Aryzta AG

SIX:ARYN

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, and welcome to the ARYZTA AG Q1 revenue update conference call hosted by Urs Jordi, Chairman and Interim CEO of ARYZTA; and Jonathan Solesbury, Interim CFO. There will be a statement followed by a Q&A session. I will now hand you over to Paul Meade, Head of Communications of ARYZTA.

[Paul Meade, Head of Communications]

Thank you, Sharon. Good morning, ladies and gentlemen. Thank you for taking the time to join our call today. We have released our Q1 results, and we've also uploaded a short presentation which Urs will speak to on our website. Before we begin, I would just want to briefly highlight that the safe harbor statement applies to today's announcements and all the discussions. I will now hand over to Urs Jordi, Chairman and Interim CEO of ARYZTA.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you, Paul. Good morning, everyone. I am joined on this call this morning by our new Interim CFO, Jonathan Solesbury. Firstly, I would like to welcome Jonathan on board and ask him to introduce himself. Jonathan, please?

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Good morning. Thank you, Urs. I look forward to supporting the Board in their endeavors pending the appointment of a permanent CFO. As background, I played a prominent role in building SABMiller plc into one of the world's largest and most successful beverage companies. More recently, I was Group CFO of the U.K.-listed C&C Group. I'd now like to talk about the quarter 1 revenue update released this morning. I propose to take the numbers as read and will confine my remarks to the key messages arising from this update. The revenue numbers are broadly in line with market expectations. Organic revenue in the quarter declined by 15.4%. Total revenue declined by 20.3% to EUR 673 million. Improvements in QSR and Retail channels were offset by COVID-19-related impacts on Foodservice channels. You can see the regional breakdown of the revenue along with organic disposal and currency impacts on Page 1 of our release. On Page 2, we provide the quarterly revenue movements. And here, you can clearly see the sequential improvement in quarter 1 compared to quarter 4. There was a solid positive improvement across all our regions in the period. The decline in quarter 1 FY '21 was 15.4%. This is a decline of 26.2% in quarter 4 of the prior year. This largely reflects the impact of COVID government regulations and restrictions. As everyone is aware, these are constantly changing, but we continue to manage our customer needs each day and maintain high service levels. This is a tribute to all our employees taking pride in what they do to ensure our customers receive high-quality food. I would like to personally thank them. We also provided a liquidity update in today's release. Our liquidity position at 31 October 2020 was EUR 445 million, reflecting continuous focus on cost management and cash conservation measures. The statement also includes details of agreement with our supportive lenders, who consented to increase headroom in our financial covenants to accommodate the uncertainties arising from the current COVID-19 environment. It is, of course, very encouraging to see the vaccine news emerging at pace. This provides a very strong hope of normalization for all our lives and our business in the not-too-distant future. This should support further performance improvements. Finally, I'd also like to highlight our prudent approach to guidance in this COVID-19 times. We're not providing any forward guidance due to the impact of continuing and changing government-related restrictions on our customers and our markets. Thank you. I'll now hand back to Urs.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you, Jonathan. I will now take you through a short presentation, which is available on our website. We will start on Page 3. As you know, ARYZTA confirmed advanced talks with Elliott Advisors on September 10, and talks were concluded on October 24 without a binding offer. On November 23, Elliott announced a conditional nonbinding approach, and ARYZTA publicly noted this and reminded the market that no binding offer has been made. I want to say, in line with its fiduciary duties, the Board will consider all alternatives and select the optimum option for a sustainable future of ARYZTA. We would then turn to Page 4 of the presentation, where I provide a summary of ARYZTA's way forward. The expertise of ARYZTA's Board has been enhanced, and it's our intention to exploit the bakery, financial and turnaround experience of the Board. ARYZTA's leverage is not sustainable, and it's the Board's intention to reduce this through selective disposals. Our strategy is to focus on key markets and key categories using 3 routes to market: Foodservice, Retail and QSR. You know these channels. We will do this with a simplified structure. The simplified structure will involve the empowerment of a lean, more agile and multi-local organization. This means the local management will own and be responsible for the entire P&L and costs and be able to take important customer revenue-generating decisions quickly to ensure excellent customer service and high-quality bakery products are delivered every day. Bakery is a local business serving local customers and needs to be able to act quickly and respond to changing trends and customer requests fast. This approach will allow us to exploit organic growth opportunities initially and, in time, potential M&A opportunities as well. The outcome of this means that ARYZTA will return to organic growth, deliver an improved financial performance. It will result in reduced complexity and reduced overhead costs. It will result in multi-local lean and more agile business models. Most importantly, it will result in better and enhanced customer experiences and improved market share and market penetration. Now then on Page 5. A lot has happened on Board level since the AGM (sic) [ EGM ] in September, just 3 months ago. As you know, shareholders voted for a change at the EGM, and shareholders have now received that AGM invitation, which proposed the election of 3 new directors on December 15. The result is a Board with strong bakery, financial and turnaround expertise which will greatly assist the implementation of the shareholder mandate for this new strategy. On Page 6, here, you can see the experience of the proposed 3 new Board members being put forward for election on