Breville Group: Innovation, Dynamic Inventory, and Resilient Growth

Breville Group over the past five years has grown revenue and EBIT at an annual compound average rate of 15 percent and 13.8 percent respectively. This has occurred despite varying market conditions during this period.

  • Breville’s revenue and earnings resilience is supported by positive operating cash flow and a strong new product pipeline
  • Long shelf-life of electrical appliances enables inventory management to address supply chain challenges and optimise working capital needs
  • Increased US tariffs on Chinese manufactured goods mean the production of goods for US markets out of China will cease as soon as practicable
  • The growth trends seen in the second half of FY24 have continued through to FY25
  • Strong cash flow, new product pipeline and growth in new geographies should deliver shareholder value accretion in the medium-term.

Breville Group Limited (Breville or the Group) was founded in 1932 and its initial focus was the production and sale of radios. In 1951, following the launch of television in Australia, the Group shifted its focus to the design and development of small kitchen appliances. This deliberate research and development focus explains much of the success of Breville today. The research and development activities are conducted out of Sydney and have resulted in the development of several iconic Australian kitchen appliances like sandwich makers, food blenders and coffee machines.

Today the Group designs, develops and distributes small electrical kitchen appliances which are marketed around the world. Global brands include Breville and Kambrook as well as third-party brands like Nespresso. Interests associated with Solomon Lew either own or control about 28 percent of the Group.

Dynamic inventory management drives cash flow

Breville is a well-managed business that lifted its gross margin by 1.4 percent in the second half of the 2024 financial year on $1.53 billion of revenue which was up by 5.7 percent year-on-year.

A noteworthy feature of the FY24 results was that through dynamic inventory management, Breville achieved a $113.5 million decrease in net working capital that returned the balance sheet to a net cash position of $53.6 million at the end of the 2024 financial year. This was delivered after expenditure on marketing, R&D, and technology services and solutions increased to 14 percent of sales.

Breville’s management, relying on the long shelf-life of its electrical appliances, cleverly used inventory management like an insurance policy to manage supply chain instability during FY21 and FY22. During COVID, inventory was increased to build an inventory buffer to ensure the timely delivery of product. As the supply chain became more reliable and predictable in FY24, inventory levels were pared back down to the equilibrium level, through a controlled release of stock. By June 30, 2024, inventory had been reduced to $341.6 million, down from $439.6 million a year earlier. Management considers the controlled build up and controlled release of inventory levels as an insurance policy to optimise the Group’s working capital requirements while maintaining customer supply.

Initiatives such as this dynamic inventory management capability highlight the flexibility of the Breville business model to respond to varying market conditions and circumstances while maintaining consistent margins on product sales.

Risk of material tariff increases being addressed

Now that Trump has assumed control of US trade policy and US foreign policy, the near-term risk of material tariff increases on consumer goods coming out of China has solidified.

In response to the likelihood of tariffs being imposed on Breville’s products manufactured in China, management have announced their decision to continue the Group’s inventory build in the US, until the increased tariffs are enforced. Breville have also decided to move production of goods destined for US markets (such as 120 voltage appliances) out of China as soon as is practicable. This process was commenced two years ago and should be almost complete by the end of calendar year 2025.

FY25 outlook and beyond

The growth trends seen in the second half of FY24 have continued through to FY25. All geographic centres are performing well, although logistics costs have ticked up. However, overall, the business is performing within its FY25 planning parameters. The Americas and Europe, Middle East, and Africa are achieving double-digit growth and Asia Pacific is growing steadily. Australia and New Zealand is building on its improvement recorded in the second half of FY24, while Korea continues to move from strength-to- strength, although distributor markets are working through their own inventories, in the same way that Breville did so in FY24.

Interestingly, the European and Asia Pacific regional markets for Breville are roughly the same size and together they balance the Americas. This means a challenge in one regional market can be compensated by strength in another.

Over the past five years Breville’s revenue and EBIT has grown at an annual compound average growth rate of 15 percent and 13.8 percent respectively. This revenue and earnings resilience, backed up by Breville’s strong operating cash flow, its new product pipeline and consistent outperformance in new geographies, should deliver ongoing value accretion and fully franked dividends for shareholders in the medium-term.

A Portrait photo of Michael Kodari, the guest author of this article. Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert

Guest Author

Michael Kodari

Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert, renowned for his exceptional performance. With a strong foundation in financial markets, Michael has advised leading financial institutions and governments.

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