Breville Group Limited is a company based in Australia which engages in the innovation, marketing and distribution of small electrical appliances. It's geographic segments include Australia and New Zealand (ANZ) Distribution, North America Distribution and the Rest of World segment. The ANZ Distribution and North America Distribution segments are engaged in the distribution of small electrical appliances to retail customers in their geographical locations. The Rest of World segment distributes small electrical appliances to distributors in international locations and also includes the United Kingdom business. The Company’s brands include Breville, Sage, Kambrook and Ronson. It also distributes a range of Philips products in the personal care and garment care categories.
Revenue + EBIT (Source - company Reports)
The company is firmly focused on the core strategy that it calls Food Thinking involves creating simple moments of brilliance and the core strategic objectives include delivering sustainable growth through product innovation, brand management and effective distribution across multiple geographical markets. It has sustained its investment in product development and has created a pipeline of new products to be launched in FY 2015 and later. It has completed the integration of the culinary division of PolyScience and has commenced planning for the expansion of the product offerings and the distribution channels. While maintaining momentum in the UK and widening its product range, it has also invested in efficiency and cost reduction.
EBIT (Source - Company Reports)
Group summary results for the first half of 2015
Revenue has declined by 5.6% to $ 293.9 million while EBITDA has dropped 4.9% to $ 47.2 million. EBIT shrank 4.5% to $ 43.6 million and NPAT by 4.9% to $ 29.7 million. The basic EPS declined 4.9% to 22.6 cents per share and the return on equity stood at 40.3% compared to 22.6% in the previous year. The dividend per share was $ .14 compared to the same for the previous year and was 100% franked and net cash was $ 11.7 million compared to $ 9.3 million in the previous year. The decline in revenues and EBIT was primarily due to soft markets in the North American segments which had already been foreseen. The ANZ segment showed EBIT growth despite the decline in revenues.
EPS (Source - company Reports)
As at 31 December 2014, working capital stood at $ 136.6 million compared to $ 136.3 million and net assets employed were $ 221 million compared to $ 206.8 million. There were translation impacts based on the weakening AUD and working capital was steady compared to the previous year. The inventory increases caused by the lower inventory holdings of retailers was offset by the net decrease in receivables. Efficiency and cost improvement initiatives were forecast to cost $ 11 million of which approximately half were incurred in the first six months and these initiatives included leased offices and a group wide ERP system. Intangibles by way of goodwill were increased by $ 8.3 million because of the PolyScience acquisition but the cash position remains strong and the company is debt free.
The segment results show that in the ANZ segment, revenues declined by 1.2% to $ 142.9 million and EBIT grew 1.4% to $ 16.3 million. In North America, the numbers were (10.8%) to $ 116 million and (9.4%) to $ 20.6 million. The Rest of the World showed (4.3%) to $ 36.1 million and (17.3%) to $ 8.8 million. The total was a decline of 5.6% in revenues to $ 293.9 million and 4.5% in EBIT to $ 43.6 million. The EBIT increase in ANZ was driven by pricing, cost savings and sales mix despite the strengthening of the USD. Sales and EBIT in North America were lower because of pricing while, for the rest of the world, the UK exceeded expectations which offset lower revenues in other parts.
Upcoming product launches
These include a flagship multi-cooker with automated steam release, temperature and pressure based on selected foods. This is a combination pressure and slow cooker which knows the time, temperature and pressure for different food needs and the hands-free steam release automatically adjust itself to produce the maximum flavour and texture. There is also a flagship hand mixer automatically adjusts the speed depending on which beaters are used and causes the bowl to be scraped without noise or damage.
Outlook
The broader business conditions are expected to continue to be challenging on a global basis and the competitive environment will continue through the rest of the year. The group presently expects to deliver EBIT growth in the mid to high single digits during the second half of the year compared to the same period in the previous year. The Board of Directors has appointed Jim Clayton as CEO with effect from 1 July 2015. He has previously held important positions with LG Electronics, apart from experience in private equity in Silicon Valley and with McKinsey and Co.
There is no denying that the company results have recently been disappointing and that the shares have been declining in recent times because of grappling changes in the competitive environment. However, we believe that these lower share prices coupled with a return to single digit profit growth could actually mark a return to good times for the company. Accordingly, we are putting a Buy rating on the stock at the current price of $6.40
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