Breville Group Limited (BRG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Breville Group Limited FY '24 Full Year Results Investor and Analyst Briefing. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Martin Nicholas, Group CEO (sic) [ CFO ]. Please go ahead.

Good morning to everybody joining today's call. I'm Martin Nicholas, Breville Group CFO, and it's my pleasure to welcome you to the presentation of our full year 2024 results. I'll walk you through the group's financial results and then Jim Clayton, our CEO will provide an operational and strategic update. I'd like to start our presentation today by acknowledging and paying our respects to the traditional custodians on whose land we meet today. I would like to pay respect to their Elders, past and present and further extend that respect to all our Aboriginal and Torres Strait Islanders joining us today. We celebrate their continuing connection to and custodianship of this country. Turning to Slide 4, we start with an overview of our results. FY '24 was a solid year of performance, delivering record revenue of $1.5 billion, a number that has more than doubled over the last 5 years. Pleasingly, our full year revenue growth of 3.5%, saw a marked strengthening in the second half of the year with double-digit sales in the Americas, in EMEA and in the coffee category. The group's full year EBIT of $185.7 million was slightly above the top end of our guidance as a sustained improvement in gross margin percentages drove gross profit growth of 7.7% and an EBIT growth of 8%, as operating expenses were well controlled. NPAT grew at 7.5% with lower interest costs, offsetting the reversion in our effective tax rate to 28.5%. Importantly, and as forecasted, we delivered a net cash position as at June 30, 2024, with a strong cash improvement of over $175 million across the year as our planned reduction in inventory was delivered hand-in-hand with improved gross margins. A fully franked dividend of $0.17 will be paid in early October with a full year dividend of $0.33, 8.2% above prior year. So overall, a very solid year of performance against the challenging consumer backdrop with a pleasing second half strengthening. Turning to Slide 5, here, we see our key segment results. Our Global Product segment grew revenue by 4.4% or 2% in constant currency, with second half growth at 8.7% or 7.1% in constant currency. Full year gross profit in the strategically critical segment grew by 6.9% year-on-year. After a quiet period during COVID, our new product launches are firing. Few launches in FY '24 in coffee included the Barista Touch Impress and the Vertuo Creatista. And in Food Preparation, we launched the InFizz, as well as our new food processor range, including the Paradice. New geographies and our direct-to-consumer channel continued to outperform across the year and grew strongly. In category terms, coffee delivered double-digit growth across the year, while cooking and food prep declined more slowly in the second half as NPD kicked in. Our Distribution segment saw gross profit grow by 16.1% as we prioritize the generation of gross profit dollars over revenue in this cash-generating segment. Turning to Slide 6 and 7, here we see the relative theater performances in the Global Product segment. This is also where we see the second half growth improvement most clearly with 2 out of the 3 theaters posting second half '24 double-digit revenue growth. Americas, our largest region, grew 2.9% in the full year and 12% in the second half, supported by strong coffee growth and the continued impact of NPD, which boosted Food Preparation back into positive growth in the second half. EMEA grew by 8.5% in the full year and also posted double-digit second half growth of 12.3% with our direct countries continuing in double digits across the year and distributed countries improving in the second half. New products, especially the coffee products and DTC also continued to perform well. In APAC, full year revenue declined by 6.4%, but we also saw signs of a second half recovery with our key direct countries of Australia, New Zealand and South Korea, moving into growth in the key Coffee category. The overall theater number was dampened by weaker performance in distributor markets. Korea continued its pleasing performance and reached an important milestone, surpassing New Zealand in gross profit dollars in the second half. Turning to Slide 8, here, we look at our EBIT growth drivers across the full year. Savings and input costs and freight at least in the first part of the year were partially reinvested into a normal promotional program. This approach drove gross margin improvements across the group and an increase in gross profit of $40 million year-over-year. Approximately 1/3 of this flows through to EBIT with 2/3 funding operating expenses. G&A expenses increased in line with plan by $13.6 million or