Revenue of US$2,744.7 million for the 6 Months Ending Dec 2016
1H17 Results ASX and Media Release
- Sales revenue up 5% at constant currency(1), reflecting solid growth with new and existing customers in Pallets Europe and Pallets Latin America, continued expansion in RPCs and Containers, and modest growth in Pallets North America.
- Statutory operating profit down 26% at constant currency, reflecting Significant Items of US$138.5 million which included a US$120 million non-cash impairment of the Group's investment in the Hoover Ferguson Group (HFG) joint venture. Excluding the impact of the HFG impairment, operating profit increased 1%.
- Underlying Profit(2) up 3% at constant currency, reflecting strong profit growth in both RPCs and Containers and the impact of the profit decline in Pallets North America.
- Pallets North America performance impacted by lower sales revenue growth and direct cost challenges:
o Increased competitive pressure resulted in lower-than-expected pricing and lower net new business growth in the pooled pallet businesses, and a revenue decline in the recycled pallet operations;
o Ongoing direct cost pressures associated with the network, partially offset by supply-chain efficiencies; and
o Customer destocking reduced like-for-like volume growth in the second quarter and drove additional transport, repair and storage costs associated with increased levels of pallet returns.
- Cash Flow from Operations down US$26 million reflecting higher capital expenditure in Pallets Europe, Pallets Latin America and RPCs, which more than offset a reduction in Pallets North America.
- Return on Capital Invested (ROCI)(3) down 1.3pp at constant currency, due to higher growth in Average Capital Invested, particularly in Pallets EMEA and Pallets Americas, and lower Underlying Profit margins.
- Interim dividend unchanged at 14.5 Australian cents per share, with franking of 25%.
- Revised FY17 guidance at constant-currency:
o Sales revenue growth expected to be in line with 1H17
o Underlying Profit expected to be flat to FY16
o FY17 growth capex expected to be approximately US$350 million
- FY19 targets withdrawn. Going forward, the Group will not provide medium-term targets. Management will seek to deliver ROCI outcomes which strike a sustainable balance between financial returns and growth.
1H17 result Growth vs. 1H16 Continuing operations (Actual FX) (Actual FX) (Constant FX) Statutory basis Sales revenue US$2,744.7m 4% 5% Operating profit US$330.4m (27)% (26)% Profit after tax US$162.3m (44)% (42)% Basic earnings per share US10.2¢ (45)% (43)% Interim dividend per share AU14.5¢ - - Non-statutory basis Underlying Profit US$468.9m 1% 3% Cash Flow from Operations US$225.0m (25.6) Underlying Profit after tax US$295.3m - 2% Underlying earnings per share US18.6¢ (1)% 1% Previous Return on Capital Invested (ROCI)(4) 14.8% (1.3)pp (1.3)pp Updated Return on Capital Invested (ROCI)(3) 15.9% (1.4)pp (1.3)pp
(1) Constant currency is calculated by translating reported period results into US dollars at the actual monthly FX rates applicable in the prior corresponding period.
(2) A non-statutory measure that represents profit from continuing operations before finance costs and tax and excludes Significant Items. At 30 June 2016 FX rates, 1H17 Underlying Profit translates to US$472 million.
(3) Underlying Profit, annualised, and divided by a six-month average of capital invested: capital invested is calculated as net assets before tax balances, cash and borrowings, but after adjustment for actuarial gains or losses and net equity adjustments for equity-settled share-based payments.
(4) Underlying Profit, annualised, and divided by a six-month average of capital invested: capital invested is calculated as net assets before tax balances, cash and borrowings, but after adjustment for accumulated pre-tax Significant Items, actuarial gains or losses and net equity adjustments for equity-settled share-based payments.
Brambles generated sales revenue of US$2,744.7 million in the six months ended 31 December 2016 (1H17), up 4% on the previous corresponding period. Constant-currency growth of 5% reflects: solid like-for-like volume growth and higher levels 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.
The Board has declared an interim dividend of 14.5 Australian cents per share which is in line with both the 2016 interim and final dividends. The 2017 interim dividend is franked at 25% and payable on Thursday 13 April 2017 to shareholders on Brambles' register at 5pm on Thursday 9 March 2017. The non-underwritten Dividend Reinvestment Plan (DRP) will remain in place for this dividend and will attract a zero discount. Brambles will continue to neutralise any dilutive impact on earnings per share of the DRP through the transfer of existing shares to participating shareholders, via on-market purchases.
Brambles' CEO Tom Gorman said: "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.
"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."
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.
Brambles' Chairman, Stephen Johns said: "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.
"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."
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About Brambles Limited
Brambles Limited (ASX:BXB) (OTCMKTS:BXBLY) (FRA:R1H) is a supply-chain logistics company operating primarily through the CHEP and IFCO brands. Brambles enhances performance for customers by helping them transport goods through their supply chains more efficiently, sustainably and safely. The Group's primary activity is the provision of reusable unit-load equipment such as pallets, crates and containers for shared use by multiple participants throughout the supply chain, under a model known as "pooling". Brambles primarily serves the fast-moving consumer goods (e.g. dry food, grocery, and health and personal care), fresh produce, beverage, retail and general manufacturing industries, counting many of the world's best-known brands among its customers. The Group also operates specialist container logistics business serving the automotive sector. Brambles has its headquarters in Sydney, Australia, but operates in more than 60 countries, with its largest operations in North America and Western Europe.
Brambles employs more than 14,500 people and owns more than 550 million pallets, crates and containers through a network of more than 850 service centres. For further information, please visit www.brambles.com.