December 15. Gordon Hardie has over 30 years of experience in the food industry. He was President of Bunge Food & Ingredients and Managing Director of Goodman's Fielder Bakeries and has significant experience in turnaround situations. He has also nonexecutive Board experience, as you can see. Jörg Riboni is also being proposed, and you can clearly see that he has a very impressive financial experience, having been CFO of the companies listed on the slide. Hélène Weber-Dubi has over 20 years of experience on the financial side, holding various executive and not executive positions in Switzerland and internationally. The Board is recommending shareholders support the proposal to elect these candidates at the AGM. Then to Page 7. It's very important to highlight that these changes are very recent, only started on 20th November 2020. Jonathan Solesbury was appointed as Interim CFO, and I was appointed as Interim CEO. We have since appointed Marcus Opitz as Chief Restructuring Officer, responsible for disposals; and Armin Bieri as Chief Transformation Officer, responsible for strategic restructuring. These changes strengthen the senior leadership and will help accelerate the necessary changes to deliver improvements. As I mentioned earlier, ARYZTA's debt level is unsustainable and need to be reduced. We have already announced that our supportive lenders have provided consent for increased headroom to accommodate the uncertainties of the COVID-19 environment we find ourselves in. We have a strong liquidity position, which stood at EUR 445 million at 31st of October, as outlined in the quarter 1 update. We have taken significant actions to address our leverage issue. We have appointed new financial advisers Houlihan Lokey and Alantra to assist. We have already received a high level of unsolicited nonbinding expressions of interest in purchasing various parts of ARYZTA. Together with our advisers, we are currently assessing these, and all alternatives will be explored and considered. Our target is to raise between EUR 600 million and EUR 800 million from selected disposals. These proceeds will be used to reduce debt and improve our balance sheet. This process is up and running only a short while. Updates on key development will be provided in a timely manner. Then forward on Page 9. Here, I set out our business model, which has 4 revenue drivers and all involving excellence and best-in-class delivery. This is the base of our business. On the top left-hand side of the page, we will focus on 3 channels and routes to market: Food Solutions, which includes foodservice, convenience and bakery; the second is the Retail channel; and the last one is the Quick Serve Restaurant part of the business. Each of these channels has specific needs in terms of revenue drivers, and our multi-local approach will enable us to increase our market share in each channel by exploiting local-based knowledge regarding customers. On the top right-hand side, we have innovation and category management know-how across 6 key product groups. We can grow revenue by customizing products locally for our key customers through innovation and also quickly managing these categories as local trends change. Moving to the bottom right, we call out excellence in business development as a key revenue driver which involves our new multi-local approach. This leverages our -- the really important local customers' knowledge, also knowledge of our local competitors, as we have many, and being able to provide solutions for our customers to allow them to grow their share of the market and, ultimately, also grow our share of the market. Finally, on the bottom left-hand side, we will focus on improving our supply chain and procurement as these are really critical factors in delivering excellence product -- excellent products every day to our customers and consumers. We will focus on a continuous improvement in quality and efficiency across the entire value chain as this is critical to deliver improvement to financial performance. This all goes hand in hand. On Page 10, you see that our business model represents a significant change as we switch to a local model. This multi-local approach will allow us to have very simple structures, act fast in decision to address our local customers' needs. It means we become closer to our customers with short supply chains and accelerate innovation response times. This will improve the local management's engagement and understanding of our customers and deepen these relationships. To achieve this, we will empower local management with decision-making powers, giving them responsibility for their own costs, their own profit and loss accounts and revenue generation approach. All these responsibilities are going down into the local markets. As a result of this change, ARYZTA can return to organic growth and deliver an improved financial performance. Our new structure will be less complex, more efficient and will be based and run on lower costs. The multi-local approach will enable faster decision-making and ownership of targets driven by very strong bottom-up knowledge in their markets, competitors and consumers. Our customer experience will improve. Our relationships with our customers will strengthen, and ARYZTA will increase its market share and market penetration. Now to Page 11 with the key takeaways. The key takeaway is that our approach will generate significant future value for all stakeholders. It involves disposals to reduce the debt and move to a multi-local business model to deliver operational improvements. To summarize. The ARYZTA Board is up for refreshment, which will be completed on December 15 at the AGM coming. Your Board members will have the necessary understanding and expertise to fix the company's long-standing issues. Significant new senior management changes have been made in recent days to implement this strategy. We have new financial advisers engaged to support this strategy and who are examining the high number of unsolicited expressions of interest already received. Our plan is now up and running. We are fully convinced that the move to a lean, agile and multi-local customer-focused business model will deliver sustainable and substantial value for all shareholders and all stakeholders. Thank you very much for this. I will take now questions in the remaining time, and we'll now hand back the call to the operator to open the lines for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Jason Molins, Goodbody.