over 30% due to the acceleration in the rate of our new product launches and an increase in the depreciation of right-of-use assets as we renewed and expanded our leased warehouse footprint. Employment expenses grew by $13.5 million, driven by the team earning 100% short-term incentive payout as opposed to 58% in the prior year. Like-for-like head count was relatively stable and other expenses collectively were flat year-on-year. Put together, this delivered OpEx growth aligned to gross profit growth and an EBIT growth of 8%. Spend on the critical growth functions of marketing, R&D, technology services and solutions increased to 14% of sales over 13.1% in the prior period. Turning to Slide 9, here, we pictorially see how we've managed inventory over the pre-COVID period, during the COVID wave and in the post-COVID period. The business is twice the size it was in FY '19, and we are holding roughly twice the inventory. Inventory at 21.8% of sales feels like a new equilibrium or normal level appropriate to our current supply chain lineup. This is slightly higher as a percentage of sales than in FY '19, as we are in more geographies, have more launches and have added Lelit manufacturing inventory to our balance. The COVID wave was quite marked looking at the history of both inventory and sales. In FY '20 and FY '21, demand took off, and our inventory was depleted as the supply chain struggled to keep up with sales. Operational efficiency was impacted by running hand to mouth in our warehouses. However, the dipping [Technical Difficulty] margins you see had more to do with the U.S. tariffs and elevated logistics costs than this operational moat. In FY '22, we increased our purchases and held inventories hedged against growing supply chain risks, both manufacturing and shipping as COVID threatened the continuity of our manufacturing and shipping lanes and ports clogged up. As both the supply chain risks eased and demand growth normalized through the second half of '23 and in this year financial '24, we unwound this hedge. This unwind was delivered through constraining purchases not through clearance or discounting, as witnessed by the gross margin actually strengthening as we managed our stock levels back down to equilibrium. So, we're back to equilibrium in inventory with improved gross margins. I'm confident that if we ever need to use inventory as a hedge in the future, we can comfortably guide the business back to equilibrium. Turning to Slide 10 and the balance sheet. This is a story of strong cash flow and doing what we said we would do. As discussed, inventory was reduced by over $106 million through measured purchase reductions, while gross margin actually grew. Receivables are normal and overall working capital reduced by $114 million year-on-year. The development of new products and solutions is a key element of our growth strategy and is reflected in the balance sheet as capitalized development costs and software. As more new products and solutions are developed and then launched, capitalization will increase and with a lag dictated by the length of our development cycle, so will amortization as it did this year by over 30%. The intangible balance shown here is a good leading indicator of future growth. The growing balance signals that we have a large number of projects moving towards launch or recently launched. The PPE, period-on-period increase largely reflects an investment in tooling and dies as these new products move into their industrialization phase as well as market-facing store fit-outs, manufacturing equipment and facilities. Having funded this investment, a very strong positive cash movement of $175 million across the year moved the group into a net cash position of $53.6 million as of June 30, leaving the group unleveraged and with $328.6 million of cash and unused facilities in place for expansion. So, last slide from me. Before concluding my review, there's a few key points I'd like to reiterate about our financial year '24. Against a challenging backdrop, we delivered EBIT slightly above the top end of guidance with solid gross profit gains and well-controlled operating expenses. FY '24 was actually the ninth year in a row when we grew revenue, gross profit and EBIT. Record sales of $1.5 billion in FY '24 have more than doubled over the last 5 years. Also in FY '24, we saw a marked strengthening in our sales growth in the second half of the year. We delivered on inventory reduction and cash forecast in the way we said we would with gross margins improving. We ended the year in a net cash position after an in-year cash inflow of $175 million. And finally, we continue to manage the business for medium-term growth with ongoing geographic expansion, continued investment in R&D, marketing, tech services and solutions while simultaneously delivering sustainable EBIT growth. And with that, I will hand over to Jim.

