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Chairman's report

Company	Code	Released	Type	Headline
Charlie's Group Limited	CHA	15 Aug, 2007, 09:09	FLLYR	CHARLIE'S REPORTS RECORD EARNINGS

Full Text of Announcement

15 August 2007

Full-Year Review

CHARLIE'S REPORTS RECORD EARNINGS

Listed beverage maker Charlie's Group Ltd today, 15 August 2007, reported record earnings before interest, tax, depreciation and amortisation (EBITDA) on the back of record gross group sales.

Key points

- Record EBITDA
- Record gross sales
- Focus on increasing gross margins and containing costs
- Strong export sales in Australia
- New products meeting ready market acceptance

Overview

EBITDA for the year ended 30 June 2007 was $921,000, an increase of 163% on the previous 12 months. It was earned on record gross sales of $26.8 million, 55.9% ahead of adjusted sales for the previous 12 months. NPAT for the year ended 30 June 2007 was $33,000, compared to a loss of $161,000 in the previous 12 months.

12 months ended 30 June 2007 (Audited)
Gross sales 26,804,000
Operating revenue 24,059,000
EBITDA 921,000
EBIT 92,000
NPAT 33,000

12 months ended 30 June 2006 (Adjusted)
Gross sales 17,195,000
Operating revenue 16,594,000
EBITDA 350,000
EBIT (46,000)
NPAT (161,000)

15 months ended 30 June 2006 (Audited)
Gross sales 19,707,000
Operating revenue 18,563,000
EBITDA 366,000
EBIT (209,000)
NPAT (163,000)

The comparative period includes 12 months' trading from parent company Charlie's Group Ltd, Charlie's Trading Company Ltd and Phoenix Organics Group. The previous reporting period, the 15 months to 30 June 2006 -- longer because of a change in balance date -- included 11.5 months' trading from Charlie's Group, 15 months' trading from Charlie's Trading Co and seven months' trading from Phoenix Organics Group.

Chairman Ted van Arkel said the group was in a sound financial position with total assets of $16,980,000 a rise of 2.1% ($357,000) on the previous year end.
Directors recommended no final dividend in keeping with the "reinvestment for growth" strategy outlined to shareholders at last November's annual meeting. No interim dividend was declared for the same reason.

Mr van Arkel said the directors were pleased with the group's performance but remained fervently committed to continuous improvement by making key brands work to their ultimate potential, lifting manufacturing and distribution efficiency and identifying new market opportunities.
"This means greater investment in key brands, strengthening the partnership with the group's trade clients and identifying suitable companies to acquire." he said.

"Our policy, however, is not to acquire companies for the sake of acquisition. They must not only give us a long-term earnings stream but also offer a strategic advantage in our market."

Mr van Arkel said the past year had been extremely busy for the board and management of Charlie's Group. Directors made several important decisions in 2006/07, all aimed at enhancing group performance and laying a platform for growth in the current year.

Marketing update

Critical to this growth strategy has been increased investment and focus on marketing. The appointment of a new marketing manager in November 2006 has led to greater structure and expansion of the marketing team from one to four people. The foundations have now been laid and systems put in place to further capitalise on this investment.

Evidence of this has been the launch of new product offerings from Charlie's and Phoenix. Charlie's Old Fashioned Quenchers are the first Charlie's products to be manufactured at our Henderson plant and have exceeded targets since launch in April. Three new Hot Beverage offerings have been added to complement Phoenix Chai in May 2007. Early sell-in has been extremely positive and we have experienced an overall lift in interest and sales of the entire Phoenix range.

The inaugural Phoenix Fest in March 2007 signalled the company's intention to communicate this niche brand to a wider audience. The festival was a free celebration of all things Phoenix -- organics, music, arts, fashion and food, and was such a success that we are in planning for Phoenix Fest 08.

Sales update

Further to the announcement by Charlie's on 18 July 2007 of record sales and the detailed analysis provided in that update, Charlie's provides additional comments on sales for the period, as follows:

Grocery channel

The group's retail sales in supermarkets experienced growth well ahead of the market. In the chilled juice category, Charlie's retail sales revenue grew at 32.8% in comparison to growth of the chilled market of 5.6%. Charlie's and Phoenix Organics ambient juice retail sales revenue grew at 25% (excluding deletions), while the total ambient market grew at 3.8%.