[Jason Molins, Analyst]

Urs, Jonathan and Paul, a couple of questions, if you don't mind. Just first, I guess, operationally, just wondering if you can share the monthly performance during the quarter. I'm aware you had an exit rate of 18% in July, so just a sense of how you performed during those 3 months. And any commentary you can give regarding November because, obviously, there was a bit of a step-up in restrictive measures put across a number of markets. And then in terms of the disposal and rebalancing of the business that you're looking to do, you're calling out debt reduction. Just maybe a bit of color in terms of what you're thinking around what you think the optimal level of leverage is for the business and how you're thinking about that with regards to your bank debt. And any commentary around the hybrids as well, how you're viewing those.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you. I just wrote down the question. I would start with the last part and would then hand over to Jonathan for the first 2 questions. As you can see in the presentation, we target asset disposal in a frame of EUR 600 million to EUR 800 million. This will reduce to a significant reduction of our bank debt ratio, which is standard in the industry is 2.5x net debt over EBITDA. So this is the target we will achieve. Anyway, we will assess and reengineer the entire balance sheet structure. As you mentioned, there are hybrids out as well. So we will find back to a balance sheet which will stay on a more solid place supported by a business which will show organic growth. Now for the first 2 questions, maybe let me do a remark shortly on November. It's correct, we saw improvement. It became better month-by-month. There was -- there were impacts now with these new lockdowns, partial lockdowns, partly in Europe, in Asia, in the U.S., which was mainly targeting the QSR business. Retail business -- sorry, the Foodservice business. Retail business and QSR business were still fine in November. There was an improvement visible. What's going to happen now in December or in January is not under our control. Now to the numbers, the first part, maybe back to Jonathan.

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Yes. Thanks, Urs. So in terms of the monthly breakdown within the quarter, we haven't obviously disclosed that. But I think, Jason, as Urs has alluded to, there's gradual improvement from month 1 into month 3 and, as Urs mentioned, some further lockdowns in November. But that's largely limited to -- as Urs said, to the Foodservice channel and broadly to one of the geographies within the European -- in the European business. Jason, you had a question and apologies if we haven't got it. What was it?