Thanks, Martin, and good morning to everyone. In addition to growing gross profit in a challenging environment and taking our balance sheet back to equilibrium, we also continue to make progress across the growth levers driving the company, which I'll take you through now. I'll use the 4 levers as a tracker starting with our global corporate platform. FY '24 is a rollout year for the B2B portal for all 3 brands; Breville, Baratza and Lelit. The B2B portal is now live in the U.S., the U.K., the EU and Australia. The purpose of this portal is to automate transactions with the long-tail retailers like a specialty coffee retailer that is not big enough for system-to-system integration. In addition to automation, it also enables drop shipping. Smaller retailers are working capital constrained, being able to drop ship BRG products to their customers enables them to carry and sell a much broader range than they could afford to if they had to tie up capital and physical inventory. On to Slide 14. Now to the engine room, new products. I'll take you through the new products, we'll take into the first half of '25 as new products, meaning there is no prior year comp. First up is the Oracle Jet. We launched this product in mid-July in Australia, and it went live in the U.S. on August 1. For a convenience customer who values automation, without a doubt, this is the best coffee machine we have ever made. As luck would have it, I happen to have one at home. It is simply a pleasure to use and the coffees are outstanding. It's [Technical Difficulty] has commercial grade temperature stability and milk quality can make you everything from a flat like cold brew and I expect this SKU to perform particularly well. Next is the InFizz range. It will have its first holiday season in the first half of '25. This product is already performing quite well. Carbonators like soda stream and others are limited to only being able to carbonate water. What's unique about the InFizz range, it can carbonate water as well as any other beverage and with the Luxe design and color range, it looks nice as well. Next, we have redesigned and updated our entire food processor range. Each provides outstanding performance from slicing to dicing with The Paradice 9, my personal favorite where all the accessories are stored within the device itself. These are also available in all the Luxe colors. On to Slide 18, now a bit about our geographic expansion program. We kicked off our geographic expansion program in FY '18 with our entry into Germany and Austria. I thought it might be worthwhile to pull up the scoreboard to assess the program's overall performance. In this slide, I've isolated the revenues from all the new markets we have gone into since FY '18 from Germany to South Korea with the Breville Sage brand. Geographic expansion program has delivered a 45.6% CAGR from FY '18 through FY '24 and in FY '24, it grew 30.4% year-over-year in a particularly challenging consumer environment. While we didn't know how the program would fare when we started, I have to give credit to the team on how well it has performed. And behind these numbers there's a team that's really stepped up to the challenge. Slide 20. Breville Sage is not the only brand that is going global. Both Baratza and the Lelit are on their own globalization journey and FY '24 was a very busy year. Baratza went direct into the U.K., Europe and ANZ, and Lelit went direct into the U.S., the U.K. and ANZ. While it's early, we're seeing success here as well. Aggregating the new direct markets for both brands, they grew revenue 196% year-over-year. They both have the advantage of getting the draft behind the Breville Sage infrastructure. Slide 21. We also hit a couple of milestones in the globalization program. The first is in the Global segment, the EMEA theater is now comfortably larger than the APAC theater. This is a meaningfully important milestone in the geographic diversification of BRG. The second milestone came a bit earlier than I expected. South Korea delivered more gross profit dollars from the Global segment in the second half of '24 than New Zealand did and was danger close to beating New Zealand across the entire year. We entered Korea in the second half of '22. The team grew gross profit 44% in FY '23 and then accelerated to 65% gross profit growth in '24, thus the early pass of New Zealand. So if the question is, does BRG have the skills to geographically expand into the Asian market, the answer appears to be more likely than not. Slide 22, the last growth drivers are forward integration into solutions. In FY '24, Breville+ service, which launched in the U.S. expanded into Canada. We added Sur La Table one of our key retailers as a content contributor. The other first for the service was the launch of the food processor range in the U.S. and Canada. This product range launched into the Breville+ service, meaning the supporting content for food processors was available at launch. On Slide 24, this is one piece of the food processor content that was available at launch, the Essentials collection. The Breville Test Kitchen flowed into the product launch process and delivered the recipes and instructions for these most used items. This is the instruction book that enables our customers to get what they really want out of our products. Slide 25. Earlier this week, the Beanz service went live in Germany, more geographic expansion. Starting with 13 roasters at launch and expect to work our way up to around 20 roaster partners, similar to the U.K. and Australia. The Beanz service is now live in the U.S., the U.K., Australia and Germany. Beanz plays an important role in helping our customers enjoy cafe quality at home, easy access to specialty coffee is a fundamental ingredient for success. Closing off, I'm quite proud of what the team accomplished in FY '24. In a challenging environment, they grew gross profit almost 8%, put the balance sheet back into a net cash position and continued driving progress across the 4 growth levers. With that, I'll now hand the call back to the moderator and open up the call for any questions you might have about our FY '24 results.

