Brambles Profit Drops on U.S. Asset Impairments

Logistics company Brambles Ltd. (BXB.AU) reported a 69% fall in annual profit after absorbing a hefty impairment charge against the recycled pallets business in North America that it plans to sell.

Brambles reported a net profit of US$182.9 million for the 12 months through June, down from US$587.7 million a year earlier. A US$243.8 million impairment charge against the CHEP Recycled business came on top of an earlier US$120 million writedown of Brambles' investment in an oil-and-gas joint venture with Hoover Container Solutions.

Brambles shares have fallen sharply over the past year as management missteps rocked confidence in what had previously been one of the Australian Securities Exchange's steadiest performers. In late January, the company issued a rare profit warning just weeks before Graham Chipchase replaced Tom Gorman as chief executive.

Many of its recent problems have their roots in North America where the company struggled to convert pallets customers to pooling and it wasn't able to lift prices significantly. 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 US$957.5 million, on a constant currency basis in the 2017 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 US$5.1 billion after stripping out the impact of currency swings. Directors of the company held the final dividend steady at 14.5 Australian cents a share when compared with a year earlier.

"We are taking steps to address the impact of increased competition and the higher network cost structure in the U.S. pallets business," Mr. Chipchase said. "These steps include a stronger focus on improving network efficiency and leveraging our global expertise to deliver additional cost savings across our operations."

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, organizational 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.

Still, several one-off items would weigh on its underlying profit growth in the 2018 fiscal year, the company said. These include the roll-off of a contract in its Australian reusable plastic containers business that added US$23 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 said the decision to sell CHEP Recycled, which supplies and recycles more than 90 million pallets a year in Canada and the U.S., stemmed from a strategic review that highlighted the operations aren't a core part of the company. It said 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 picked up its U.S. recycled pallet business as part of the acquisition of IFCO Systems in March 2011, and bought the Canadian recycled whitewood business, Paramount Pallet, in November 2011.

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

(END) Dow Jones Newswires

August 20, 2017 19:04 ET (23:04 GMT)