[Jason Molins, Analyst]

No, I think that was largely covered in terms of the monthly, so thanks for that. Appreciate it.

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Thank you.

[Operator]

Your next question is from Patrik Schwendimann from ZKB.

[Patrik Schwendimann, Analyst]

Patrik Schwendimann, Zürcher Kantonalbank. You have mentioned selected disposals of EUR 600 million to EUR 800 million. At the same time, on Slide 11, it's mentioned single asset disposals in the next 6 to 9 months. So is this the same number? Or what's the time frame for the EUR 600 million to EUR 800 million? That's my first question. And then a question to Urs, what has been the most positive and the most negative surprise for you since you have arrived again at ARYZTA? And third question, you are now also Interim CEO. For how long do you plan to hold this double function?

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you, Patrik. Let me answer the simple questions first, and then I can think about the most positive and the most negative point, it seems to be a delicate thing. Okay. The CEO role is depending on the search for a successor which is initiated. Normally, this takes 9 months, 12 months. This is not fully under our control, but this process is started. It is at interim role, and we don't plan to keep this as a standing solution. But it can last 12 months, maybe 24 months max, but we will find the right candidate. And if there are 2, 3 months longer to wait, that will be fine. The EUR 600 million to EUR 800 million, we believe that within 6 to 9 months, these single asset disposals will be doable. And this is the plan now we are following. The biggest minus -- maybe if you allow me, I'm a positive thinker, but the biggest minus I experienced is that the business is -- was busy, is busy with the topics a business shouldn't deal with. We will try to refocus, and I outlined this in my statement to the operational business, to the local business. Our customers are locals. The German retailers or discounters, the U.S. customers, QSR customers, the Asian customers, all of them have local needs, and we need this to put in our absolute focus. Innovation of the business, renovation of the business, and this was a bit under prioritized in the past. So this is most probably the minus. The plus is that there are -- there's a big will of the organization to go this way. So the organization was waiting for this and is motivated and hungry to follow. These are my impressions after some weeks or 2.5 months. It is fine, Patrik?

[Operator]

Your next question comes from the line of Jean-Philippe Bertschy, Vontobel.

[Jean-Philippe Bertschy]

I'm a bit puzzled because we had such a long period of value destruction with the management team who left in '17 and another one leaving now, you have like a full change of management. And I think some time has been lost. We had as well a project renew. You are talking about regaining some of the local customers. But the competition was not sleeping either. They were investing as well in automation. How do you see this to regain those customers in the connection of pricing, of the costs as well that you have to reduce probably? So I think it's a huge challenge. And another question would be on the motivation of your key employees. Basically, like a management team leaving in '17, another one now, how will you be able to motivate the person on the ground, which has been quite suffering, in my view?

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Thank you, Philippe. Let me -- I think the key question in this. ARYZTA was generated or was founded somehow 2008, 2009. And since then, the environment and the imagery around ARYZTA was stressed several times. Employees, our colleagues here, they are and were expecting a clear plan where the journey has to go with ARYZTA. I think the Board and the senior management and the management is on a good way with defining this plan and executing this plan. And I think this is the biggest motivation to give to the organization, to customers, shareholders and stakeholders the perspective of a clear plan, of a clear execution, which will end then in a relevance towards customers' organic growth. This is, I think, the motivation for all of us being here. You are absolutely right, the patient was stressed over last years, and we will fix this. And you are as well absolutely right, customers were not waiting, and competitors were not waiting. We are lucky in this that in the current environment, customers are looking for solutions with packed breads, with safe products, with products being baked at home, which is exactly our business. So we are able to offer solutions. Anyway, now there is tender phase out. Tender phase with the big retailers and discounters and, anyway, the customers -- foodservice customers is usually October until December. So it's a good moment, a good time now to make sure that ARYZTA remains a relevant supplier of them. There were many investments done in the recent months and years in capacity, in technology. We understand this. We follow this quite close. There are new technologies in the market which could be disruptive to existing technologies. ARYZTA will take part in this, and we will not get lost in this phase. This is a challenge, you are absolutely right, but we address this, and we will be part of the future consolidation in that market. Is this fine, Philippe?

