Brambles

Letter from the CEO
Graham Chipchase

Cash Flow from Operations2

US$892.4m

Up US$300.9m

In FY18, we addressed the fundamentals of the business and set the foundations for sustainable value creation in an increasingly challenging operating environment.

As my first full year as CEO of Brambles, FY18 was focused on implementing the strategic, operating and financial initiatives required to support our long-term success. It was pleasing to see these initiatives start delivering meaningful improvements in cash flow generation and growth momentum despite increasingly challenging operating conditions during the Year. We have also taken a number of strategic portfolio actions, including the decision to separate IFCO, which highlight our commitment to maximising shareholder value over the long term.

Operating Environment

In FY18, we experienced significant input-cost inflation, particularly in the US and Europe. At the same time, our customers are increasingly turning to our business to deliver additional cost savings and efficiencies in their supply chains.

We know that our customers are being asked to meet changing patterns of demand. Consumers want things faster, easier, and cheaper – while at the same time expecting businesses to shrink the environmental impact of their operations. We will succeed by leveraging our global scale and industry-leading expertise to help our customers rise to this challenge, and by building the smarter and more sustainable supply chains of the future.

Return on Capital Invested2

16.1%

Down 0.9 percentage points at constant-currency

Strategic Priorities

In this operating context, delivering against our five strategic priorities is critical to maintaining our industry-leading position, remaining the partner of choice for customers, while delivering sustainable growth and attractive returns for shareholders over the long term.

That is why we continue to focus on strengthening our network advantage by funding growth in our core pooling businesses. We are also fostering a culture of innovation to ensure we are faster and more responsive to our customers’ needs and through BXB Digital, we are taking meaningful steps towards identifying the role technology can play in improving the efficiency of our own operations as well as providing richer customer insights.

In response to increasing inflationary pressures and structural cost increases, we implemented pricing initiatives and committed to multi-year automation and procurement programmes which will deliver cost, cash and capital efficiencies over the medium term. Details of our strategic priorities can be found on page 8 in the Operating & Financial Review.

Separation of IFCO

Our decision to separate IFCO is in line with our strategic priorities. Although both CHEP and IFCO are pooling businesses, they are materially different in nature, with distinct financial profiles, offerings and customer bases. There is limited operational overlap and no material customer-related synergies that will be lost on separation. As separate entities, Brambles and IFCO will have greater focus on their distinct strategic agendas and increased flexibility to pursue growth opportunities. For shareholders, a separation provides focused investments in two world-class, global businesses that are positioned for long-term success.

Brambles Injury Frequency Rate (BIFR)

4.7

Down from 6.6 in FY17

FY18 Financial Performance

Brambles delivered strong constant-currency sales revenue growth of 6%, reflecting ongoing expansion with new and existing customers in key CHEP pallet and IFCO markets, as well as price realisation in US pallets, emerging markets and IFCO North America. Underlying Profit remained in line with the prior year despite inflationary cost pressures, direct cost challenges in CHEP Americas and the adverse impact of RPC and automotive contract losses in CHEP Australia, which we announced to the market in 2016. Our cash flow generation improved significantly during the Year as Cash Flow from Operations increased by US$300.9 million and we delivered positive Free Cash Flow after dividends for the first time since FY15. A full analysis of our financial results is on pages 15 to 18 in the Operating & Financial Review.

People, Safety & Sustainability

Every day, our 12,000 employees work together to support our customers and share the knowledge we’ve developed over 70 years of managing supply chains across six continents. It’s their passion and drive that makes Brambles such a great business and I’d like to thank them for their efforts over the past year. I am extremely proud that our safety performance once again improved in FY18 and that we continue to progress towards our 2020 sustainability goals. Our sustainability framework is outlined on page 6 of the Operating & Financial Review, and further details about our 2020 sustainability goals are located on our website. Our full Sustainability Review for 2018 will be published in September.

Outlook

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.

We believe our continued focus on our five strategic priorities will deliver sustainable growth at returns well in excess of the cost of capital. We expect constant-currency sales revenue growth in the mid-single digits and Underlying Profit growth to exceed 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.

Graham Chipchase
Chief Executive Officer

 

2 Continuing operations