BRL Hardy reported a strong 23.4 per cent rise in interim net profit but
its stock was buffeted by the sharemarket on concerns the wine maker perhaps had
too much product in the cellar.
The Adelaide company's shares fell 51c to $8.64 after its accounts showed
total inventories increased 25 per cent to $692 million through a bumper 2002
vintage. As a result, operating cash flows ballooned to negative $123 million,
almost twice the outflow of a year ago.
Investors immediately took fright at such a large amount leaving BRL in the
half, seeing it as a sign the business is still greedily consuming cash quicker
than it can generate it.
Chief executive Stephen Millar said the situation could easily correct itself
next year if, as expected, the 2003 vintage is depleted by drought. If that
scenario doesn't play out, BRL Hardy will put the oversupply of grapes to good
use through new products and increasing output of popular ones.
``We will see our inventory levels down and a positive cash flow next year,"
Mr Millar said. He added the second half typically produced positive cash flow
and, overall, BRL should end 2002 with negative outflows of around $50 million.
Mr Millar said the weak cash flow didn't mean BRL would need to issue new
shares, and he ruled out any equity raising for at least 12 to 18 months.
Although cash flow was down, net profit in the six months to June 30, 2002,
rose to $38 million from $30.8 million with sales 10.6 per cent higher at $377.2
million. BRL Hardy raised its interim dividend by 1c to a fully franked 10c a
share, payable October 8.
Earnings before interest and tax from the North America business were $10.9
million, up from only $3 million the year before as the Pacific Wine Partners
joint venture with Constellation Brands gathered momentum.
``The profit result has been outstanding and what is particularly pleasing
is the emergence of North America as a very significant profit contributor to
our group," Mr Millar said.
EBIT (earnings before interest and taxes) from Australasia was only 1.4 per
cent higher at $20.5 million, reflecting slowing growth. Europe's earnings were
9 per cent stronger at $33.3 million. Mr Millar said it might take five years
for North American earnings to outstrip Australia's. He recommitted BRL to a
2002 earnings target between $85 million and $89 million, up from $72.2 million.
2000 2001 2002
24.9 30.8 38.0
EPS (c) 16.9 19.5 21.5
Interim dividend (c) 8 9 10
June 30 half-year