[Operator Instructions] Your first question comes from Lisa Deng with Goldman Sachs.

Jim and Martin, congratulations on a good result. Just in terms of the strong second half sales growth, how should we think about how much of this is reflective of maybe channel restocking as opposed to actual retail sell-through? And then specifically on Americas, how much was the first time sell-in to target and potentially the other Lelit and Baratza expansions impacting that 12% number there as well?

There was a lot in that question. I'm going to -- I'll try to piece it out. So, sell-out matched sell-in. So, it wasn't channel restocking. I'd say, in general, the retailers continue to hold -- to take kind of a conservative position. So, I don't think anyone has really moved into a lean forward mode. That was part of it.

First time sell-in impact in Americas.

Yes, yes, sorry. The target load didn't happen in the first half. So, it wouldn't have been bad. I mean, honestly, it was just -- it was on the merits, I guess, is the way I would describe it. It was double-digit volume growth, kind of like something you would have seen in '19 or whatnot. So, nothing special one way or the other that drove that other than pull from the front. And I would say, on Lelit and Baratza, certainly in that number, but not big enough to move it. And that's just a function of...

How is the normal run rate, you would think in the second half?

That's-- you're looking at the run rate that they delivered in the second half, nothing special.

Your next question comes from Tom Kierath with Barrenjoey.

Just another one on the revenue growth. Can you just talk to what the impact of the product launches did in the second half? And I think you always said that '25, you'll get a bigger impact from the new product launches. And obviously, that did quite well in the second half of '24. Is that still the case? You think you get more out of these Oracle Jet and other products that you're launching in '25?

So, I'm going to try to disaggregate this one. In the second half, the products -- and again, because of theaters and rollout and so forth, I'm literally trying to do this from memory, but I think the only products that launched in the second half was food processors started working their way [ into Europe ]. So, what I'd say is that, that didn't drive that number, I mean, in a sense. So, it wasn't NPD there. But if you back up with something like the Barista Touch Impress that would have launched earlier, it had a clean second half in a sense, that SKU performed well. So, NPD is playing its role. Said another way that the regions aren't going to be on a double-digit run rate without NPD playing a role in that game. So, I think that's just the formula and how it works. So, the NPD that we launched in '23 and '24, let's call it, '23 plus first half of '24, all of that rolls into the second half [ in anger ] at some point. And that will help drive kind of double-digit performance. Martin, anything that I'm missing.

Yes. The only thing is you're right, I'm stepping into FY '25, the Oracle Jet has launched very early in the pace.

Yes, sorry, that was in July. So that's not in these numbers at all. I tell you guys, I'll tell you about new products if we've launched them. So, all of this happened in July and August with the Oracle Jet.

Sorry. So, is the impact from NPD expected to be more in '25 than it has been in '24?

I would think it's -- I would think it would be about the same.

Yes. It's a key growth driver. It was very powerful in FY '24, we expect it to be strong in FY '25. And then it will depend what the non-NPD products are also doing in the background as to what the overall reported growth is.

I mean I think if I disaggregate it and say, what are the drivers of growth just generically, I mean we've said this before in the kind of headwinds, tailwinds, but you can see through the numbers, the geographic expansion, right, new geographies outperformed the whole. So, there's a driver. NPD is always a driver. And then the generic tailwind that sits behind coffee is always a driver all by itself. So, I think you've got those 3 things together that then push against whatever the headwind is. And I think the weighted average number that ultimately gets reported on a growth percentage basis in an odd way has more to do with the tail than the head, right, which is all of the products that have been there for a long time that should be running at replacement cycle kind of numbers. It's when do they hit replacement cycle type numbers as opposed to negative.

July and August, they are clearly enjoying the launch of an early NPD, but that evens out over the half time. So, if you took to July and August, clearly, there's a early boost from having an NPD product going on July 1. But over the half, that just becomes normal.

Your next question comes from Ben Gilbert with Jarden.

Just maybe, Martin, if you could just help us understand. I appreciate it's early in the year, but I understand some of the puts and takes for next year. And specifically, I'm just thinking around freight -- or sorry, for current year, so fiscal '25. Specifically, I'm thinking around freight versus some of those sourcing benefits from scale, obviously, China is still pretty soft, still continues sort of sounds like pricing is pretty attractive from a sourcing standpoint, but obviously, freight has spiked and probably got a key period. So, just conceptually, how we should think about those puts and takes from a GP perspective?

