FY25 Half Year Results Annoucement

Chair and CEO Half Year Review

Dear Shareholders,

We are pleased to update you on our operating and financial performance in the first half of FY25.

While it is still early days, there are positive signs that the business is recovering:
• Our hybrid supply chain is working and we have invested in inventory for future growth;
• We launched new ranges across our Bremworth-branded carpets as well as new white label ranges for our retail partners;
• Revenue growth has returned to the business, particularly strongly in the first 7 weeks of Q3;
• We’re re-entering the commercial segment in Australia, exploring new contract manufacturing opportunities and making progress on opportunities to enter the US market, albeit in a deliberate and controlled way.

While there are reasons to be positive, we experienced some margin compression in our carpet business (challenging market conditions and supply chain inefficiencies) and cash outflows in the first half of FY25. The cash outflows were largely due to the decision to invest in growth.

Management is confident that margins will recover and cash outflows will materially reduce over the next 12-18 months as we leverage higher inventory levels, execute on cost savings and grow the business.

Investing in growth

In the wake of Cyclone Gabrielle, the company began to run short of available stock. This manifested itself mostly with our customers in Australia, who in many cases we were unable to supply. This shortage was experienced for almost a year as new suppliers were put in place and stock rebuilt.

We are pleased to report an increase in raw materials (primarily woollen spun yarn) to $18.4m (previously $8.0m in 1H24). With inventory back to pre-cyclone levels, our retail partners have confidence that Bremworth can meet orders without delay.

For these reasons, we expect our strongest growth to come from Australia and we monitor "active customers" and "order to fulfilment" rates to ensure that both key measures are creating a good experience for our customers. Pleasingly, both are moving strongly in the right direction.

Positive revenue growth but below expectations

While inventory levels grew and total revenue increased by 8% (vs. 1H24), the growth in revenue was lower than we had forecast. Economic pressures in both countries have contributed to these results, with retailers commenting on lower foot traffic, competitive pricing pressures and a greater number of deferrals occurring as consumers tighten spending, particularly in New Zealand.

The core carpet business improved by $1.0m (vs. 1H24). Australian carpet revenue was up 5% ($0.7m). New Zealand comparable revenue was up 1% ($0.2m). While still early days, our performance in Q3 so far is encouraging. The number of active customers is growing across all geographies driving sales in carpet & rugs.

Elco Direct had a strong first half, with sales growth of 29% on 1H24, driven by higher wool prices. Elco Direct has also had a record month to start the calendar year. The Elco business is a key strategic asset to provide access to quality wool, volumes and consistent margins as the wool industry contracts.

Margins and profitability need to improve

Gross margins in our carpet business, not unexpectedly, reduced from 33% in 1H24 to 31% in 1H25 (excluding provisions) due a product mix shift to lower margin products and competition in the value end of the market. Overall gross margins reduced from 27% in 1H24 to 21% in 1H25 though this is largely a reflection of the strong revenue growth in our lower margin Elco business.

To address the impact on our business from softer market conditions, we will further reduce our cost base to better reflect the size of the business today, whilst still enabling growth in FY26 and beyond. The full benefit of cost savings will be realised in FY26.

Future growth

We remain confident that Bremworth will grow market share in New Zealand and Australia through our wholesale sales channel. We are strengthening these supplier partnerships and seeing pleasing results, with the number of active customers growing month on month.

In particular, we expect to continue growing market share in Australia through inventory availability, new commercial products coming online and traction from new differentiated products launched in Q1 and Q2.

Further, the United States is the largest soft flooring market in the world and is a logical next step for Bremworth. We are in advanced discussions with potential partners for expansion to take place in FY26. Volumes are yet to be confirmed.

Insurance and dividends

We are pleased to have reached a final settlement in relation to Cyclone Gabrielle insurance claims. Earlier in February, we received final cash proceeds of $42m.

We are nearing completion of the key works required in Napier. No further reinstatement of machinery is planned at this stage. We will focus on existing assets to produce products and new revenue streams through the plant including contract dyeing. There is also potential for subleasing to support cashflow being investigated.

While we experienced cash outflows in 1H25, we are confident in materially reducing our cash outflow to enable the return of excess cash to shareholders. The amount returned to shareholders and timing of this depends on the performance of the business, as well as the outcome of the Strategic Review.

Strategic Review

Over the last few months, the Board received inbound interest in Bremworth from external parties. To manage this interest and help identify the highest value owner for Bremworth, the Board established a committee of independent Directors and engaged external advisors. The Strategic Review may take several months to complete.

Outlook and guidance

With the actions taken to date, seeing revenue and volumes grow and further disciplined cost management to occur across the organisation, the Board remain committed to the business being cash flow positive and profitable in FY26, which will enable the resumption of dividend payments. Bremworth’s Directors and management team would like to thank you for your continued support.

George Adams
Chair


Greg Smith
CEO

28 February 2025

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For further information please contact:

Greg Smith
Chief Executive Officer
Bremworth
[email protected]
+64 21 711 622

Mark Devlin
Director
IMPACTPR.CO.NZ
+64 21 509 060

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Announcement PDF