Brambles, a supplier of reusable pallets, crates and containers for the supply chain industries, recorded strong revenue growth but its profit was much lower in the first half of its financial year, according to results released to the Australian Stock Exchange.
Sales revenues were up three percent in the first half of the Australian financial year (which runs from July to June) to stand at US$2.56 billion. Brambles only reports in U.S. dollars.
Revenues were driven by “momentum across all segments” and “improved price realisation.” Sales growth was driven by expansion with new and existing customers in “CHEP” pallet operations, in its Europe-Middle East-Africa (EMEA) automotive business and its IFCO RPC business. Price realisation around the world was said to be “strong.”
However the company did less well on profits.
On a “constant” currency basis, calculated by converting reported results into U.S. dollars at the actual monthly foreign exchange rates applicable in the prior corresponding period, the company said underlying profit (a non-statutory term) and operating profit increased by one percent. However, on an actual foreign exchange basis, operating profit fell by three percent to stand at $498.9 million; this was attributed to “inflationary cost pressures in major markets and higher cost-to-serve.”
Brambles indicated that it had experienced challenges with higher transport costs, network inefficiencies and ongoing higher cost-to-serve in Latin America. Transport costs increased due to availability constraints and higher fuel costs, the company reported. Increases in wages were also “elevated” in most markets, affecting both direct and overhead costs, it added.
In the U.S., the company’s pallets business experienced higher transport, storage and plant costs because of inefficiencies associated with network capacity constraints, changes in retailer and customer behavior and increased investment in U.S. pallet quality.
“In response to sustained levels of elevated cost inflation in most major markets, our businesses implemented surcharges and exercised contractual indexation clauses to offset three-quarters of the inflationary cost increases experienced during the period. Our teams continue to focus on aligning contractual terms and pricing with the prevailing cost-to-serve in each region,” Brambles CEO Graham Chipchase explained.
Return on capital invested declined by 0.3 percentage points on a constant currency basis, which reflected the profit performance, capital expenditure and increased investment in U.S. supply chain efficiency programmes.
Profit after tax took a major hit at 27 percent (actual foreign exchange basis) to stand at $319.8 million. This was attributed to “a cycling of a $103.2 million non-cash tax benefit recognised in the first half of 2018 as a result of U.S. tax reform.” However, the company added that it had recorded a one percent underlying profit increase (on a constant foreign exchange basis) to stand at $504.4 million.