[Jean-Philippe Bertschy]

Very useful. I have maybe -- yes, that's great. And maybe a follow-up. There was a mention on wanting to invest massively in Brazil with an investment of EUR 50 million or EUR 60 million. Are you still pursuing that option or you would rather cancel it?

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Basically, this is a good business. The decision was taken to even enlarge this investment a long time ago. This is in process now. It's put on hold for a moment, but the put on hold is not an economic decision, it's more a pandemic decision at the moment. So the capacity enlargement will restart in March, April. So this is a business, we are very happy about this business, the business is well performing, and we will keep this business. That's the status of the work.

[Operator]

And your next question comes from the line of Andreas von Arx from Baader.

[Andreas von Arx, Analyst]

I have 3 questions. The first one is for investors to consider maybe to join your path of a multiyear transformation, I mean you said it yourself, I mean there has been a management change. Is there any kind of assurance that you can give that this business is not going kind of over the cliff in the coming months and that there's nothing that you see at the moment that is a significant change on what, let's say, the general expectation level is given in the COVID times? So that will be question number one. Question number two will be on that disposal of EUR 600 million to EUR 800 million. Is this all for bank reduction? Or could there be a significant part being used for a restructuring program? And how large could such a restructuring program be given from your today's perspective? And then the third question is on your local operational plans. I mean could you -- I mean let's say we focus on Europe for a bit. I mean do you then empower country managers like, let's say, France and Hungary and the U.K., and you will then have individual countries? Or will this go even more detailed with individual channels by country? So how should we think about that, let's say, in European organization and P&L responsibility in the future? And related to that, I mean your supply chain looks a bit different. I would say you have some very large facilities providing all Europe. So how do you then manage that, let's say, more centralized production versus the more localized, let's say, sales and marketing jobs that you have? I mean is there someone with a central responsibility for the supply chain?

[Urs Jordi, Interim CEO & Independent Chairman]

Andreas, thank you. I'm just writing. Let me start with the last part of the question. As you know, the business will be -- is and will be organized amongst our models, which is Foodservice, which is the day-to-day delivery in -- towards our customers' petrol station, hotels, restaurants, is organized in a bakery business delivering Aldi, Lidl, Rewe, Edeka, Kaufland, ICA, Albert Heijn, all these type of customers. And the third pillar is Quick Serve Restaurants. All these business units, if we take the European example, will manage their own P&L, okay? This is important. In addition to this, there are production facilities. Production facilities are in the QSR model and in the bakery model dealing directly with the big customers. This is a full truckload business. And the Foodservice business can be a customer of these big bakeries. So this is the organization which will follow our plan, a business model in a country owns a known P&L. Then the second question were disposals. The disposals mainly are done with the aim, first, to manage the balance sheet. As we mentioned several times, this balanced balance sheet structure is not sustainable. It's not sustainable as far as bank debts are concerned and hybrids are concerned. So we will include in this all our stakeholders. But the single asset disposal is as well following a rationale around core business and core markets. As I told, bakery products, food, I think, to a large extent is a local business. And we need to make sure that all our efforts are going into these winning units. There will be a part of this disposal to take part in the consolidation of markets. And there will be a part for future investments into production facilities, into other excellence, into other infrastructure. Then the first part with, I would title, over the cliff. No, ARYZTA will not go over to cliff. We are in control of the company. We do our utmost to get the best out of the situation. I think we took the right strategic decisions, and there will be improvement visible. Maybe the improvement comes a month or 2 later. We don't control COVID. This is the uncertainty in this whole context. But there are vaccines arriving, there is hope coming, there is spring coming, so we will see uplift on this. Our lender banks and our stakeholders are very supportive in this. I think ARYZTA is working towards a more solid ground.Restructuring costs -- maybe the restructuring costs I didn't address yet. We are capturing all of this. As I told, Marcus Opitz, Armin Bieri, the change team, we call it, are capturing all these costs, the savings, and there will be a time to show this. At the moment, this is work in progress. Is this fine, Andreas?

