BXB Brambles Limited

   By David Winning 
 

SYDNEY--Logistics company Brambles Ltd. (BXB.AU) reported a sharp rise in annual profit and said it will spin off or sell a business that supplies crates for moving fresh produce to retailers in Europe, Asia and the Americas.

Brambles reported a net profit of US$747.1 million for the 12 months through June, up from US$182.9 million a year ago. The result included a US$127.9 million benefit resulting from the U.S. tax reform while US$120 million in impairment charges that weighed on its result a year ago weren't repeated.

Directors of the company declared a final dividend of 14.5 Australian cents a share, in line with the payout a year earlier.

Brambles said it has decided to spin off its IFCO RPC business, following on from February's sale of its North American recycled whitewood pallets business to a Colorado-based private equity firm for US$115 million including debt and subsequent sale of a stake in an oil-and-gas joint venture with Hoover Container Solutions.

"Although both CHEP and IFCO operate pooling models, they are distinct businesses with different financial profiles and customer propositions," Brambles said. "There is no meaningful operational overlap or customer-related synergies between CHEP and IFCO that would be lost as a result of a separation."

Brambles said it will also consider whether a sale of IFCO would be a better outcome for shareholders than a demerger.

As part of the separation, Brambles said it would "also undertake an evaluation of its capital structure to ensure it is optimal for supporting future growth and shareholder returns while still maintaining a strong balance sheet and credit profile."

Brambles has been striving to engineer a business turnaround after its stock was sold off following a rare profit warning and hefty writedowns in the 2017 fiscal year. While asset sales have steadied Brambles's share price, management has faced newer challenges with labor shortages in key markets and higher fuel prices driving up transport costs significantly. Brambles has also contended with higher lumber costs, reflecting a strong U.S. housing market and import tariffs.

Analysts expect Brambles to pass on the higher costs to customers through increased prices of its products, albeit with a time lag that could be as long as 24 months. Morgan Stanley last month said it didn't expect Brambles to get its operating leverage back until the 2020 fiscal year at the earliest.

Brambles's underlying profit, a measure of continuing operations that strips out financing costs, tax and one-time items, was flat at US$996.7 million, on a constant currency basis in the 2018 fiscal year.

Annual revenue rose by 6% to US$5.6 billion after stripping out the impact of currency swings, in line with management's expectation for sales growth of mid-single digits through the cycle. Brambles has been driving growth by converting customers to pooled solutions and broadening its global footprint.

"FY19 underlying profit will continue to reflect ongoing input-cost inflation and other cost challenges," said Chief Executive Graham Chipchase. "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."

-Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

August 23, 2018 18:53 ET (22:53 GMT)

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