Breville Group Limited (BVILY) Earnings Call Transcript & Summary

Good morning, and welcome to the 2025 Annual General Meeting of Breville Group Limited. My name is Tim Antonie, and I'm the Chair of the company. As it is now 10:00 a.m., a quorum is present, I declare the meeting open. I would like to begin by acknowledging and paying respects to the traditional custodians of the land in which we work and to the elders past and present. I further extend respect to all Aboriginal and Torres Strait Islanders present here today. I would now like to introduce your Board of Directors and other attendees. I'm joined at the table from my far right by Sally Herman; our Managing Director and CEO, Jim Clayton; and on my left, our Deputy Chair, Lawrence Myers; Kate Wright; and our Group CFO, Martin Nicholas. Also present and joining us virtually today are fellow directors, Dean Howell, who joins us from Victoria; Tim Baxter, who joins us from the United States. Good evening.

Good morning.

Thank you, Tim. And Tuula Rytila, who joins us from Portugal.

Hello, and good evening from Lisbon.

Good evening. I think it's 3 past midnight. So it's actually good morning for you, I think. Sally, Kate and Tim are standing for reelection at the meeting today, and you'll hear from them shortly. Also joining us today are Craig Robinson and Sasha Kitto, our Joint Company Secretaries; Anish Chandra, our audit partner from PwC. Before we move to the formal business of the meeting, Jim and I would like to take the opportunity to discuss the 2025 financial year and recent performance. We are happy to take any questions on our presentations when we consider the 2025 annual report. The 2025 financial year was another very successful year for the BRG Group against a dynamic economic and geopolitical backdrop. FY '25 delivered record total revenue of close to $1.7 billion and EBIT of $205 million. And importantly, double-digit revenue growth was achieved across all our 3 theaters. Since FY '19, revenue and EBIT have grown every year and at the impressive compound average growth rates of 14.3% and 13.2%, respectively. Over the same period, our investment in R&D, marketing and technology services and solutions increased at a compound average annual growth rate of 16.4% or from 12.7% of sales in FY '19 to 14.2% in FY '25. FY '25 delivered strong underlying cash flows, which was partly invested in tariff-led inventories levels and accelerated manufacturing diversification. Earnings per share grew by 14.1% in FY '25, and total dividends per share grew by 12.1% to $0.37 per share. Our FY '25 performance was achieved while increasing our investment in our strategic platforms. New product development releases were a core driver in FY '25. Coffee continued to lead our growth, supported by successful launches of the Oracle Jet and the Luxe Brewer. Cooking returned to growth, substantially driven by the launch of the Smart Oven Air Fryer Compact and Food Prep began to stabilize. We accelerated our geographic expansion in FY '25. The Breville and Sage brands directly into China and the Middle East, both substantial potential markets, and early results have been encouraging. Lelit and Baratza expanded their global footprints, proving out our direct-to-market strategy for these brands. Our digital platforms continue to extend their geographical reach and deepen consumer engagement. The Powered by Beanz ecosystem welcomed new partners, while Breville+ expanded its portfolio of premium content providers. Importantly, our modern technology architecture is enabling timely implementation of AI opportunities across the business. In response to potential new tariffs, not only did we tactically bring forward inventory purchases, we also substantially accelerated our manufacturing diversification program. The program is pleasingly on schedule and delivering on quality and cost expectations. As you're aware, we are firmly committed to high standards of ethical sourcing. We are working closely with our partners in our new manufacturing locations to ensure that our standards are upheld. Future progress was also made in FY '25 on our key environmental sustainability initiatives, such as Thermojet expansion program and the Sustainable Brown Box packaging rollout. This year, we also early adopted several elements of the new Australian Sustainability Reporting Standards, resulting in enhanced climate-related disclosures. Strong governance and Board capability is always important, and I'm proud of the independence and strength of the Board. We remain focused on maintaining the right mix of skills and competencies to navigate an increasingly complex global environment, including retail, supply management, consumer technology, cybersecurity and climate change. Finally, none of BRG's group's achievements in FY '25 would have been possible without the exceptional efforts of our global team, led by Jim Clayton and the group executives. The ability of our team to continue to deliver in the face of significant dynamic external headwinds speaks to their talent, dedication and commitment to BRG Group's values, CREATE. I would also like to thank my fellow Board members for their contributions and guidance over the past year and to thank our shareholders, consumers, retail partners and suppliers for their continued support. I now hand over to Jim.

