Brambles Profit Drops on U.S. Asset Impairments
21 August 2017 - 9:19AM
Dow Jones News
By David Winning
SYDNEY--Logistics company Brambles Ltd. (BXB.AU) reported a 69%
fall in annual profit after absorbing a hefty impairment charge
against the recycled pallets business in North America that it
plans to sell.
Brambles reported a net profit of US$182.9 million for the 12
months through June, down from US$587.7 million a year earlier. A
US$243.8 million impairment charge against the CHEP Recycled
business came on top of an earlier US$120 million writedown of
Brambles' investment in an oil-and-gas joint venture with Hoover
Container Solutions.
Brambles shares have fallen sharply over the past year as
management missteps rocked confidence in what had previously been
one of the Australian Securities Exchange's steadiest performers.
In late January, the company issued a rare profit warning just
weeks before Graham Chipchase replaced Tom Gorman as chief
executive.
Many of its recent problems have their roots in North America
where the company struggled to convert pallets customers to pooling
and it wasn't able to lift prices significantly. In addition,
customer destocking hit volume growth.
Underlying profit, a measure of continuing operations which
strips out financing costs, tax and one-time items, fell by 1% to
US$957.5 million, on a constant currency basis in the 2017 fiscal
year. That was broadly in line with guidance provided in the wake
of the January profit warning for a flat outcome.
Revenue rose by 6% to US$5.1 billion after stripping out the
impact of currency swings. Directors of the company held the final
dividend steady at 14.5 Australian cents a share when compared with
a year earlier.
"We are taking steps to address the impact of increased
competition and the higher network cost structure in the U.S.
pallets business," Mr. Chipchase said. "These steps include a
stronger focus on improving network efficiency and leveraging our
global expertise to deliver additional cost savings across our
operations."
Brambles said it expects sales revenue growth in the mid single
digits in the 2018 fiscal year, mainly driven by ongoing conversion
of customers to pooled solutions and a broadening of its global
footprint.
"Through the progressive delivery of operational, organizational
and capital efficiencies, Brambles expects to deliver underlying
profit growth 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,"
Brambles said.
Still, several one-off items would weigh on its underlying
profit growth in the 2018 fiscal year, the company said. These
include the roll-off of a contract in its Australian reusable
plastic containers business that added US$23 million to underlying
profit in fiscal 2017, and a planned US$7 million increase in its
investment in its BXB Digital.
Earlier this month, Brambles said the decision to sell CHEP
Recycled, which supplies and recycles more than 90 million pallets
a year in Canada and the U.S., stemmed from a strategic review that
highlighted the operations aren't a core part of the company. It
said the business hasn't delivered the financial returns needed to
generate sustainable shareholder value.
Brambles plans to focus on supply chain logistics based on the
providing reusable pallets, crates and containers, and it plans to
retain CHEP Recycled facilities that help with the repair and
recovery of the company's pooled pallets.
Brambles picked up its U.S. recycled pallet business as part of
the acquisition of IFCO Systems in March 2011, and bought the
Canadian recycled whitewood business, Paramount Pallet, in November
2011.
-Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
August 20, 2017 19:04 ET (23:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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