Brambles overcomes cost issues to post solid result

Company News

by Glenn Dyer

Investors in Brambles (ASX:BXB) shares were apparently pleased with the logistics giant’s solid 2021-22 results and guarded outlook yesterday, even as it battled a 40% surge in the cost of timber (lumber) for its iconic wooden pallets.

Brambles reported that sales revenue rose 9% to 5.56 billion in the year to June from 2020-21 (on a constant currency basis).

After-tax profit jumped 18% (well in advance of inflation) to $US593.3 million.

The final dividend of 12 US cents a share (35% franked) took total dividends for the year to June 30 to 22.75 US cents a share, up from 20.5 US cents a share the year before.

Underlying profit rose 6% to $US930 million (pre-tax).

Brambles shares jumped more than 6% to $12.61 before easing a little to close the day up more than 4% at $12.35.

Looking at the coming year Brambles said that, “At constant FX rates, Brambles expects sales revenue growth between 7% and 10%; Underlying Profit growth between 8% and 11%; and Free Cash Flow after dividends to improve on FY22 but remain a net outflow.”

That’s about as strong as the company’s experience in 2021-22.

Brambles said the 2021-22 result was ahead of revised guidance and “driven by strong fourth quarter performance with better than expected pricing/mix benefits, increased asset compensations and some moderation in US transport inflation.”

Brambles also pointed out that the 9% rise in sales revenue reflected “price realisation to recover record levels of input-cost inflation and other cost-to-serve increases in all regions. Volumes in line with strong prior-year levels notwithstanding pallet availability constraints during the year.”

“Profit growth reflected effective recovery of significant cost-to-serve increases through pricing and surcharges, supply chain efficiencies and increased compensations for lost assets.”

CEO Graham Chipchase said in the ASX statement: “This is an outstanding result for Brambles in the context of a challenging, volatile and uncertain operating environment. Despite significant inflationary pressures and pallet availability constraints, we continued playing a critical role in global supply chains and delivered a strong financial result while progressing our Shaping Our Future transformation programme.”

The company revealed it had to battle a $US470 million jump in lumber (timber) costs over the year. “While we delivered operating leverage, our cash flow was impacted by lumber inflation of US$470 million with the average price of new pallets increasing ~40% during the year. Despite these cost pressures, we continued to invest in additional pallets to keep our customers’ goods moving in a pallet constrained environment.”

“Current challenges across global supply chains continue to highlight the importance of transforming our customer experience and the efficiency of our operations. Our transformation programme will deliver new capabilities for customers and further optimise our business with a broad range of initiatives, including asset efficiency and network productivity, supporting the delivery of strong financial returns and a progressive improvement in cash flow generation over the medium term.”

Global lumber markets were particularly impacted, with record levels of inflation and lumber scarcity impacting the supply and price of new pallets. These factors contributed to industry-wide pallet scarcity, further exacerbated by higher customer and retailer inventory holdings to de-risk supply chains and an increase in the unauthorised reuse of pallets in response to pallet shortages and higher market value of pallets.

For Brambles, these supply-chain dynamics resulted in lower pallet returns, extended cycle times and higher losses, impacting volume growth and operational efficiency across its network.

In response to pallet availability challenges, Brambles added resources to existing asset management activities and introduced new initiatives supported by data analytics and digital insights to increase pallet recoveries from high-risk channels. Brambles said it also implemented new processes to refurbish pallets that would otherwise be scrapped and invested in an additional 8 million pallet purchases across the globe to support its customers.

The shares rose 5% to $12.35 yesterday but some investors reckoned that strength was also due to Brambles finally deciding to exit the plastic pallets idea, which many analysts had worried was too costly.

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