Yes. No problem, Ben. Yes. So freight, we're now seeing some elevated spot rates at the moment and some PSS, so peak season surcharges being put on various shippings. But clearly, we have annual contracts as well. So, what's playing through at the moment is really a game of how many of our containers we can get on contract and how many we're having to pay at spot. And I would say the toughest lane at the moment is China into Europe. There, we're having to pay spots on some of the shippings, much more normal on China into Australia and China into the U.S. When we wrap all that together, we ship, as we've spoken before about 3,500 containers a year. So, it's not the biggest part of our P&L. When we wrap the elevated spot rates and how many of our containers we're having to ship on spot, I think this falls into a normal volatility number that we have to deal with during any financial year. So as we say, we start the financial year with expenses held tight and then see what unfolds. And therefore, watching it carefully, Ben, but it's not the largest number on the P&L that I'm concerned about at the moment.

And are you still seeing net sourcing benefits from the factories you're dealing with China given...

Yes, sure. They don't bounce around too much. So yes, we're still seeing some reduced FOBs. We're seeing a little bit of elevated freight costs. But on those containers, we can't get a contract. We've clearly got foreign exchange noise going through our numbers as well. Then we've got domestic freight, which is also quite reasonable at the moment. So, all of those flow through. You'll see that the second half gross margin was slightly lower than the first half gross margin, but both were good gains over the PCP. And that second half dip was probably a little bit to do with those higher freight costs.

The next question comes from Craig Woolford with MST Marquee.

Jim and Martin, can I just ask a question, you sound quite encouraged by what you're seeing out of Korea at the moment. Could you give us any indication of the other Asian countries that you would look to expand direct distribution, given that success you're seeing in Korea?

So, I think 10 years from now, we should be direct in all countries that are bigger than New Zealand.

That gives you a lot of scope.

The Head of APAC has a lot of work to do and it's going to take him a decade.

Any milestones or time lines that sort of indicate how quickly you'd move into some other countries?

As fast as we can do it. I think -- honestly, I think the challenge I think that I've said before on geographic expansion is if you go back into that kind of '18 to, let's call it, '18 to '22, each time I came out, I was ready to add 2 countries, 3 countries, 2 countries, 3 countries. And what was happening is we were basically just working our way around Europe. So, if you back up, we -- when we went into Germany, we had to land a warehouse in Europe. That's the big project, right? So, if you've got to land a back end with a finance team and all of this back end, then it turned out that going into Portugal would be like going into WA, which is -- it was just another state. We didn't need another warehouse and that allowed us to very quickly kind of rip through the rest of Europe. But what makes South Korea different was South Korea is like Germany. So, it's a stand-alone, which is you got to land the entire back end, front end and so forth. So, those projects take longer to execute because they're much bigger. And so the construct of the rate at which new countries will come, will be slower than we were kind of ripping through states across Europe. But the cadence is unyielding, like it just continues because we've got a lot to do.

Your next question comes from Apoorv Sehgal with UBS.

Just wanted to ask a question about EMEA. So, it was good to see the improved second half growth of 12% year-on-year. If I was to be very nitpicky, though, it's still kind of well below the kind of growth rates we saw before 2022 before the war broke out. Would you expect to maybe get back to those 20% plus type growth rates in FY '25 in Europe, just given your cycle had a couple of soft years now, you've built up some further scale in a bunch of markets, distributor countries are improving? Or are there just some underlying macro type concerns that would make you still a little bit more cautious into '25 and getting back to those kind of more historical growth rates in Europe?

So, yes, I can tell the war is still going. And there's still a lot of macro pressure. So, I mean, '25 could, but they certainly have -- there's a massive overhang sitting on top of Europe. So, I wouldn't say Europe looks like it looked in FY '19. So, I've given up on trying to call outcomes, but I could see it going either way.

Your next question comes from Tom Camilleri with Wilsons Advisory.

Just a quick question on direct market. So, you printed 30% growth in direct markets in FY '24. It looks like there is quite a medium-term maturation profile of those markets. Can you comment on, I guess, when you expect those markets to hit maturity based on your experience in other regions that you've rolled out?

Tom, when you're saying direct markets, do you mean new geographies that we've entered since FY '18?

Yes, there's a slide on, yes, that's right. Yes.

