Breville Group Successfully Completes $94m Institutional Placement
Amid current macroeconomic conditions, Breville Group has resorted to adopting prudent measures to maintain adequate cash flow. The firm has completed a $94 million capital raising through a fully underwritten institutional placement and $10 million through an underwritten share purchase plan to qualified shareholders. Specifically, 5.5 million new fully paid ordinary shares were sold at A$17.00 a security, representing a nine per cent discount relative to the last closing price of $18.70 on Tuesday, 12 May 2020.
More notably, the decision to raise capital will assist in enabling the firm to capitalise on strategic opportunities and more importantly, provide increased flexibility for Breville to maintain its long-term growth plans. These include the areas of product development, infrastructure investments and international expansion. Collectively, these factors have been the key reason for Breville’s steady EBIT growth since 2015.
For about nine decades now, the company has pride itself on its emphasis on product innovation to customers. Group CEO Jim Clayton stipulated that innovating in global markets requires a deep and profound understanding of the local food supply chain, tastes as well as preferences. One fine example was the introduction of Breville juicers. Global sales were on a downward trajectory except in the Baltic region. However, the situation changed when Mr Clayton realised that families were in favour of apple trees located in their backyards. Thus, Breville juicers were introduced to aid in the harvesting process. The experience further reinforces Mr Clayton’s belief in placing employees on the ground overseas and establishing test kitchens in each region.
More broadly speaking, Breville boasts an excellent track record when it comes to converting research and development (R&D) expenditure into revenue. Over the last five years, R&D expenses grew from 8 to 11 per cent of the group’s revenue. However, the allocation has proven to be wise as a strong new product development pipeline remains key to continued growth. This is evident in more than 15 new products that have been introduced in FY 19, including the Pizzaiolo and Barista Pro. More recently in 1HFY20, Breville launched the Combi Wave oven and Bluicer. As an average product development cycle spans between three to four years, Breville, therefore, regards R&D to be an essential long-term investment.
Despite the COVID-19 pandemic, the firm continues to perform well. From a global segment, constant currency revenue growth came for March and April came in at 14 and 18 per cent respectively. Specifically, strong sales were noted in Australia and the UK. Meanwhile, performance in Europe and the US were weaker due to significant retail partner store closures and the temporary shut-down of Amazon Prime. Additionally, Breville has implemented a series of actions to preserve cash, including a temporary halt in hiring spree and non-essential capex, salary reductions across Board and cutting back on marketing expenditure. Nevertheless, the firm remains in a strong position with cash on hand of $74 million as of 30 April 2020.
By Caroline Wong
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