Thanks, Tim, and good morning to everyone. Today, I'll walk you through our FY '25 results, new product launches and geographic expansion, then give a brief update on the first half of '26. Given that we presented these results back in August, I'll hit the highlights. In FY '25, we delivered double-digit growth across revenue, gross profit and EBIT. In many ways, an optically normal year for BRG after recent COVID and post-COVID turbulence. Our EBIT growth of 10.2% was at the top end of our guidance. It's worth noting that underneath these strong numbers lies a great deal of effort mitigating the ever-changing tariff landscape in the U.S. This entailed pulling forward second half '25 production, accelerating our manufacturing diversification program and tactically adjusting production plans post Liberation day in April of 2025. Notwithstanding the level of investments these mitigants drove, our strong underlying cash flow allowed us to again finish the year in a net cash position. Looking at the revenue growth by geographic theater, FY '25 was a balanced year with all 3 theaters posting double-digit growth. The Coffee category continued to lead consistent with prior years. Now to the balance sheet. Given the unique characteristics of this vertical, which is long shelf life products, inventory can be used as an insurance policy in times of turbulence. We leveraged this feature again in FY '25, exclusively in the U.S. to mitigate the impact of the new tariffs. This decision underpins the slightly elevated inventory position as we exited FY '25. Inventory in the rest of BRG was unaffected, which was flat as a percent of sales. The balance sheet also shows our first wave of investment in diversifying our manufacturing footprint outside of China as well as uninterrupted investment in our NPD pipeline. With unused debt facilities of $388 million and cash of $106 million as of June 30, our balance sheet is in good shape to support further diversification spend as well as other opportunities as they arise. Now to talk about new product launches and new geographies. Here are the products that we launched in the second half of '25, the Oracle Dual Boiler, the Encore ESP Pro, the Luxe Brewer Thermal and the Smart Oven Air Fryer Compact. All 4 products have been well received, positively reviewed and are performing at or above expectations. Last month, we launched a particularly innovative product at ANZ, the Eye Q Toaster. Every toaster on the shelf uses time to determine the toasting cycle, which is why consumers have a hit or miss experience every morning. Sometimes the misses lead to Fire and Rescue fire alarm fines. With the Eye Q Toaster, we're using an optical sensor to get the toast exactly the way you like it regardless of bread type. This product is another great example of Breville's customer-back approach to innovation. FY '25 was a particularly busy year on the geographic expansion front. In the second half, we went direct with Sage, Baratza and Lelit in the Middle East, and we took Breville direct in China. I cannot adequately describe the multifunctional complexity of taking a new geography live, launching 2 stand-alone markets in 2 different theaters in the same fiscal half, one of which included 3 brands is a testament to both the talent level of the team as well as the maturity of our process productisation for executing geographic expansion. We have strong teams on the ground in the Middle East and China, both of which have delivered a solid start out of the gate. Now a brief update on how we're going in the first half of '26. Our new products and new markets are performing well and year-to-date positive trends continue, though the most important months of the half still lie in front of us. The premium consumer is proving reasonably resilient. I'm also pleased to report that our manufacturing diversification project is progressing well. In Phase 1, we prioritize speed and quality. We're on track. And as forecasted, we will have U.S. products representing 80% of gross profit dollars manufactured outside of China by the end of the half. In the second half, we will continue to migrate additional products as well as begin Phase 2 for products already moved, which has increased localization and cost optimization. The dynamic backdrop in the U.S. continues. We're prepared to tactically react and adjust to any changes in the rules of the game. Consistent with past practice, we will give financial year guidance when we report our first half '26 results in February. In closing, I want to acknowledge how fortunate I am to work with the BRG Group team. FY '25 certainly presented the opportunity to take stock of what this organization is capable of, and I continue to be impressed. The team delivered double-digit growth across revenue, gross profit and EBIT while maintaining a net cash position. And while doing that, they executed a dynamic tariff mitigation offense, worked closely with our manufacturing partners to move 120-volt production at pace, took 2 independent geographies alive in 2 different theaters, launched innovation-first new products across geographies and drove countless other steps of forward progress, all without missing a beat. I'd also like to acknowledge our manufacturing partners, our retail partners and the Board. In a year that required flexibility, creativity and challenging decisions on an ever-changing fact set, each player played their role in helping to navigate this complexity. With that, thank you to everyone for joining us today, and I'll now hand back to Tim for the rest of the agenda.