Yes. So, maybe let me say it this way because you're asking me to predict something, I don't know. So, it depends on what maturity feels like. So, if you pull the CAGR -- if we kind of pull the CAGR on North America, I think it's somewhere around 15%. So, it's that maturity? Because that's been going on for, I don't know, 12 to 15 years. So, if that's maturity, eventually, I guess, it would fall to that kind of CAGR. But I think when you put them all in a group, we've got so many more to add within that construct that I think as a group, it's going to take a really long time for that to happen because we're not even in the countries that need to get added. So, I do think these countries behave according to their age of sorts. So, I think if you pull a CAGR on ANZ, you can say, well, there's the 92-year-old country and you can kind of call that as baseline bottom, so to speak. And then I think you'll see the other countries that are younger than 92 run at a faster rate. But eventually, I guess, 30 or 40 years from now, maybe all of them should look like ANZ unless we come up with another trick. But I think ANZ is running at kind of at CAGRs than on the Global segment right around 10%, plus or minus 2%, I think.

Correct.

You got a pull of this macro step off the table, but I think when we telescope out, in theory, it will look like that.

Your next question comes from Sam Haddad with Petra Capital.

Martin, Jim, my question is on inventory. With the renewed noise around shipping and certainly around potential additional tariffs on China with the U.S. election and just general geopolitical risk, what's your -- are you comfortable maintaining a flow model through '25? And what are you seeing peers in terms of shipping product out of China ahead of our peak season with those uncertainties?

Okay, Sam, I'll take that one. So, I think there's 2 parts to that. In terms of shipping costs or elevated shipping costs at the moment, that doesn't really play into our target inventory levels. It's more around we try and build in our -- bring in our seasonal product a little bit ahead of the mad rush in October-November because we can't compete versus [indiscernible], et cetera, when they're shipping. But what we're seeing at the moment is shipping costs wouldn't drive any change in our stock levels, but that would be kind of neutral. I think the other one you referred to was tariffs, potential tariffs from China to the U.S. That certainly would be a bigger break that I think it wouldn't only be Breville, but I think a number of consumer companies around the world would look to bring in inventory and use that as a hedge to buy some time if tariffs were to substantially increase from their base levels. And that's partly why in that part of the presentation, I said, look, we've shown you that we can use inventory as a hedge, we can build it up and then we can [ essentially ] drive it down. But we don't do that for fun, we only do it if there's a real risk that we need to mitigate against. There isn't at the moment. So, we're at a normal equilibrium of about 20%, 21%. If something changed, for example, if excessive or large tariffs came on, and we've clearly been looking at that and using inventory as a hedge again. Does that answer what you were driving at, Sam?

Yes. I just wondering what -- with the risk of potential hedge, our peers already moving ahead to trying to just derisk that prospect. And in terms of shipping noise, I also referred to potential delays you may be seeing in certain routes from China to Europe.

Yes. Well, I mean the ramp, obviously they're going around Africa now rather than through the Red Sea. But no, reliability of our shipping into Europe is not really impacting us. I mean it's more just they're a bit expensive with the peak season surcharges and with the inability to always get on our contract rate and getting some -- having to pay spot for some of those containers. But no, we're quite happy with our level of inventory and we hold inventory for a reason. We hold it to mitigate against expected or normal disruptions in supply chain, with a -- from the manufacturer on the shipping or even a tug from demand that's after the normal. And we're holding about the level that we think gives us a normal insurance policy against those unexpected. So, I don't think there's anything we've seen at the moment would lead us to drive up European inventory.

I think maybe I'll add to that, Sam, which is it's a one back to the Europe issue. It's a one-time adjustment and what I get in a flow model, which is when the carriers decide today, we're going to now go around Africa, then everything that was on the water, so to speak, is going to be 4 weeks late. This may be a way to think about it. But the very next order, you just adjust the flow model so that, that's how long it takes. And so once that one-time adjustment little bubble works through, then you know exactly how long it takes in your shipping and everybody is flowing. So, I think this is true generically for all companies, bringing stuff into Europe, which is there was a hiccup kind of, when the [ hooty ] is kicked off and that decision was made. But once that hiccup works its way through, then everybody is kind of back in a flow model. The second part of your question is the way that you, in a sense, derisk inventory, let's call it, is a short-term tool for hedge if all a sudden, one in the U.S. and the tariffs were coming. The fundamental hedge is to move [ 120-volt ] manufacturing outside of China. And I think we and many others in the vertical or hammer down on that path regardless of whether he wins or not. And that's the ultimate hedge is to just get it out.

