Ann: Year Ended 30 June 2013 - Appendix 4E , page-5

At the risk of boring people to tears, I thought it might be a worthwhile exercise to provide some additional drill-down into the drivers of BRG’s earnings outperformance versus my own expectations.

Firstly, in overall Group terms, ACTUAL results (“A”) were ahead of my expectations (“E”) on every relevant P&L measure, as follows:

Revenue:
E = $468m, A = $487m (so, big beat here)

EBITDA:
E = $78.9m, A = $79.7m

NPAT:
E = $48.8m, A = $50.5m

EPS:
E = 36.7cps, A = 38.2cp

DPS:
E = $11.5cps, A = 12.0cpd

(Note, "Actuals" have been adjusted for the $0.8m of restructuring costs taken in relation to Keurig, but for none of the other “one-off” items discussed in my earlier post, for example the not-insignificant start-up costs associated with the UK launch)


Looking at the geographical segmentals IN THE JUNE HALF 2013 vs JUNE HALF 2012 makes for very insightful reading:


AUSTRALIA:

Revenue: E = $91.7m, A = $97m (growth = 7.9%)
EBITDA: E = $7.8m, A = $9.4m) (growth = 32%!!!)

(Given the poor consumer sentiment in Australia I thought they would do well to get a 2% or 3% revenue increase, but they achieved almost 8% revenue growth in Australia. This is quite a remarkable achievement, especially when one considers that that GUD’s Consumer Products business – which comprises the Sunbeam brand - reported a 7% fall in Revenue and a 42% collapse in EBIT in the half. And remember that this result from BRG excluded any benefits from the Nespresso product launch that occurred in only in June 2013, so the financial benefit of this will only be seen in the current financial period.)


NORTH AMERICA (excl. Keurig commissions):

Revenue: E = $64.8m, A = $76.2m (growth = 32%!!!)
EBITDA: E = $5.9m, A = $8.1m) (growth = 86%!!!)

(Comment: None Required, really. The underlying momentum in this business is self-evident. They may finally have cracked the distribution channel code there. In any event, the mere recovery in the US economy and the knock-on effect on consumer sentiment bodes well for the underlying dynamics)


KEURIG COMMISSIONS:

Commission Revenue: E = $7.0m, A = $4.3m (growth = -42%)

(Comment: I think I must have misinterpreted what was happening here. For I thought that the Keurig arrangement would largely remain unaffected until the actual date of its termination. (My sense after reading several analyst research reports is than many of them also made little allowance for an early decay in Keurig commissions. To the extent that they – and I – I had not included any decline into our expectation of the result, and yet the company still managed to beat our forecasts, speaks volumes for the true extent of the outperformance by the core of the business.)


INTERNATIONAL:

Revenue: E = $28.4m, A = $29.4m (growth = 7%)
EBITDA: E = $8.1m, A = $8.2m) (growth = 7%)

(Comment: Given the state of the European economy and the shattered consumer mindset of EU citizen, this is a commendable outcome, I think. While BRG doesn’t break out the Asian component of this, it stands to reason that Asia more than made up for a tough European market. Note that these figures exclude the $2.1m of revenues booked for the first time from sales in the UK, as well as the costs associated with the UK launch. Shareholders can look forward to the debut profit contribution from the new, company-owned SAGE brand in the UK that is being endorsed by renowned chef, Heston Blumenthal - not that I have any idea who he is!...I assume his some or other culinary celeb who ponces around cooking up stuff in front of the camera.)


NEW ZEALAND:

Revenue: E = $12.5m, A = $13.0 (growth = 13%)
EBITDA: E = $1.4m, A = $1.5) (growth = 17%)



The other important point that needs to be made is that the strong sales growth is not occurring at the expense of Gross Margin.

GPM for the Group is still above 35%, which is structurally higher than the 25% to 30% level that prevailed before the GFC, which was a time of unbridled consumer ebullience.

While the GPM has fallen below the 36% to 38% level recorded in 2012, this is explained by the significant growth in Revenue in North America, which is – for now – lower margin market. Also, the reduction in Keurig commissions (which is essentially 100% margin Revenue), would also have impacted Gross Margin at the Group level.


The HALF-ON-HALF margin discipline can be clearly seen across all geographies:


EBIT MARGINS
AUSTRALIA: JH12 = 7.9%, JH13= 9.7%
NORTH AMERICA: JH12 = 7.5%, JH13 = 10.7%
NEW ZEALAND: JH12 = 10.8%, JH13 = 11.2%
INTERNATIONAL: JH12 = 27.9%, JH13 = 27.9%


So, I hope this post provides some granularity into the drivers of this result, and gives an idea of just how all-encompassing and impressive the outperformance is.

I try to remain emotionally detached when digging through the entrails of company results, but this particular result got me fired up by its pristine quality.

Before signing off until the next result in 6 months’ time, I thought it also relevant to draw attention to some of the working capital elements on the balance sheet, and what they imply for future top-line growth.

In the Notes to the accounts that relate to Inventories, it showed that Finished Goods rose to $68m @ 30 June 2013 from $50m @ 30 June 2012, and Stock-in-Transit rose to $15.7m @ 30 June 2013 from $11.5m @ 30 June 2012.

So what does that mean, if anything?

Well, that’s a 36% increase in Inventories – both Finished Goods in warehouses and Product in containers on ships.

Which is an almighty investment in future sales by any measure, and certainly makes consensus Revenue forecasts of 15% in the current financial period seem a bit tame.
Just saying, is all...


Cheers

Impressed Cam