Breville's Innovative Products Power Global Expansion and Strong FY25 Growth.

About Breville Group Limited

Breville Group Limited (Breville, the Group, ASX: BRG) was founded in 1932 and its initial focus was the production and sale of radios. In 1951, following the launch of television in Australia, the Group shifted its focus to the design and development of small kitchen appliances. This deliberate research and development focus explains much of the success of Breville today. The research and development activities are conducted out of Sydney and have resulted in the development of several iconic Australian kitchen appliances like sandwich makers, food blenders and coffee machines.

Today the Group designs, develops and distributes small electrical kitchen appliances which are marketed in 80 countries around the world. Global brands include Breville and Kambrook as well as third-party brands like Nespresso. Interests associated with Solomon Lew either own or control about 30 percent of the Group.

FY24 highlights

In a low-growth revenue year, Breville achieved a $40 million or 7.7 percent increase in Gross Profit, on the back of a 3.5 percent lift in Group revenue, while input savings in product costs enabled a Gross Margin gain of 1.4 percent.

A noteworthy highlight in FY24 is the marked improvement in working capital management with lower net working capital at 30 June 2024 of $341 million, down from $455 million at 30 June 2023. The reduction was achieved primarily through measured and judicious purchase reductions of inventory, rather than discounting. This foresight supported the strengthening of the Gross Margin as inventory balances were reduced by $114 million, or 25 percent to $332 million, down from $439 million.

The reduction in inventory balances explains the robust free cash flow for the 12 months to June 2024 of $240 million, up from $37 million in FY23. The strong cash flow delivered a net cash position of $53.6 million on 30 June 2024, compared to a net debt position of $121 million as of 30 June 2023. Breville is now unleveraged with cash of $137 million and unused debt facilities of $190.8 million, providing flexibility for seasonal working capital expansion.

Breville’s final dividend of 17 cents fully franked is payable on 4 October, taking the full-year dividend to 33 cents per share. This compares to 30.5 cents in FY23. The full-year dividend reflects the Group’s target payout ratio of 40 percent of earnings per share.

FY25 landscape and future growth

Management considers it too early in the 2025 financial year to be definitive about FY25 earnings other than to state that FY25 resembles FY24 with macro headwinds in terms of a soft economic environment, with elevated inflation and high interest rates constraining household expenditure.

On a positive note, management highlighted that there were tentative signs of sales strengthening in the second half of FY24. Should this early sign of sales growth be sustained, existing planned new product launches and fast-growing new geographies should deliver strong EBIT growth in FY25.

The development of new products is the driving force of the Group’s revenue and earnings growth. At 30 June 2024, the capitalised value of product development costs was $86.3 million, and during the year $22.4 million was recognised as amortisation expense. Additionally, property, plant and equipment balances increased by $9.1 million in the year mainly because of investments in tooling for manufacturing equipment and facilities, as well as store fit-out. This amount is a leading indicator of future growth and signals that the Group has various innovation projects to be launched in FY25 and beyond.

The benefit of Breville’s geographic diversity is evidenced by 4.4 percent total Group revenue growth in FY24, but revenue in the Americas and Europe was up by 4.9 percent and 13.8 percent respectively. The Americas and Europe combined account for 80 percent of Group revenue.  In the same period, revenue sourced from the Asia Pacific region declined by 6.4 percent in FY24, although signs of an emerging recovery in Australia appeared in the second half of FY24, with the key Coffee category delivering growth.

Consumers across the world are resetting to different rates of economic growth and this diversification serves to contain earnings volatility. Breville is a pre-eminent appliance manufacturer with products that command premium pricing around the world. The Group’s pricing power and product innovation should sustain earnings growth at least over the medium term.