Brambles Annual Report Highlights
- Earnings growth ahead of FY21 guidance with margin expansion despite higher operating costs driven by demand volatility, inflationary cost pressures and supply chain disruptions due to pallet availability constraints in all regions.
- Sales revenue increased 7% driven by volume and price realization in the global pallets business and a progressive recovery in the automotive business during the year.
- Underlying profit increased 8% with contributions from pricing, surcharge income, cost efficiencies, and return on supply chain investments more than offsetting input-cost inflation, and other increases in operating costs driven by changes in network dynamics and demand patterns impacted by both COVID-19 and Brexit.
- US margin improvement of ~1pt reflecting increased price realization, inflation-linked surcharge income, and benefits from investments in service center automation as well as lumber procurement and pallet durability initiatives. These operating benefits were partly offset by input cost inflation, inefficiencies driven by changes in network flows due to COVID-19, pallet shortages in the second half, and higher asset charges in the year.
- Return on Capital Invested of 17.8% increased 1.1pts as earnings growth and limited pallet purchases due to lumber shortages in the second half of the year offset higher Average Capital Invested driven by the impact of lumber inflation on pallet prices and investments to support volume growth and supply chain initiatives.
- Free Cash Flow after dividends of US$341.2 million includes US$215 million of timing benefits, which are expected to reverse in FY22. Timing benefits reflect US$180 million of delayed pallet purchases due to lumber availability constraints and US$35 million of tax payment timing benefits. Excluding these benefits, the surplus positive Free Cash Flow delivered is US$126.2 million reflecting strong earnings, asset compensations and working capital benefits.
- 2021 final dividend of 10.5 US cents per share with total dividends for FY21 of 20.5 US cents per share resulting in a payout ratio of 54%, in line with the prior year and consistent with Brambles’ dividend policy.
- Shaping Our Future transformation plans and FY22 guidance to be outlined at the 2021 Investor Day on 13 and 14 September 2021.
A Challenging Operating Environment: Shifting Consumption Patterns and Shortages
During the year, customer demand for pallets was elevated but unpredictable, reflecting COVID-19 related increases in at-home consumption of consumer staple products and numerous changes in restrictions impacting on-premise consumption. Brexit added further supply chain uncertainty resulting in increased inventory levels and changes in demand patterns driving network inefficiencies including higher transport, handling and repair costs.
Inflationary pressures accelerated in the second half of the year with higher lumber and transport costs in all regions. Lumber costs were driven by increased demand and supply challenges which impacted pallet availability and resulted in both higher pallet CAPEX costs and increased repair costs. The impact was particularly evident in the US and resulted in record levels of lumber inflation and industry-wide pallet shortages in key markets, with manufacturers and retailers also increasing pallet balances across their operations to avoid disruptions to their supply chains. COVID-19 and Brexit, combined with lumber and transport availability constraints, drove higher operating costs and capital expenditure, impacted pallet recoveries in the US, and limited access to lumber in the second half of the year.
Brambles was able to offset operating cost increases due to inflationary pressures, demand variability, and pallet shortages through pricing, surcharge income, asset compensations, supply chain efficiencies, and other cost control initiatives across the Group. Lumber surcharge income linked to market indices in North America only partially recovered the impact of higher lumber costs in the year, which was primarily reflected in higher pallet costs included in capital expenditure and, to a lesser extent, higher lumber costs used for pallet repairs reflected in operating costs
FY21 results overview
Sales revenue from continuing operations of US$5,209.8 million increased 7% at constant currency with pricing growth of 4% and volume growth of 3%. Pricing growth reflected initiatives to recover cost-to-serve increases in all regions due to inflationary pressures and challenging operating conditions. Like-for-like volume growth of 2% reflected increased pallet demand from existing customers to support elevated levels of at-home consumption in developed markets and a return to volume growth in the automotive business which was severely impacted by COVID-19 in the prior year.
Net new business growth of 1% was primarily driven by market share gains in Central &Eastern Europe and contributions from a large Australian RPC contract win. Pallet availability constraints, particularly evident in North America, limited new customer conversions in the Americas region as the businesses prioritized servicing existing customers.
Underlying Profit and Operating profit of US$879.3 million increased 8% at constant currency reflecting the strong revenue contribution to profit, supply chain efficiencies combined with income from lumber surcharges in North America of approximately US$60 million and one-off compensation payments of US$10 million primarily relating to the compulsory relocation of a service center in the Asia-Pacific region. These contributions to profit more than offset input-cost inflation and higher operating costs as pallet availability constraints resulted in additional repairs and relocations of the existing pallet pool to support strong customer demand and changes in network flows.
Asset charges increased in the year in line with higher pallet unit costs across the Group and higher losses in the US market reflecting lower pallet returns from recyclers and other market participants. This was driven by a combination of escalating pallet prices relative to recycler incentives, transport capacity and labor availability constraints, and industry-wide pallet shortages which resulted in customer stockpiling of pallets. Profit performance in the year also included additional investments in BXB Digital and other Shaping Our Future initiatives.
Commenting on the FY21 result Brambles’ CEO, Graham Chipchase, said: “This is a strong result for Brambles as we continue to support our customers to deliver goods safely and sustainably around the world.
“I am very proud of how our teams responded to the challenges we faced in 2021 and our ability to strengthen our global leading position in sustainability while continuing to manage ongoing uncertainty across supply chains due to COVID-19, Brexit, and the unprecedented conditions experienced across global lumber markets.
“Looking forward, we are accelerating our Shaping Our Future program to transform our business to benefit our people, our customers, and our shareholders. This will include a step change in digitization and improved customer experience as well as further developing our culture of innovation and continuous improvement. We look forward to outlining our ambitions and the next phase of value creation at our Investor Day in September.”