[Operator Instructions] Your next question comes from Joseph Michael with Morgan Stanley.

Jim, Martin, it's just around the sort of medium-term growth profile of the business. So, I guess it sounds like you're back to a more normalized environment in the second half in terms of volume growth, reinvestment stepping up again back to sort of 14% of sales. So my question is, how do we think about the growth profile going forward? Do you think you can get back to that sort of 10% to 15% EBIT growth, which you historically targeted? I mean new product launches are going well. Geographic expansion is progressing well. Maybe you could comment on sort of how you think about the growth profile over the next couple of years?

So, no surprise is something I spent a lot of time playing within the numbers. When you disaggregate it all, what it actually comes down to about reporting the aggregate number of that is something we would normally see in, call it '17, '18, '19 is all about the tail. So, it's not about coffee. It's not about ovens. It's not about the head, so to speak, it's about the tail. So, when the tail find bottom and rolls into a replacement cycle, then the aggregate number will start looking normal. So, what I would say is what we're seeing is that the head, so to speak, is behaving normally. So, it's actually pulling the tail. And as soon as the tail flattens out, then the aggregate number will cycle [Technical Difficulty].

Your next question comes from Craig Woolford with MST Marquee.

Jim, just a quick follow-up. Just on depreciation for FY '25. Can you just provide some clarity? Is that going to continue to step up? It looks like the second half was notably higher than the first half given the R&D spend. So, any clarity you can provide on the outlook for depreciation would be great?

100%, I'd expect FY '25 depreciation, amortization, put those 2 together to step up on FY '24, because we've continued to invest in new products and solutions in the growth drivers that are driving that. So, it's following with a lag, Craig. So yes, I'd expect D&A in FY '25 to take another step forward, perhaps not as big as we saw in FY '24, but certainly a significant step.

Your next question comes from Olivier Coulon with E&P Financial.

Apologies, if it's been asked before. I missed the earlier part of the call. But just on the Oracle Jet, I mean you're kind of moving closer into the automatic domain, still obviously, a portafilter coffee machine. How much do you think it starts competing with the high-end Juras of the world?

So, if I back up the Oracle Touch was that all along. So, I wouldn't -- within that construct, we're not moving in, we moved in years back with the Oracle Touch. So, the Oracle Jet is, it's whatever the most recent tech package in the sense to deliver better in lots of ways and more variety of stuff. So, within that construct, it's an updated version of the Oracle Touch. Do I think some of the customers that buy that product might have bought a Jura? Yes. And I say that only sells on YouTube looking at what was out there and there's -- and I think they are Aussie, I could be wrong, but there was a couple that just put out their own YouTube and the title is we switched from Jura to Oracle Jet. So, I can validate that one -- there was one couple that did that. So, it wouldn't surprise me if some customers kind of make that choice.

Yes. And then I suppose the follow-on question is about, segues into it, is there still a project in train to launch a genuinely automatic machine because it's obviously a larger category than [indiscernible].

Yes. So, it's your job to ask it, and it's my job not to answer that. But what I would say, and I say this all the time, which is the brand kind of, what this brand stands for is perfection in the cup. So, it needs to be a cafe quality outcome in the cup and that is the constraint, right, which is we get on that constraint, you could have done [Technical Difficulty] years ago, but we believe that's a [Technical Difficulty] part of our brand that we stand behind. So if that ever happened, it would be because we somehow figured out how to literally get cafe quality in the cup with a different format. I think what I would say right now, if you look at the Oracle Jet is that's the best we could do.

Congrats.

Your next question comes from James Casey with Ord Minnett.

One of the features of the result was the strong cash flow and the net cash position of the business that's changed dramatically across the space of 12 months. I just wondered what the implications here are for capital allocation for CapEx, for your dividend and any capital returns that may be derived from that position?

