Brambles delivered sales revenue of US$5.1 billion in the twelve months ended 30 June 2017 (FY17), an increase of 4% at actual FX rates and 6% at constant currency. Growth was largely driven by new business growth in the European pallets business, strong growth with new and existing customers in the global IFCO RPC businesses and continued momentum in the Latin America pallets business. The US pallets business also delivered modest volume growth, making a solid contribution to sales revenue growth in the year.
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Operating profit from continuing operations was US$771.4 million, a decline of 18% at actual FX rates and 17% at constant currency, primarily reflecting Significant Items of US$186.1 million which included the non-cash impairment of Brambles’ investment in the HFG joint venture (US$120 million).
Profit After Tax Declined by 69% on U.S. Business Impairment
Profit after tax (including discontinued operations) of US$182.9 million declined 69% at actual FX and constant currency rates and included a US$243.8 million noncash impairment of Brambles’ North America recycled pallets business, CHEP Recycled, which was classified as held for sale and recognized in discontinued operations in FY17.
Underlying Profit from continuing operations (a non-statutory measure which excludes Significant Items) of US$957.5 million declined 3% at actual FX rates and 1% at constant currency, primarily due to lower earnings in the US pallets business. The decline in the US pallets business reflected: the reversal of benefits associated with strong growth in the second half of FY16; structural increases in network costs; and one-off inefficiencies relating to excess pallet inventories and lower demand in the second and third quarters of FY17. Losses in the HFG joint venture of US$12.5 million and a US$9.5 million increase in BXB Digital investment reduced Underlying Profit growth by two percentage points.
Return on Capital Invested of 17.0% declined 2.3 percentage points at actual FX and constant-currency rates largely due to lower Underlying Profit, primarily in the US pallets business, and an increase in Average Capital Invested.
Cash Flow from Operations of US$591.5 million increased $72.7 million over the prior year as favorable movements in working capital offset increased capital expenditure, partly driven by higher capital commitments in FY16.
Free Cash Flow after Dividends was reduced by US$90.4 million reflecting higher dividend payments largely due to the impact of the Dividend Reinvestment Plan (DRP) being neutralized. Net debt was reduced by US$49.1 million primarily due to the receipt of proceeds from the sale of CHEP Aerospace and creation of the HFG joint venture.
“The Group’s FY17 performance was broadly in line with the updated guidance provided at the 2017 half-year results,” stated Brambles’ CEO Graham Chipchase. “All segments delivered positive sales revenue growth, with underlying profit growth in all segments with the exception of CHEP Americas, which reflected challenges in our U.S. pallets business.
“It was pleasing to see strong levels of volume growth in our European pallets business and continued momentum in our Latin America pallets business. Our global IFCO RPC businesses also continued to expand with both new and existing customers and delivered strong growth in underlying profit, led by the improvement in North America.
“Our US pallets business had a challenging year, with increasing competition and direct cost pressures impacting both revenue growth and profitability in the period. It was encouraging to see an increase in net new business wins and organic growth in the second half of the fiscal year. The pricing environment remains challenged given competitive pressures and cyclically low white wood pallet prices.”
Mr Chipchase added: “We are taking steps to address the impact of increased competition and the higher network cost structure in the US pallets business. These steps include a stronger focus on improving network efficiency and leveraging our global expertise to deliver additional cost savings across our operations.”
Mr Chipchase said: “Brambles is a strong business with a sustainable operating model, superior network advantage, and unique expertise. We are committed to leveraging our competitive advantage to ensure that, in a rapidly changing and increasingly competitive environment, we continue to deliver superior value for our customers, shareholders and employees. It is within this context that today we have articulated our strategy, focusing on the five core drivers which are critical to delivering value to our key stakeholders.
“These five core value drivers are:
- Growing and strengthening our network advantage: We are committed to strengthening our industry leading positions and optimising our network by investing in platform quality and differentiated, value enhancing customer solutions;
- Delivering operational and organizational efficiencies: We aim to reduce cost and improve productivity by leveraging our global scale and implementing global best practice in areas such as procurement, plant automation, and transport optimization;
- Driving disciplined allocation of capital and improved cash generation: By focusing investment on core pooling businesses and delivering asset efficiencies, we will seek to generate the cash needed to fully fund both dividends and reinvestment in the business;
- Innovating to create new value: Investing in technology that enhances our customer offering, product quality, and efficiency. This includes increasing investment in the BXB Digital business to accelerate digital innovation in the areas of smart assets and data analytics; and
- Developing world-class talent: Empowering our people with individual skills and capabilities, building a leadership pipeline and fostering a safe, inclusive and diverse organization.”
By delivering on its strategic objectives, Brambles expects to deliver sustainable growth and returns well in excess of the cost of capital.
Sales revenue growth is expected to be 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, organizational and capital efficiencies, Brambles’ expects to deliver Underlying Profit growth5 in excess of sales revenue growth through the cycle, a Return On Capital Invested in the mid-teens and sufficient cash generation to fund growth, innovation, and shareholder returns.
FY18, however, will include a number of items which will weigh on FY18 Underlying Profit growth, including:
- US$23 million of FY17 Underlying Profit which will not recur in FY18 due to the roll-off of a large Australian RPC contract and the impact of automotive plant closures on a number of Australian automotive contracts;
- US$7 million increase in BXB Digital investment, expected to be US$17 million in FY18; and
- a full 12-month inclusion of the HFG joint venture.
Mr Chipchase said: “Brambles is in a strong position to deliver continued growth and attractive returns for shareholders. Our pallets businesses in Europe, Asia-Pacific, and Latin America, as well as our global IFCO RPC businesses, are expected to remain strong contributors to growth and earnings, while our US pallets business remains robust and fundamentally well positioned to deliver sustainable growth over the long-term.