The grocery sales team performance has been the driver of success in this channel. A high performance sales team and new systems were put in place in September 06 resulting in improved sales execution and visibility of our brands on the supermarket shelf. Phoenix Organics is sold in 13% more stores than a year ago and is moving into the mainstream beverage aisle in supermarkets, following international trends of organic products becoming more available to everyday consumers.

Route channel

Operating revenue in the route channel grew 17% from the previous 12 month period. This growth has been driven by increased distribution across the Group's product range as a result of the opening of new accounts and the Group's ability to offer a full premium beverage range to customers. Growth continues in fridge placements in the New Zealand market with an overall 47% increase to a total of 824 fridges.

A new route business development team was introduced in the last few months of the trading period. We expect to see significant growth in the route channel from this team through leveraging our product range to provide a total beverage solution to our customers. The focus for this team is to increase our distribution of products through developing new customers, fridge placements, increasing range at existing customers and improved customer service and in-market activation.

Export channel

The export business continued another strong year of growth with an increase in operating revenue of to $2.7 million compared with $2.25 million in the previous 12 months. Export markets included are Australia, Singapore, Malaysia, Hong Kong, South Korea, Dubai, Canada, Fiji, Cook Islands (Raratonga), New Caledonia and Tahiti. New export opportunities and markets are being pursued continuously as part of the global strategy for our brands.

Growth of sales in Australia, the group's main export market, increased 36% compared with the previous 12 months. The strong performance in Australia was primarily driven by increased business development activity, a growing customer base and range within the channel. This included fridge placements in the route trade more than doubling (up 125%) to 205 fridges at year end.

Negotiations for the introduction of Charlie's and Phoenix Organics products to Japan are continuing. Progress is being made, but no final agreement has been reached. The group has completed Japanese production trials for the Charlie's brand and is now reviewing options with its partner. The Japanese government and New Zealand organic certifier, Biogro have recently come to an agreement that will allow us to commence the process of certifying Phoenix Organics products to the Japanese organic standards in order to supply that market.

Operations update

The operations focus in the past year has been to optimise production and warehousing at the Henderson site and to find a long-term sustainable solution for manufacture of the Charlie's NFC range.

In the past 12 months the directors approved capital spending of $900,000 to upgrade the blend hall, introduce production-line efficiencies and improve internal warehousing. The actual spend was $445,000, which encompassed warehouse and glass production-line upgrades. The balance of this spend has been redirected toward the recent Gallard Group acquisition in Australia.

Balance sheet

Trade receivables, trade creditors and inventory have increased from the prior period reflecting the increase in turnover.

The group's balance sheet remains strong with total assets of $16.98 million and no term debt, which the Board believes is appropriately conservative for this current phase of Charlie's growth.

Summary

Chief Executive Stefan Lepionka said it was extremely pleasing to report record sales and earnings for the past year since the Charlie's inception eight years ago.
"This is the result of years of fine-tuning and believing in our strategy of creating premium brands."

Mr Lepionka noted that the group has made significant investment in the past 12 months in all areas to support and promote the Charlie's and Phoenix Organics brands, while launching new products to increase the group's penetration in the overall beverage market. This is illustrated in the group's staff headcount which has increased from 81 people to 100 people over the 12 months, with 11 of these new employees joining the company in the second half of the year.
"This has been entirely funded out of operating cash flow in keeping with our strategy of 're-investment for growth' as outlined to shareholders last year."

Mr Lepionka said the focus in the current financial year would be on:

- Product packaging and marketing innovation;
- Expanding carbonated beverage ranges;
- Making products more available through fridge placements and outlet/geographical expansion in New Zealand and export markets;
- Improving customer service and in-market execution; and
- Achieving profitable sales while containing costs.

"To deliver the earnings and return on investment shareholders expect, we cannot stand still. Our "re-investment for growth" strategy continues to strengthen our brands, and our focus going forward will be on growing profitable sales on the back of these great brands."

For further information:

Stefan Lepionka
Chief Executive Officer
021 930 916