint venture performance is expected to improve and the finance costs were EUR135 million in 2016 and we're guiding EUR80 million to EUR105 million for 2017. Cash nonrecurring, we're guiding zero to EUR25 million. And on the free cash generation, we're expect EUR225 million to EUR275 million.
In terms of actions for success, as Frank mentioned earlier, we need to optimize this new German capacity. We need to expand the Swiss customer base to absorb spare capacity following the contract renewals. We need successful pricing as strategy recover FX volatility. We need positive innovation led revenue development and sustained conversion of new product development pipeline into revenue.
The ARYZTA brand investment and rollout should continue and successful recovery of inflationary pressures are needed, especially in the labor area. Zero cost budgeting is essential. With less volume in the business there's a need to continue to reassess the cost base.
So, unlocking the opportunity from the spare capacity. There could be up to 25% additional revenues; EBITDA of up to 40%; EBITDA margins circa 17%; ROIC 14% to 15%; and the steps needed to achieve these goals. ARYZTA sustaining this free cash generation is the key aspect of the performance, EUR225 million to EUR275 million. That should continue over the next number of years.
Grow underlying revenue from 3.4% to 4.4% in 2017 is key to this success. And then on to 5.4% post-contract renewals. We need to fully unlock the recently invested growth capacity in Germany. That's critical. And to resell the revenue lost from the Swiss renewals and the North American renewals.
To successfully generate incremented brand sales, as Kristina spoke about the brands, we need a rate of EUR150 million to EUR200 million to sustain those costs. We need to continue to grow the now stabilized food business [in solutions] and in Europe and in the rest of the world. And to improve the ROIC by 80 to 100 basis points per annum to 14% to 15%.
So at this stage, and behalf of the ARYZTA team, I'd like to say we really appreciate you taking the time to visit us here in Toronto and in Branford. And we can now take questions, which I'm sure many of you have after a day of presentations.
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Unidentified Company Representative [17]
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Charlie, you want to say a word? Thanks very much. Thank you.
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Unidentified Participant [18]
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Yes, can I just -- on behalf of everybody here, John, thank you for your time. I know it's a real pain putting these things together. It thoroughly disrupts your business, but it is much appreciated by all of us. Your enthusiasm and your confidence of you and your team comes across crystal clear. Hopefully it won't be six years before we see you again and hopefully next time we see you you'll just have one slide saying I told you so.
Thank you, also, [Paul, Jane], for organizing us and Owen and Patrick for your time as well and for allowing us to see under the hood of the business. It always helps us in assessing a business, so thank you.
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Unidentified Participant [19]
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Thank you, Charlie. Well, I'd just like to say thank you all for participating today. It's been a pleasure getting you here to show you the business. And if there's anything additional that you need, you can reach out to me.
The bus will depart now for the airport, for those of you who want to get to your flights. So it's look like we've made that a comfortable timeline. So thanks again and thanks to all here in ARYZTA that has made the day quite successful. Owen?
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John Yamin, ARYZTA AG - President & CEO [20]
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Just one thing. As you exit, we do have gift bags for you all. It's -- it will go through security, don't worry about it. But it's in our food, so instead of eating airplane food, you can eat our food on the plane.
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Owen Killian, ARYZTA AG - Founder [21]
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Thank you, John. I just want to thank Charlie for your kind words. And again, thank all of you for coming. It's a great pleasure. I guess Patrick and I, you and I can take a long break because now we know who to put in front of the investors. So, thank you very much.
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