Brambles Announces 1H17 Results

A month after cautioning that it would fall short of its anticipated targets for the first half, Brambles has announced its 1H results. The company generated sales revenue of US$2,744.7 million in the six months ended December 31, 2016 (1H17), up 4% on the previous corresponding period. (To view the entire release, click here). Constant-currency growth of 5% reflects: solid like-for-like volume growth and a higher level of net new business wins in Pallets Europe; strong growth with new and existing customers in both RPCs and Containers; and ongoing expansion in emerging market Pallets businesses, particularly in Latin America. Growth in Pallets North America was modest, reflecting competitive pressures which resulted in lower than expected customer conversions to pooling and muted pricing growth. In addition, customer destocking adversely impacted like-for-like volume growth, particularly in the second quarter.

Operating profit from continuing operations was US$330.4 million, down 27% (down 26% in constant currency) primarily reflecting Significant Items of US$138.5 million which included a US$120 million impairment of Brambles’ investment in the HFG joint venture. The remaining Significant Items primarily related to the One Better Program.

Underlying Profit, a non-statutory measure which excludes the impact of Significant Items, was US$468.9 million, up 1%. On a constant-currency basis, Underlying Profit growth was up 3% reflecting: strong profit growth in RPCs and Containers; pricing and direct costs pressures in Pallets North America; the impact of specific pricing actions on margins in Pallets Europe; and higher depreciation costs across the Group.

“While performance in the first half was below our expectations, our team delivered revenue growth in every operating segment and Underlying Profit growth across the Group, with the exception of our Pallets North America business,” stated Brambles’ CEO Tom Gorman.

“Our RPCs and Containers business units delivered solid revenue growth and robust profit leverage. Our portfolio of pallets businesses outside North America continued to perform well. In our European Pallets business, specific pricing initiatives and our ongoing delivery of efficiencies have helped to strengthen our competitive position and deliver sustained growth. In the emerging market Pallets businesses, specifically Latin America, we continued to deliver strong growth.

“Our first-half performance in Pallets North America was disappointing. We came into this financial year with good momentum in North America and set our expectations high for continued growth. Unfortunately, a combination of market-driven cost factors and increased competition have resulted in overall performance well below our expectations.

“Notwithstanding the challenges in Pallets North America, our portfolio of businesses remains in a strong position, both operationally and strategically. In addition, the seeds for future growth, driven by technology innovation and new market entries, have been planted and position us well to continue to grow and deliver for our customers.

“I am proud of the progress Brambles has made over the seven and a half years I have been CEO and the transition to new leadership has gone well. I wish Graham and the entire Brambles’ team all the best for continued success.”

Outlook

Brambles expects FY17 constant-currency sales revenue growth to be in line with the first-half performance and FY17 Underlying Profit to be flat to the prior year, at constant currency.

Brambles’ FY17 guidance assumes the Pallets North America business will continue to face cost and competitive pressures in the second-half of the year, although a modest improvement in net new business wins is expected. The guidance also assumes no substantive change to the key underlying economies in which the Group operates.

The Group’s previously articulated FY19 ROCI target has been withdrawn. Going forward the Group will not provide medium-term targets. ROCI remains an important performance metric and management will seek to deliver ROCI outcomes which strike a sustainable balance between financial returns and growth.

CEO Transition

“The CEO transition from Tom Gorman to Graham Chipchase has gone smoothly. Graham commenced on 1 January as CEO Designate and will take up the role of CEO and Executive Director from today” said CEO transition Brambles’ Chairman, Stephen Johns.

“On behalf of the Board, I would once again like to thank Tom for his unwavering commitment to Brambles’ success over the past seven and a half years. He leaves Brambles in a position of strategic and financial strength and we have every confidence that Graham will successfully lead the Group through its next phase of growth and development.”

Brambles recently announced an organizational realignment.