Just expanding on the summary by @OxyBBear of the $BRG result yesterday.

In Brief

My overarching impression is that this is a good result - and one the belies the gargantuan effort undertaken and the skills of management. $BRG responded quickly and aggressively to try and mitigate the tariff risk, swallowing some of the tariff impact, largely (80%) moving 120V manufacturing out of China, while still nudging up NPAT - helped of course because the global consumer has kept on buying through it all.

1H FY26 demonstrates that the revenue engine remains structurally strong. Coffee + NPD + direct markets driving durable growth. The tariff risk is materially reduced, structurally. Short-term margin compression was absorbed. The balance sheet remains conservative. The CEO views their AI transformation as a multi-year productivity lever.

I view the result as operationally strong, financially solid, maintaining strategic ambition, while using the tariff disruption to create a more resilient supply chain.

Last August JP Morgan issued a note on $BRG entitled:  "Tamping ’26 for a shot in ’27". I could not have summarised things better.

Absent new tariff turmoil and assuming a healthy consumer (neither guaranteed), the set-up is there for an FY26 that meets expectation, setting up for a very good FY27.

In terms of valuation, I'll have a look at updating my $32 valuation from a year ago after the results season. That valuation did not properly consider the tariff risk, and I guess FY26 will prove to be a year where $BRG holds its ground. So at yesterday's close of $34, I consider $BRG is about at fair value and a HOLD.

In Detail

Highlights

• Record first-half revenue of $1.10bn, up 10.1% pcp.
• Gross profit up 6.3%, despite significant US tariff headwinds.
• Gross margin declined 130bps to 35.4% (pcp 36.7%), but impact contained.
• EBIT broadly flat, up 0.7% to $145.8m – “in line with plan”.
• NPAT up 0.7% to $98.2m.
• Interim dividend of 19cps, up 5.6%, fully franked.
• Net debt improved to $43.6m (pcp $55.1m).
• Achieved target of 80% of US gross profit manufactured outside China.
• Continued investment in new markets, AI transformation and NPD.

Insight (From Q&A): Management repeatedly emphasized the operational complexity and speed of the manufacturing diversification program, describing it as a “remarkable logistical achievement” delivered slightly ahead of schedule. They framed it as risk mitigation and long-term structural improvement rather than short-term tariff response.

1. Financial Performance

Revenue & Profitability

Drivers:

• Revenue growth led by Coffee (double-digit growth).
• % Gross margin decline driven by US tariffs.
• Mitigation via:
• Manufacturing diversification
• Selective tail pricing
• Distribution mix optimisation
• Margin strength in other regions

Operating Expenses

• Opex up $22.2m (+10%)
• ~60% of increase driven by:
• New market expansion
• Marketing
• Increased D&A (manufacturing & NPD)
• Core overheads grew modestly (~4%)

Insight (From Q&A): Management was clear they chose to absorb part of the tariff pressure rather than protect margins aggressively, prioritising long-term brand positioning and growth investment over short-term EBIT maximisation.

2. Operational Performance

Segmental Performance (Direct vs. Distribution)

• 9.3% growth in constant currency.
• Coffee delivered strong double-digit growth.
• Cooking & Food Prep high single-digit growth.
• NPD launches (Oracle Dual Boiler, Encore ESP Pro) performed well.
• Distribution markets were weaker as they cycled strong 1HFY25 results

Geographic Performance (Global Product)

Americas:

• Strong coffee performance.
• 300 Best Buy store-in-store installations.
• Food Prep rebounded strongly.

APAC

• Direct markets (AU/NZ/China/Korea) double-digit growth.
• China & Korea >50% growth (small base).

EMEA

• Double-digit growth in EU & Middle East.
• UK solid single-digit.
• Distributor markets more moderate.

Balance Sheet & Cash Flow

• Net debt improved to $43.6m (pcp $55.1m).... despite increased div., investments in supply chain, absoring tariffs.
• Leverage: 0.2x EBITDA.
• Cash at 31 Dec: $176.8m.
• January net cash position of $70.1m (due to receipts from the peak sales months).
• Inventory flat y/y (unit reduction offset tariff cost inflation).
• ~$42m incremental US customs payments absorbed.

Insight (From Q&A): 120V inventory will be built earlier for FY27 peak season, meaning June inventory and cash balances will appear structurally higher. Management stressed this is timing-related, not demand-related.

3. Update on Guidance

• Expect FY26 EBIT to be a slight uptick vs FY25, despite tariff absorption.
• Assumes no material worsening of US tariff regime.
• 1H was peak tariff pressure period.
• Gross margin transition year; second half expected to reflect ongoing normalization benefits from diversification.

Insight (From Q&A): Management framed FY26 as a “year of transition” on gross margin, with manufacturing diversification largely complete, suggesting reduced structural tariff exposure into FY27.

4. Updates on Strategy

4.1. Manufacturing Diversification

Materially de-risks geopolitical concentration risk.

• Began FY23 (Mexico).
• Accelerated FY25–FY26.
• 80% of US gross profit now manufactured outside China.
• Phase 2: component localisation for long-term cost optimisation.

4.2. Beanz Growth

• Rapid calendar-year growth.
• Platform infrastructure proven through Black Friday peak.
• Now operating across four countries.
• Positioned as scalable service layer on top of hardware base.

Comment: I'm still not sure I get the whole Beanz thing. Is it a distraction? Can it really be material? But I guess its good for them to experiment.

4.3. Retail & Channel Strategy

• 300 Best Buy store-in-stores rolled out.
• Premium positioning reinforced vs De’Longhi & others.
• Structural change in US retail channel concentration.

4.4. AI Transformation – “Phase IV”

CEO described AI program as enterprise-wide transformation:

• 1,000+ employees actively using AI monthly.
• Internal AI platform (BRG AI) built in-house.
• Early customer service AI results:
• Onboarding time ↓ 40%
• Lower employee turnover
• Faster case resolution
• Reduced product replacements

Insight (From Q&A): Jim personally leads global AI training! AI described not as pilot program but “re-architecting of the entire enterprise.” This is positioned as long-term competitive advantage. Chart below shows some of the benefits Jim reported from $BRG's adoption of AI across the enterprise.

The claims of 30-90% productivity improvements for processes where AI is introduced raised my eyebrows. Is it just a good story, or does it really indicate the impact being achieved? If the claims are real, we should be able to track this through Opex efficiency over time. Jim clearly sees this as a transformational lever, as he is devoting serious time to personally lead the training of staff.

Disc: Held (RL 10%)