[Andreas von Arx, Analyst]

Thank you very much.

[Operator]

Your next question comes from the line of Jörn Iffert, UBS.

[Jörn Iffert, Director and Analyst]

The first 2, speaking about near-term developments. Can you help us to better understand the cash consumption in the first quarter? Was it just a change between taking cash from liquidity lines, i.e., paying it back? Or what was really the underlying equity free cash flow for the quarter? And second question is, please, when your revenue run rate is improving, does it also mean your EBITDA run rate is improving? Or shall we consider, for example, at end of last year, we are supported by short-time work teams, which is falling away right now? And then the last 2 questions, more strategically, you started to mention it. Would you see huge synergies in between the Foodservice business in Europe and the bakery business in Europe? And what could be the time frame to explore it? And then the last question with Eisleben. I think previous management wanted to centralize production to improve stabilization. Is this still happening? And do you see the first success here? And is the customer also accepting this?

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you for this. I would answer the third and the fourth part of the questions. I would then give back for the revenue, EBITDA conversion and the cash questions then to Jonathan. Synergies in this consolidation you mentioned are the margin contributions coming out from production delivering Foodservice businesses. But overall, the units, the production units we have are focused models to business models. Eisleben, for example, the former Klemme business, or the Nordhausen, they are serving their target customers, retail and discount. There can be an on-top synergy coming out that Foodservice is buying from them and which should then end in a margin contribution. But at the end of the day, this entire synergy potential between business models, countries or even regions, I think, is not that huge. Okay? The business is a focused business to the customer landscape, and this is the value driver in this, not synergies. The Eisleben project, there were significant step forward done. We will address this again. There are more plants in Germany. There is volumes we need to cover for the next month and years to come. So concerning this Eisleben situation or overall, the production layout we will inform in the frame of the change team results. I would give the questions about revenue, EBITDA conversion and cash back to Jonathan.

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Thanks, Urs. Yes, the first one in terms of the near-term development on cash flow, as we explained in the update, you've got liquidity at EUR 445 million, which is up from EUR 424 million at the end of July, so an increase there of EUR 21 million. That EUR 21 million increment is coming out of operational cash flow, working capital and CapEx, a combination of those 3. So that's not reflective of further drawdown of RCF. So that is incremental cash flow. And then in terms of revenue run rate versus EBITDA, yes, most definitely, so we're seeing an improvement in the run rate in revenue. And consequently, we are seeing an improvement in EBITDA run rate and, consequently, improvement in margins over that period.

[Operator]

And your next question comes from the line of Faham Baig from Crédit Suisse.

[Mirza Faham Ali Baig, Research Analyst]

A couple of questions from me as well. Firstly, simple questions, but if you could help us with some key moving parts for the year, if you have any visibility on this, on net working capital, on CapEx, on the cash restructuring charges. I know you're working through all of these and have designated people looking at them, but any insight into them would be very helpful. For example, what is the maintenance CapEx cost of the business currently? And the second question, it's a broad question, but I think it's an important question. You've laid out the strategy. You've laid out the new multi approach, local-focused model. But are you able to highlight or give us an idea of the cost associated with the new strategy? Because I would have thought it is a bit of a pivot in this. Over the last few years, you've had leakage of key employees. There's also been a focus on headcount reduction. So in order to reengineer the business, I would have assumed that there is a need to potentially rehire employees. And any information you can give around that would be very helpful.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you for this. Let me do the second part, and I would then hand over for the moving parts to Jonathan. The business refocus into the locality into our U.S. units, into our European units, into the Asian units is mostly based on the local organizations. And the local organizations today are functioning, so we just give them more power to execute the business. There is very little cost more needed to do this. But on the other hand side, we will reduce complexity on the overhead structure, and this complexity will lead to cost savings. So I expect to have a significant cost saving due to this reorganization. There is maybe a bit more in the local units. There is, for sure, less on the overhead, which ends then in a net less cost position, which is needed. Our competitors are lean companies, are founder-owned companies, are customer-owned companies. As you know, big retailers invested recently a lot of money in their businesses, so we need to make sure that our business models are able to compete with these structures in the market. So I don't expect that there will be more costs in. It's, for sure, the situation that there is much less cost in. Jonathan, the moving parts?

