The past year has been particularly challenging for Brambles, as it has been for the whole world. Never has our purpose as a company – “to connect people with life’s essentials, every day” – been so important.
Faced with a global pandemic, our people rose to the challenge of delivering our essential services, enabling regional and global supply chains to remain open and ensuring the continued flow of life’s essentials to communities around the world.
During this time of increased volatility and uncertainty, our teams overcame significant challenges to provide our customers with uninterrupted service and supply of pallets, crates and containers across our markets. Our success is testament to the strength of our people, the agility of our network and resilience of our ‘share and reuse’ business model, all of which have been critical in positioning Brambles as a trusted supply chain partner for customers around the world.
Throughout this period and as we look ahead, our highest priority is the health and safety of our employees and ensuring our facilities are well protected and managed to best support the needs of our customers and local communities.
We were swift in deploying additional hygiene and safety procedures across our global service centre network, sharing best practice and insights across more than 60 countries. For our office-based staff we quickly transitioned to working from home arrangements, providing our workforce with the necessary tools and support to successfully adapt to completely new ways of working.
While many countries are starting to ease out of lockdowns and are showing signs of recovery, the global Covid-19 pandemic continues to have a serious impact on people’s health and livelihoods around the world. We therefore remain vigilant in our approach and practices in relation to the health and safety of our employees, customers and the communities in which we operate.
The Covid-19 pandemic has reinforced the importance of our long-term strategic goals. We are committed to being the global leader in platform pooling solutions and insight-based solutions to fast-moving supply chains, delivered through our circular ‘share and reuse’ model.
We have refined our focus across four strategic themes to ensure we are agile and responsive to changing needs driven by increasing uncertainty and volatility. These strategic themes guide decision making across the Group and are integral to delivering superior and sustained value for customers, shareholders and employees.
We are committed to delivering customer value that enhances the sustainability and efficiency of end-to-end supply chains. We continue to invest in digital transformation, including through the Group’s in-house technology hub, BXB Digital, to create distinctive new capabilities. We are constantly seeking to improve asset and network productivity, with ongoing programmes of automation and process standardisation to enhance the efficiency and resilience of our operations. In our quest for business excellence, we are re-inventing our organisation, technology and processes to be simpler, more effective and more efficient. We are confident that the heightened focus on these strategic themes will deliver benefits to shareholders over the long-term
Our FY20 result reflects the resilience of our pallet businesses and our ability to effectively manage costs and capital expenditure across our entire portfolio. At constant currency, sales revenue increased 6% as strong volume growth and price realisation in our global pallet businesses more than offset declines in our Automotive container and Kegstar businesses, which were particularly impacted by Covid‑19-related lockdown measures. Underlying Profit increased 4% at constant currency (including the impact of AASB 162), reflecting a one percentage point improvement in US margins and ongoing progress in addressing cost pressures in Canada and Latin America. Cash generation was strong during the Year, with Free Cash Flow after ordinary dividends of US$171.5 million driven by disciplined capital allocation and effective working capital management.
2 AASB 16 - New leasing standard effective for Brambles from 1 July 2019.
At the time of the sale of its IFCO RPC business, Brambles announced that it intended to return A$2.8 billion (US$1.95 billion) of the sale proceeds to you, our shareholders, through two mechanisms.
The first was an on-market share buy-back of up to A$2.4 billion (US$1.65 billion). The share buy-back commenced on 4 June 2019 and has continued during FY20. At 30 June 2020, a total of 91,697,878 ordinary shares had been bought back and cancelled for a total consideration of A$1,049.7 million. The share buy‑back is outlined in more detail on page 9.
The second was a 29.0 AU cents per share pro-rata cash return paid to shareholders on 22 October 2019. The cash return had two components: a capital return of 12.0 AU cents per share and a special unfranked dividend of 17.0 AU cents per share. The total cash payment for the pro-rata return was A$453.8 million.
At 30 June 2020, Brambles had completed A$1.5 billion, that is 53%, of the A$2.8 billion capital management programme.
As previously communicated, during the Year Brambles moved to a payout ratio-based dividend policy, targeting a payout ratio of 45-60% of Underlying Profit after finance costs and tax, subject to Brambles’ cash requirements, with the dividend per share declared in US cents and converted and paid in Australian cents. Following the introduction of the new lease accounting standard, which means operating leases are now recorded as an asset and a liability on the balance sheet, Brambles has revised its financial policy to target a net debt to EBITDA ratio of less than 2.0 times. This financial policy is consistent with Brambles’ intention to retain its current investment grade credit rating of BBB+ from Standard & Poor’s and Baa1 from Moody’s Investor Service.
