AUGUST 2018
“Our US pallets business returned to historic levels of volume growth and successfully implemented contractual surcharges and repricing in response to accelerating rates of transport, lumber and labor inflation in the second half of the year. In addition to these surcharges, our teams have also commenced renegotiating contracts as they come up for renewal to ensure terms adequately cover the cost-to-serve in a higher inflationary environment. Collectively, surcharges and pricing actions offset approximately half of the inflation-related cost increases we experienced during the year. While changing customer and retailer behavior and network capacity constraints also contributed to higher plant and transport costs during the year, the accelerated automation program and procurement initiatives are expected to increase network capacity and deliver operational efficiencies progressively over the next three years.
“In Europe, our pallets businesses continued to deliver outstanding levels of volume growth as they expand with customers in both developed and emerging markets. Inflationary pressures in the region also accelerated in the second half of the year, however, resulting cost increases were largely offset by supply-chain efficiencies and contributions from annual contractual indexation.
“In Asia-Pacific, our pallet businesses in Australia and New Zealand delivered solid revenue growth and we continue to take a disciplined approach to investment in emerging markets such as China. While the CHEP RPC business in the region had a challenging year following the loss of a large contract in 2017, the team are actively pursuing opportunities to return the business to revenue growth in FY19.”
Strategic priorities
Commenting on the Group’s strategic priorities, Mr Chipchase said: “The fast-moving consumer goods and retail sectors are changing rapidly. Our customers are increasingly under pressure to meet changing consumer demands more efficiently and sustainably. As the leader in sustainable supply chains, we are uniquely positioned to help our customers navigate this evolving landscape by delivering innovative solutions that reduce both the cost and environmental footprint of their supply chains.
“In this increasingly challenging operating environment, our commitment to our strategic priorities is critical to our ability to deliver superior value for customers, shareholders and employees. In FY18, we strengthened our network advantage by funding growth in our core pooling businesses and innovation initiatives to address changing customer needs. By divesting CHEP Recycled and our interest in the HFG joint venture, we further focused our portfolio and generated proceeds which will be used to fund opportunities in high-returning businesses. Finally, through BXB Digital, we took meaningful steps towards identifying the role technology can play in improving the efficiency of our operations and providing richer insights for our customers.”
Outlook
“By delivering on our strategic priorities, Brambles expects to deliver sustainable growth and returns well in excess of the cost of capital,” Mr. Chipchase continued. “We expect constant-currency sales revenue growth 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, organisational and capital efficiencies, Brambles expects to deliver Underlying Profit growth in excess of sales revenue growth through the cycle. We will also focus on generating sufficient cash to fully fund dividends and reinvestment for growth, innovation, and the development of our people.”
Commenting on FY19, Mr Chipchase said: “FY19 Underlying Profit will continue to reflect ongoing input-cost inflation and other cost challenges. We expect the multi-year automation, procurement and pricing initiatives we are currently undertaking to progressively deliver efficiencies and earnings benefits over the medium term.”