Brambles announces FY 2018 results: US Pallet Volumes Rebound

Results feature strong revenue growth, dividends fully funded by free cash flow and progress toward strategic objectives

Brambles Highlights

  • Sales revenue up 6% at constant currency largely reflecting strong volume growth in key CHEP pallet and IFCO RPC businesses. Price growth of one percentage point included benefits of pricing initiatives in US pallets, emerging markets and IFCO North America.
  • Underlying Profit in line with prior year at constant currency: Profit growth in CHEP EMEA and IFCO, along with cost control and higher asset compensations in CHEP Asia-Pacific offset a number of headwinds during the year including inflationary cost pressures in most major markets.
  • CHEP US pallets: Solid volume growth and pricing actions primarily realized in the second half of the year. Effective price, which includes inflation-related surcharges recognized as an offset to costs, increased 2% in 2H18.
  • FY18 Statutory profit after tax includes US$127.9 million non-cash tax benefit resulting from the USA tax reform. FY17 statutory profit included the US$120.0 million non-cash impairment of the HFG joint venture (JV).
  • Material increase in Cash Flow from Operations and positive Free Cash Flow: Cash flow from operations, before the HFG JV loan repayment, fully funded dividends and capital expenditure reflecting focus on sustainable cash flow generation. Cash Flow from Operations was further strengthened by the HFG JV loan repayment of US$150.0 million which will partially fund the US accelerated automation program in FY19-21.
  • 2018 final dividend in line with prior year: 14.5 Australian cents per share, with franking of 30%.
  • Corporate actions: Brambles intends to separate its IFCO RPC business. This decision together with the divestment of CHEP Recycled and the HFG joint venture reflects a focus on optimizing long-term shareholder value.

“Our FY18 result reflects the significant progress we have made towards our strategic objectives,” said Brambles’ CEO Graham Chipchase. “Revenue momentum was strong despite robust competition in all major markets and Free Cash Flow fully funded dividends for the first time since FY15. This cash flow result was particularly pleasing as it was achieved during a period of ongoing capital investment to fund growth, automation programs and innovation initiatives, including BXB Digital. While Underlying Profit remains below revenue growth, we have identified and commenced implementing numerous initiatives to improve profitability over the medium term.

“Our US pallets business returned to historic levels of volume growth and successfully implemented contractual surcharges and repricing in response to accelerating rates of transport, lumber and labor inflation in the second half  of the year. In addition to these surcharges, our teams have also commenced renegotiating contracts as they come up for renewal to ensure terms adequately cover the cost-to-serve in a higher inflationary environment. Collectively, surcharges and pricing actions offset approximately half of the inflation-related cost increases we experienced during the year. While changing customer and retailer behavior and network capacity constraints also contributed to higher plant and transport costs during the year, the accelerated automation program and procurement initiatives are expected to increase network capacity and deliver operational efficiencies progressively over the next three years.

“In Europe, our pallets businesses continued to deliver outstanding levels of volume growth as they expand with customers in both developed and emerging markets. Inflationary pressures in the region also accelerated in the second half of the year, however, resulting cost increases were largely offset by supply-chain efficiencies and contributions from annual contractual indexation.

“In Asia-Pacific, our pallet businesses in Australia and New Zealand delivered solid revenue growth and we continue to take a disciplined approach to investment in emerging markets such as China. While the CHEP RPC business in the region had a challenging year following the loss of a large contract in 2017, the team are actively pursuing opportunities to return the business to revenue growth in FY19.”

Strategic priorities

Commenting on the Group’s strategic priorities, Mr Chipchase said: “The fast-moving consumer goods and retail sectors are changing rapidly. Our customers are increasingly under pressure to meet changing consumer demands more efficiently and sustainably. As the leader in sustainable supply chains, we are uniquely positioned to help our customers navigate this evolving landscape by delivering innovative solutions that reduce both the cost and environmental footprint of their supply chains.

“In this increasingly challenging operating environment, our commitment to our strategic priorities is critical to our ability to deliver superior value for customers, shareholders and employees. In FY18, we strengthened our network advantage by funding growth in our core pooling businesses and innovation initiatives to address changing customer needs. By divesting CHEP Recycled and our interest in the HFG joint venture, we further focused our portfolio and generated proceeds which will be used to fund opportunities in high-returning businesses. Finally, through BXB Digital, we took meaningful steps towards identifying the role technology can play in improving the efficiency of our operations and providing richer insights for our customers.”

Outlook

“By delivering on our strategic priorities, Brambles expects to deliver sustainable growth and returns well in excess of the cost of capital,” Mr. Chipchase continued. “We expect constant-currency sales revenue growth in the mid-single digits, primarily driven by the ongoing conversion of customers to pooled solutions and expansion across geographies. Through the progressive delivery of operational, organisational and capital efficiencies, Brambles expects to deliver Underlying Profit growth in excess of sales revenue growth through the cycle. We will also focus on generating sufficient cash to fully fund dividends and reinvestment for growth, innovation, and the development of our people.”

Commenting on FY19, Mr Chipchase said: “FY19 Underlying Profit will continue to reflect ongoing input-cost inflation and other cost challenges. We expect the multi-year automation, procurement and pricing initiatives we are currently undertaking to progressively deliver efficiencies and earnings benefits over the medium term.”