On 30 June 2020, Stephen Johns retired after six years as Chairman and a sixteen-year association with the Board. We wish to express our thanks to Stephen for his contribution to Brambles both as a Non-Executive Director and Chairman. In keeping with our ongoing Board renewal plan, changes to the composition of the Board saw the retirement of David Gosnell at the 2019 AGM after twelve years’ service, and the appointment of Nora Scheinkestel in June 2020 and Ken McCall in July 2020. Full Board biographies are on pages 26 to 29. Details of our Board skills matrix are in the Corporate Governance Statement on brambles.com
In last year’s Annual Report, we noted with great sadness the loss of a colleague in July 2019 and our commitment to learn from this tragedy.
In 2019, we launched and implemented our ‘Safety Differently’ philosophy which places greater emphasis on engaging with our team members working in our service centres around the world to understand the specifics of how they work. We also enhanced our safety standards to incorporate new defence layers to the engineering and administrative controls already in place. Extensive reviews of similar operations across our network were conducted to ensure they comply with our new enhanced safety standards. During the Year we saw a 7% reduction in lost time, modified duties and medical treatments.
At Brambles, sustainability is core to our values and central to our operating model. By promoting the shared use of our platforms among multiple supply chain participants under our circular ‘share and reuse’ model, we connect people to life’s essentials while making supply chains more sustainable. This defines what we do and who we are.
Our sustainability leadership position has been reinforced by our success in achieving many of our sustainability targets, which are outlined in detail on page 11. In 2015, we set a series of ambitious goals that were material to our business and extended throughout our value chain to build a better business, a better planet and better communities. Five years later, we are extremely proud of what we have achieved, including 100% sustainable sourcing of timber across our global operations and greater gender representation with 30% of Board, Executive Leadership Team and management‑level roles being held by women.
Achieving our 2020 sustainability goals is just the start of our sustainability journey. As we look forward, our vision is to contribute to a more positive and regenerative future. This vision will form the basis of our 2025 sustainability targets, which will be launched as part of our 2020 Sustainability Review scheduled for publication in September 2020. These targets will demonstrate Brambles’ continued commitment to lead and respond to the great environmental and social challenges of our time.
Having regard to our health and safety priorities and associated restrictions on public gatherings relating to the Covid-19 pandemic, the Board has decided to conduct this year’s Annual General Meeting as a virtual meeting. We will be sending a communication to shareholders in the near term, providing details of the meeting, including how to participate, submit questions and how to vote.
Key assumptions and inputs for FY21 outlook include:
- No further widespread lockdowns due to Covid-19 in key markets of operation;
- A U-shaped economic recovery with economic headwinds to persist for the duration of FY21;
- A slow recovery in the Automotive and Kegstar businesses; and
- The broad continuation of current trends in input costs.
Within this context, the FY21 outlook is:
- Sales revenue growth between flat to +4% at constant currency, with improved Underlying Profit margins;
- Underlying Profit growth between flat to +5% at constant currency;
- Free cash flow expected to fund dividends and core business capex with investments to support new business opportunities within the core business and to further develop digital and efficiency objectives;
- Dividend payout ratio to be consistent with our dividend payout policy of 45% to 60%; and
- Share buy-back programme to continue subject to the ongoing assessment of the Group’s funding and liquidity requirements in the context of increased volatility and economic uncertainty.
Given the unprecedented nature of the Covid-19 pandemic and resulting volatility, it is difficult to forecast with accuracy the likely impact on Brambles’ business in FY21. For this reason, Brambles will update its internal FY21 forecast after the first three months of trading and review guidance in this context. While July may not be representative of the full-year, due to the phasing of government economic stimuli and the timing of known changes in customer contracts, Group revenues in July increased on a like-for-like basis 4% on the prior corresponding period, with high levels of volatility continuing across all regions.
As a company, we enter this period of uncertainty in a position of strength. We have a strong sustainable business model, which derives over 80% of its revenues from the consumer staples sector. As proven by our response to the pandemic, we have a team of exceptional people, a customer-focused strategy and a disciplined approach to financial management. As a Board, we remain committed to maintaining a conservative balance sheet and a strong funding and liquidity profile. Collectively, we believe these inherently defensive characteristics position us well to continue delivering value for our customers, our employees and for you, our shareholders, as we face the challenges which lie ahead.
On behalf of the Board, we would like to thank you for your continued support.
Graham ChipchaseChief Executive Officer