Breville shares slump after it slashes dividend

Home appliances group Breville surprises investors by holding back some of the cash from a pandemic-linked home spending spike.

Breville CEO Jim Clayton. Picture: John Feder

Kitchen appliances group Breville is using its well-known brand name affixed to its range of coffee machines, juicers and sandwich makers to grab customers in Europe’s most food-focused markets, Italy and France, as the Australian business cracks $1 billion in sales in a calendar year.

And the manufacturer, founded in Sydney 90 years ago, is not taking its eye off the growth opportunities that now lay before it stretching from Italy to Mexico as it booked double-digit revenue growth the December half and is on track to report three straight years of double digit profit growth.

To help fuel its ambitious aspirations that include further inroads into Britain which has to-date shown resilient growth despite the disruption of Brexit, Breville surprised its own investors on Friday by holding back some of the cash flooding its coffers and normally diverted into dividends to keep its powder dry.

Breville, whose biggest shareholder is Solomon Lew’s family and his publicly traded Premier Investments which have a combined stake of 32 per cent, announced its December half result on Tuesday that included slashing its dividend by one third. Breville said that it had opted to reduce the dividend target payout ratio from 70 per cent of earnings per share to 40 per cent on a full year basis to allow continued funding of numerous growth opportunities on a sustainable cash-neutral basis.

This will see the December half dividend slashed to 13 cents per shares, down from 20.5 cents last year, and payable on March 18.

It came as Breville recorded a 29.2 per cent rise in half-year net profit to $64.2 million helped by consumers who filled up their kitchens and new home offices with a range of cooking equipment, juicers and coffee machines as they settled in for extended pandemic lockdowns.

Shares in Breville slumped more than 5 per cent on the skinnier dividend, but later mounted a fightback to close up 84 cents, or 2.75 per cent, at $31.35 - a record high. It values Mr Lew’s combined stakes in the company at just under $1.4bn.

The maker of coffee machines, toasters, juicers and other kitchen appliances is sitting on swollen cash reserves with its accounts showing net cash of $90.6m for the half against a deficit of $52.9m for the first half of 2020.

As the COVID-19 pandemic emerged last year, Breville hit up institutional and retail investors for capital, raising $104m in May which was partly used to help build up its stock levels to cope with the rising wave of demand triggered by lockdowns and people setting up home offices.

The expected deluge of demand proved correct.

Revenue for the period increased 28.8 per cent to $711m as earnings lifted 29.6 per cent to $94.6m. Improved gross margins, up 1.1 per cent, was driven by lower promotional spend, swing in mix to premium products, and a weaker US dollar, which more than offset increased freight costs.

Chief executive Jim Clayton said it was a good half for the group, building on the momentum seen over the last few reporting periods and benefiting from the work from home phenomenon.

“All regions and categories delivered growth, despite experiencing very different and erratic retail backdrops. We continued to accelerate our double-digit EBIT growth, while tactically investing in selected growth drivers and capabilities. Geographic expansion is delivering an increasingly diversified and balanced global portfolio, adding growth and resilience in a dynamic market environment.”

In the Americas revenue rose 29.1 per cent to $314.9m, in Europe, Middle East and Africa revenue rose 56.1 per cent to $145.3m and in the Asia Pacific revenue lifted 49.7 per cent to $132.8m.

However, Breville warned that supplies heading into the second half remained problematic, mirroring comments by other consumer goods manufacturers and retailers as the pandemic places strains on global supply chains that is pressuring timely access to stock.

Breville said inventory was tight across all geographies but it was working to get in front of demand and re-pipeline the channel. However, at this point, it’s unclear whether this will occur by year end or in fiscal 2022, Breville said.

An inventory cushion was built going into Brexit and it was experiencing some logistics delays because of Brexit, but the company believed it has enough inventory to cover the spread.

Assuming no significant change in economic conditions in Breville’s major trading markets, and given the encouraging first-half performance, Breville expects EBIT for the full year of 2021 to be approximately $136m, an increase from the guidance provided at the annual general meeting of $128m to $132m.