New CEO, old story at Brambles with news of a sharp fall in full year profit (not forgetting that the downgrade in January and then confirmed at the February interim figures release) for the year to June.
Investors though snored their way through the headline and the shares eased 1.3% to $9.63, which wasn’t a bad outcome given the choppiness of yesterday’s trading here on the ASX in the wake of some mixed reports (especially from BlueScope).
The company reported a 69% slide in annual profit after absorbing a hefty impairment charge against the recycled pallets business in North America that it plans to sell.
It reported a net profit of $US182.9 million for the 12 months to June 30, down from $US587.7 million in 2015-16.
A $US243.8 million impairment charge against the CHEP Recycled business came on top of an earlier $US120 million write-down of Brambles’ investment in an oil-and-gas joint venture with Hoover Container Solutions.
In late January, the company issued a profit warning just weeks before Graham Chipchase replaced Tom Gorman as chief executive. Mr Chipchase has proceeded to wield the axe in a bit of a clean up which is now usual with a new CEO taking over from a long established predecessor.
Many of Brambles problems are to be found in North America where the company has struggled to convert pallets customers to pooling and it wasn’t able to lift prices to any significant degree to improve margins. 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 $US957.5 million, on a constant currency basis in the June 30 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 $US5.1 billion on a constant currency basis currency swings.
Directors of the company set a steady final dividend steady 14.5 cents a share, making for a full year payment of an unchanged 29 cents a share on 2015-16.
In yesterday’s announcement, the new CEO said; “We are taking steps to address the impact of increased competition and the higher network cost structure in the US pallets business.”
“These steps include a stronger focus on improving network efficiency and leveraging our global expertise to deliver additional cost savings across our operations,” Mr Chipchase said.
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, organisational 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 in commentary on the outlook.
But it warned of several one-off items would impact underlying profit growth in the 2018 financial year. These include the roll-off of a contract in its Australian reusable plastic containers business that added $US23 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 confirmed the decision to sell CHEP Recycled, which supplies and recycles more than 90 million pallets a year in Canada and the US. Brambles said a review showed 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 chairman Stephen Johns said yesterday that he would retire from the company’s board in three years time if he is re-elected for another term as chairman at this year’s annual general meeting.