Thanks, James. The first thing to remind everybody of is that although we're in a net cash position as at June, we will soon as we build towards peak season comfortably go back into a net debt position for the month September through to December. So, you suffer in a way, you see a snapshot in June, and you see a snapshot in December. You don't see our borrowing requirements that we have in the month of August through December. So, good -- really, good to be in a net cash position. Still going to need to lean on our debt facilities to build inventory for the peak season. And I think a little bit early to -- we certainly definitely a bit early to be talking about differentials in dividend payment because we've got an awful lot of investment opportunities ahead of us, new countries to go into, new product development to run faster with, et cetera, et cetera. So, I don't foresee any change in dividend policy. But really pleased to be there. Really pleased to have done what we said we'd do and to driven down inventory in the way we said without discounting, but we still need our debt facilities for the peak season.

And I think if I kind of build on that. The position of the company today looks just like it did in '19, '18, '17, which is what I hope everybody takes away from the slide that Martin put through on inventory was that inventory in this vertical and I mean, very specific to this vertical, you have to have long life cycle products where price does not decline is simply -- you can play it like buying an insurance policy and the premium cost is the cost of storage and interest on the working capital. So, we have a lever in this vertical that doesn't exist in many others. And this is why 3 years ago, we called that this would happen. So, this wasn't a shock of, oh my goodness, look at what happened. This was actually on plan, which is we bought an insurance policy. We turned it back in. We did the same thing with Brexit, we did the same thing when we launched Nespresso in the U.S. So, it's just a natural lever that you can use in this company and within that construct, there's nothing special about the fact that $175 million came in this year, it was on plan, puts us right back at equilibrium and off we go. So, now it's back to some of the earlier questions of when are we going to see systemic double-digit, yadda, yadda, yadda. It's like, we're ready to get back into the normal cadence of the company, but that's where the investment goes, which is to drive future growth.

Your next question comes from Tim Lawson with Macquarie.

Jim and Martin, maybe just a follow-up question to one of the earlier questions regarding auto and manual. Can you sort of talk to consumer preference across the 2 sort of segments? I guess, what you're seeing in competition, particularly obviously in manual for you guys and just the relative segment growth across the 2 definitions?

I don't have that in front of me. So, what I would say is they're very different. I think its 2 totally different customers, right? And if I say when I have this conversation with people, I talk about the Dual Boiler versus the Oracle Jet. You put this side by side, those are 2 very, very different segments. So, what I do see kind of within the construct of the market as a whole is it's a lot easier to come in and -- use my words carefully, it's a lot easier to enter the market on the manual side. Because it's a much simpler problem to solve for [Technical Difficulty] than entering on the more automated side of the equation. And so I think that's kind of what you're seeing, let's call it, over the last 12 months, is that the simplest place to come in is on manual. So, within that construct, the lower end of that category gets more competitive across that range. I think is the way I would maybe characterize it. I don't know the relative growth rates of the 2 of them together. I always look at it as one thing.

In terms of new competition coming in?

There is new competition coming in on the manual side at the lower end.

Are you finding any impact there on substitution?

I think it's -- honestly, to be fair, and I mean, to be fair to the competitors, I think we need more time, which is I don't think they've had a solid run yet. So, so far, not, but I think it's too early. And I think that the bid that for me, and we'll see how that works, but in the aggregate, I couldn't be happier. And what I mean by that is we -- if you think about how Breville grows in coffee, we grow because the market grows. And when we say the market, it's our little baby corner of the market, right, which is there's a Portafilter. We are rarely, I think, a consumer's first coffee machine or probably the third or fourth or whatever it is, which is they started with a drip coffee machine in the U.S. or they started with Nespresso or Keurig or a super auto or they started somewhere else and then decided that coffee was important enough to them that they were going to start moving up quality curve. So, the rate at which we grow really is the rate at which hot machines, super auto, drip machines, all of that releases new customers, so to speak, into our little subset of the category. The good news about others coming into that category is it does 2 things, which it validates that, yes, this is the next step, which is now you have more choice. But more importantly, we've got more total marketing dollars being pushed around in the pool that said, paying more customers who come over here. So, the real net out for us is a function of how much acceleration do you get in the growth of the market itself because of the new entrants and their marketing dollars and the push to get more consumers into the space, net it against making room for more participants. So, the market is clearly big enough for more than 1 player. And if these guys really come in and start helping accelerate trading up, so to speak, then we'll effectively see the net out, which is we don't grow by taking it from someone else. We grow by the market growing and I'm happy to have more marketing dollars than just ours kind of pointing at this space to say you should come over here.

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.