Brambles 1H20 result: Revenue and earnings growth in every region, strong cash flow generation and US margin improvement

  • Sales revenue growth of 7% was at the upper end of Brambles’ guidance range reflecting increased price realization and robust volume growth across the Group.
  • Underlying Profit2 and operating profit up 5%1 (including the impact of AASB 163) as the strong sales revenue contribution to profit and moderation in transport and lumber inflation offset anticipated cost increases.
  • CHEP US margin up 1pt and in line with guidance, reflecting pricing and supply chain benefits associated with margin improvement initiatives.
  • Price realization and asset efficiency improvements in CHEP Latin America with initiatives on track to offset the higher cost-to-serve in the region and progressively improve margins.
  • Improvement in cash flow (excluding special dividend) driven by increased earnings, lower capital expenditure and improved cash collections across the Group.
  • Return on Capital Invested4 remains strong at 18.2% despite a (1.8)pt adverse impact from AASB 16.
  • 2020 interim dividend of 9.0 US cents, paid as 13.38 AUD cents. Payout ratio of 50% in line with the prior year.
  • Capital management program on track with special dividend and capital return completed in October 2019. Share buy-back program progressing with 51.4 million shares bought back at a cost of US$415 million.
  •  FY20 outlook: At constant FX and including the impact of AASB 16, Brambles expects mid-single-digit sales revenue growth and Underlying Profit growth to be in line with sales revenue growth.

Despite a range of challenges, Brambles delivered sales and earnings growth across all our segments and materially improved Group cash flow generation in the first half of 2020, according to Brambles’ CEO, Graham Chipchase.

“Our operating environment in the first half was characterized by increasing macroeconomic uncertainty and ongoing political instability, particularly evident in major European markets. In the US, while transport and lumber inflation continued to moderate, labor and property costs continued to increase,” he said.

“In this context, our first-half sales performance reflects the resilient nature of our business as we continue to expand with new and existing customers despite price realization to recover higher costs in most markets. Sales revenue growth of 7% was particularly strong, and above our guidance range, as the anticipated moderation in like-for-like volumes across our European pallet and automotive businesses was offset by customer contract timing benefits in the US pallet business which are not expected to repeat in the second half of the year.

“Underlying Profit growth of 5% was in line with guidance and included initial benefits from supply chain and asset management initiatives in the Americas region. As anticipated, margins in our US business started to improve with a one percentage point margin increase delivered in the half. This is in line with our stated objective to improve US margins by 2-3 percentage points through a combination of pricing, efficiency gains, and cost-out initiatives.”

In CHEP Americas, direct cost increases reflected additional transport miles and overheads associated with the enhanced asset management program in Latin America and higher block-pallet repairs in Canada. In the US, labor and property-related inflation and temporary inefficiencies during the rollout of the automation program drove an increase in plant costs. Despite these cost pressures the US business delivered margin improvement of one percentage point in the first half, in line with Brambles’ objective to improve margins by 2-3 points by FY22.

“It was also particularly pleasing to see the effectiveness of pricing and asset management initiatives in Latin America which delivered meaningful cash flow and asset efficiency benefits within the first year of implementation. We remain confident the actions we are taking in the region are on track to deliver further margin and cash flow benefits over the medium term.”