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Yes. Thank you, Urs. Yes, just at the outset, one, I've been in the business literally a couple of days; and secondly, as I said earlier today, we're not giving guidance. So I hope I can give you a little bit of flavor. But clearly, in terms of my focus areas coming into this business, delivering cash flow and liquidity is right up there. I think having looked at the business for the last few days and what I've seen in terms of some of the trends that I spoke to earlier on the back of Jörn's question, I think certainly there's some improvements we can make in terms of working capital, cash flow. CapEx, yes, I mean we've come in and said only essential CapEx, so we put a freeze on all CapEx. The major project that we spoke about earlier in Brazil, as Urs said, that will restart probably March, April this year. So we're very closely monitoring CapEx as well. In terms of restructuring charges, I think Urs maybe largely addressed that, but it is early days in terms of our restructuring program, so we're not in a position to give you a view on that. But certainly, restructuring is like any investment decision, you make an investment, and you've got to get a return on it. So we monitor that and, in due course, come back and give you some more information. In terms of maintenance CapEx, I can tell you what it is in the beer industry, it's 6%. In terms of the bakery industry, I don't have a definite number. We're not giving guidance, but I would have thought it's something down low single digits, certainly lower than what you'd have in the beer industry, which is much more capital intensive.

[Urs Jordi, Interim CEO & Independent Chairman]

And Jonathan, the bakery level there is around 3%. This is the maintenance CapEx to let the business run. More or less, that's the peer group standard, the industrial standard, and that's a bit different to others, about 3%.

[Operator]

We will now take our last question from Jon Cox from Kepler.

[Jon Cox]

Yes, a couple of questions. Just on the covenants, is there anything that prevents you in those covenants from renegotiating your hybrid debt at all? Because I think that's a pretty obvious solution given you're saying everything is on the table. That's the first question. Second question, on the overall balance sheet, you're talking about getting down to maybe 2.5x net debt/EBITDA. If you get, say, EUR 700 million from divestments, you're going to be left with about EUR 1 billion in hybrids. But I guess your EBITDA is going to be cut almost in half as well, so you're going to probably be sub EUR 200 million EBITDA once you've done all the divestments even as things start to improve. Clearly, you still wouldn't be anywhere near 2.5x. Do you think potentially that a capital increase will be considered as we -- as you move forward? And then on the channels, you mentioned things gradually improve during the quarter, but generally, QSR and retail is a bit better. Can you just confirm that QSR -- well, Retail was positive; maybe QSR was flat? And then in Food Solutions, maybe you can just explain what's going on because, obviously, you have bakery, which I guess is all open and functioning semi-normally. And then you have obviously the hotels and the restaurants part. I guess that's doing the real damage in terms of that decline in the revenues.And then just a question. The previous management team announced the divestment in North America. It was about 10% of revenue, but there wasn't much detail. That hasn't happened yet or not according to the figures we see today. Has that been delayed? Or is it a case of you maybe rolled that asset into something else? Or should we expect that at least to be coming relatively soon? And would you actually make an announcement? Because the previous regime sometimes were doing this stuff, and we wouldn't find out about it until maybe we start to see the divestment line in the organic sales growth breakdown.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you, Jon. I would, as before, start with a part of the answer, would then hand over for the covenants and the status of the pizza business, which you almost -- which you most probably touched, back to Jonathan. The balance sheet structure is and -- or the targeted balance sheet structure is in work. We assess this. It's all about what are the asset disposals and what is then the RemainCo after asset disposals. We strongly believe that the better performer units will support balance sheet structure, will support cash, will support EBITDA in the RemainCo, which is then clearly helping to improve this ratio. As I told earlier, there is a target ratio we have to address, and this has all been worked out in this balance sheet restructuring. There is a time to go. But there is not only a project about asset disposals. ARYZTA needs a clear significant and sustainable uplift on the EBITDA performance. This is the second key driver to bring all these variable parts in a healthy balance, if I may allow like this. But this is in work, and I am sure that we will be able to lay this out as soon as the work in the change team is more continued and it's been done. There is no capital increase planned. We think this is not needed now, and we don't plan such move. The Foodservice part, as you mentioned, right, is the most beaten channel at the moment. It's less bakery. It's more hotel. It's more traveling. It's more reception anyway. It's -- there are trade fairs not being held. There are travelings not being done. As you can see, there will be ski regions closed over winter so -- or at least now until early January. This will impact the Foodservice business. But you should remember all the time, carbohydrates, bakeries are the most efficient calorie we see on the breakfast table, so we believe that there is an offset or a compensation from the other channels towards -- against this foodservice dip. For the convenience, for the covenants and the pizza question, I would hand over to Jonathan.