Thank you, Jim. Before proceeding further, I would like to discuss the procedures I will follow today. Voting on all items of business will be conducted by a poll. The final results of the poll will be released to the ASX and published on the company's website as soon as they are available after the close of the meeting. A representative of our share registry, Boardroom, will act as a returning officer for the purpose of conducting and determining the results of the poll. Shareholders and proxy holders who are eligible to vote at this meeting have received a yellow voting card. During the meeting, I will advise you when it is time for you to fill in your voting cards. If you need assistance filling in your voting card, please see the Boardroom staff at the registration desk in the foyer. Boardroom staff will collect voting cards at the end of the meeting. Shareholders who have a blue card are eligible to speak but are ineligible to vote at this meeting. Guests holding a white card are ineligible to vote or speak at this meeting. If you believe that you received -- you have not received the correct card, please see a Boardroom staff member. After each item of business has been put to the meeting, I will ask for questions. If you would like to address the meeting on the item of business, please raise your attendance card and I will call on you. Please then identify yourself by name and state whether you are a shareholder or a proxy holder. Does anyone need more time to register? Shareholders were sent a copy of the Notice of Meeting and annual report or details how to access these documents on 1 October 2025. Unless there are any objections, I will take the Notice of Meeting as read. Shareholders unable to attend the meeting have the option of appointing a proxy. Before a vote is taken on each resolution, I will display on the screen the total number of valid proxies that have been cast for that resolution and the manner in which they have been directed. These figures have been determined as at 10:00 a.m. on 4 November 2025, which was the closing time for the receipt of proxies. I would also like to advise that all eligible undirected proxies given to the Chair will be voted in favor of those resolutions. I will now turn to the first item of business, which is to receive and consider the annual report. It is not a requirement of the annual -- it's not a requirement that the annual financial report and reports of the directors and auditors for the year ended 30 June 2025 be formally adopted. However, all shareholders had the opportunity to receive and consider them. We will now take questions on the annual report and on the earlier presentations from Jim and myself. Our auditor is also available to answer any questions on the conduct of the audit or the contents of the auditor's report. Are there any questions on this item? Thank you. I will now move to Item 2, the resolution for the adoption of the company's remuneration report. The remuneration report has been made available or provided to shareholders as part of the annual report. I will remind shareholders that the vote on this resolution is advisory only and is not binding on the company. Please note that the voting exclusions apply to this resolution as set out in the Notice of Meeting. Proxies have been lodged in respect of the resolution as displayed on the screen. Are there any questions on this resolution? As there are no questions, I now direct that the poll for the adoption of the remuneration report for the year ended 30 June 2025 be taken. Please fill in your yellow voting card in respect of the adoption of the remuneration report. The next item is Item 3A, the resolution for the reelection of Sally Herman as a director. I will now invite Sally to address the room and make some brief comments on her reelection.