Significant Profit for Charlie’s

Significant Profit for Charlie’s

Higher gross margin, EBITDA and NPAT and positive
operating cash flows and Australian sales surge

Australasian premium beverage company Charlie’s Group Ltd today announced significant profit improvements at all levels, including gross margin, EBITDA (earnings before interest, tax, depreciation and amortisation) and NPAT (net profit after tax). Australian gross sales surged by 37 per cent over the previous half year.

The group’s unaudited results for the six months to 31 December 2009 report a record operating EBITDA of $1.75m (excluding the gain on sale of the Henderson property), 60 per cent of it generated in Australia. This is compared with a loss of $0.1m for the corresponding period last year.

NPAT of $1.9m (including a $1.2m one-off capital gain) compared with a loss of $0.7m for the corresponding period last year.

The gross margin increased by 2.4 per cent to 49 per cent representing an additional contribution of $0.7m to the operating results.

The company achieved positive operating cash flow for the period. This, along with the proceeds from the property sale, has allowed the group to reduce debt by $2.4m to $4.3m over the reporting period.

The Group’s debt-to-equity ratio has reduced from 53 per cent a year ago to 27 per cent as at 31 December 2009. This will be further reduced with the early repayment of $0.5m at the end of February 2010 as laid out in last week’s announcement.

Last week’s announcement also included the news that the group has successfully negotiated the release of the $5.3m guarantee that had been given to the bank by Collins Asset Management. This release illustrates the confidence ANZ National Bank has in Charlie’s Group.

The results are ahead of the earnings guidance released to the market on 29 January 2010.

Chairman Ted van Arkel said the results reflected a concerted effort by the group to restore performance, drive efficiencies and contain costs during difficult and uncertain economic conditions. It also underscored the board’s decision to expand further in Australia.

“This is a heartening performance, due in no small part to the combined efforts of the board and management to put Charlie’s on a profitable path,” he said.

“We remain focused on monitoring costs and production efficiencies to ensure resources are deployed in the most cost-effective manner, while still driving sales and brands to increase market penetration and generating positive cash flow.

“While we cannot ignore the volatility of the economic climate, the directors remain confident that strong demand for the company’s brands will continue and as the economy recovers further we will be well placed to take advantage of that recovery.”

CEO Stefan Lepionka said the results were a huge boost for the Charlie’s team.

“We have worked hard to establish ourselves as an Australasian manufacturer and marketer of premium beverages. Although it has not been a smooth ride at times, we are pleased that our strategy is beginning to show the benefits that we set out to achieve,” he said.

Stefan said the New Zealand market continued to remain uncertain but results would be balanced by the stronger growth from Australia.

“As a group we will continue to execute the same strategy that has enabled us to bring about this turnaround in results.”

Turnaround in detail

The EBITDA result of $1.75m reflects actual trading through the period and excludes the gain on sale of property producing the first positive EBITDA for the corresponding period since December 2006.

The NPAT result of $1.9m includes the one-off $1.2m gain for the sale of its property at Henderson, Auckland, which was completed in October 2009. Excluding this gain, NPAT is a positive $0.7m compared with a loss of $0.7m for the corresponding period last year.

The gross margin improved from 47 per cent to 49 per cent for the period as the company carried out its revenue and margin management strategy. This improvement represents an additional contribution of $0.7m to the operating results.

Of particular note is the increase in the cash flow generated from operations of $1.6m, up $3.7m from the negative $2.0m reported for the corresponding period last year.

This is the first time that the company has achieved positive operating cash flows for this trading period and demonstrates the successful implementation of the strategic goals as well as the company’s ability to continue to chase profitable sales growth in key markets.

Total reported gross sales for the period under review were $16.8m, a decline of 2 per cent on the corresponding period last year. However like-for-like sales, excluding the income from the Redbull distribution agreement which ended in 2008, were consistent with the previous year.

New Zealand

The decline in New Zealand sales reflects Charlie’s own product rationalisation programme, the economic climate and the discontinuation of the Redbull distribution agreement,.

As part of the margin management strategy, the company has reviewed its total product offering and deleted non-performing lines to focus on profitable products, albeit with a marginal loss in volume. The new product development process continues and is on track to add to the company’s profitable portfolio which will replace the sales it lost to put New Zealand back in growth.



Australia

Australian sales reached a record $3.3 million for the six month period with reported growth up 37 per cent on the corresponding period last year.

The successful launch of the Charlie’s brand 14 months ago continues to be well received by HORECA (hotels, restaurants and cafes) retailers and consumers including a trial in selected Cole’s stores in Victoria and New South Wales. Early signs from the trial are positive and we expect that the trial will be further expanded.

The Phoenix Organic brand also continues to grow strongly as the company expands its distribution network, particularly in its HORECA channels and the ongoing introduction of new product offerings.

Outlook

Strategies put in place at the beginning of the year continue, and trading results remain strong for the beginning of the second half of the year.

ENDS

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