[Jonathan Frederick Solesbury, Interim Chief Financial Officer]

Thank you, Urs. Yes, so in terms of the whole refinancing, I mean that in itself is a significant piece of work, and we'll have a separate refinancing work stream for that. In terms of specifics of covenants, yes, I'm not able to disclose at this point. But safe to say that our wider lending group is very supportive and will look to a refinance plan that takes account of that across the wider group. And just to reinforce what Urs was saying around RemainCo, obviously, as part of the -- of any disposal plan, we need to look at RemainCo and look at, yes, both the balance sheet component of it and also the EBITDA component. Because you're quite right there that there's a potential decline in EBITDA, and obviously, you want a decline in EBITDA to be significantly less than the respective decline in our net debt. In terms of divestitures in North America, yes, I understand they are continuing. And that specifically one that Urs mentioned to is most definitely still being worked on, and we're hoping to get a conclusion to that before the end of the half year. And yes, to the extent that we will announce it, certainly if it's significant new material and we need to announce it, we will do so.

[Jon Cox]

Can I just ask again on the retail and the QSR side? Is that up currently or pre-November? I don't know however you want to define it, but is that trending up at the moment, gen retail and QSR? Or QSR probably flat, gen Retail up, Food Solutions down, is a major down, and that's -- or are you still saying Retail and QSR is still down at the moment?

[Urs Jordi, Interim CEO & Independent Chairman]

QSR is catching up, was almost back on prior year level. Now we have these partial lockdowns. For example, Germany, there it's closed. But without this local lockdowns, QSR is more or less back on prior year level. In Retail, it depends on product group. Packed products, safe products are significant up. Impulse product are rather down. So it's trading slightly below prior year but have shown an uptrend over the last month. We'll see what's going to happen now with the situation we face in December.

[Operator]

Thank you. I will hand over to you, sir, for closing remarks.

[Urs Jordi, Interim CEO & Independent Chairman]

Thank you very much. I think the plan is becoming more and more clear. We will address, as I told, the local needs. We will empower the local management. We will go back to an industrial bakery approach being relevant for all our customers all over the world. We will address costs. We will address complexity. There is an uncontrollable element in this, which is the COVID crisis. But as well there, we believe that there is light at the end of the tunnel coming closer, as you can read in the press. Thank you for your support and your time from today morning. Stay healthy. Enjoy Advent time and hear you soon or see you soon in whatever occasion or opportunity. Thank you.

[Operator]

Thank you. That does conclude today's conference. Thank you for participating. You may all disconnect.