Information  X 
Enter a valid email address

Brambles Industries (BI.)

  Print      Mail a friend

Wednesday 23 February, 2005

Brambles Industries

Interim Results Part 3

Brambles Industries PLC
23 February 2005


Brambles

TRADING PERFORMANCE

Momentum in sales, comparable operating profit, operating cash flow and
improving gearing continued during the first half, with significantly improved
performance in CHEP in particular, even allowing for prior corresponding period
one-off costs in CHEP USA.

Sales from continuing businesses were £1.6 billion, an increase of 5%, or 9% in
constant currency. Sales improved in each business, especially in CHEP (up 5%)
and in Recall (up 4%), 10% and 9% respectively above the prior corresponding
period in constant currency.

Comparable operating profit (profit before interest, tax, goodwill amortisation
and exceptional items) from continuing businesses was £211 million compared with
£169 million in the prior corresponding period, an increase of 25%, or 29% in
constant currency. The improvement benefited from the non-recurrence in CHEP USA
of £11 million of one-off costs in the prior corresponding period.

Profit before tax, goodwill amortisation and exceptional items was £172 million
compared with £131 million in the prior corresponding period, an increase of
31%, or 36% in constant currency. Earnings per share before goodwill
amortisation and exceptional items were 6.9 pence compared with 5.4 pence in the
prior corresponding period, an increase of 28% (31% in constant currency).

Profit before tax after goodwill amortisation and exceptional items was £155
million compared with £93 million in the prior corresponding period, an increase
of 67%, or 72% in constant currency.

Brambles generated free cash flow of £124 million, a surplus of £57 million
after dividends. Operating cash flow after gross capital expenditure improved
significantly from £108 million to £166 million. All business segments remain
firmly focused on the more efficient use of assets (utilising the Brambles Value
Added (BVA) methodology) and on cash generation. Gearing, measured as net debt
to net debt plus equity, improved again and at 31 December 2004 was 52.7%.

BVA, calculated as comparable operating profit less a 12% capital charge, was
£27 million for the first half, an improvement of £50 million.

CHEP Americas sales growth was 2% which in constant currency was an increase of
12%. Comparable operating profit almost doubled, up 111% in constant currency.
Operational improvement programmes have resulted in significant reductions in
transportation and service centre costs.

CHEP Europe grew sales by 8% and comparable operating profit by 19%, in actual
and constant currency. The implementation of the new pricing architecture is
progressing well and is still expected to be completed by December 2005.

CHEP elsewhere continued to grow well, with strong pre-Christmas trading in
pallet pooling and new contracts in the container business.

Cleanaway sales grew 5% (6% in constant currency), with the UK particularly
strong. Comparable operating profit though was 14% below the prior corresponding
period in actual and constant currency, reflecting the costs of the closure of
Cleanaway's international headquarters in London, the impact of contract
re-tendering in Germany and start-up costs on new municipal contracts in
Australia. In the UK, the Commercial and Industrial business remained under
pressure, although there were improvements in other segments.

Recall's performance improved, with sales 4% higher (9% in constant currency)
and comparable operating profit improving by 5% (14% in constant currency). The
Document Management Services business performed well worldwide, with the UK
business in particular showing solid improvements.

                                        6

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


In Brambles Industrial Services, sales increased by 1% (4% in constant currency)
as volumes improved in the Northern Hemisphere steel business. Comparable
operating profit was steady (up 6% in constant currency) despite the adverse
short-term effect of lower Pulverised Coal Injection (PCI) volumes in Australia
which have since improved.

Within Regional Businesses, Interlake improved significantly as pricing
strengthened and previous cost containment measures resulted in improved
margins.


EXCEPTIONAL ITEMS

A net exceptional tax charge of £3 million related to deferred tax adjustments
in Cleanaway Germany, partially offset by a reduced tax liability on the sale of
Meineke Car Care Centers in 2003. There was no impact on pre-tax profit from
these items.

FINANCIAL POSITION

Cash flow from operations after gross capital expenditure again improved
significantly, up by £58 million to £166 million. Free cash flow of £124 million
was £70 million higher than the prior corresponding period and exceeded the
dividends of £67 million paid during the period.

Net interest expense was £39 million, in line with the prior corresponding
period. The favourable effect of lower average debt levels was offset by higher
interest rates in the UK and the USA.

Working capital in continuing businesses increased by £6 million. Further
improvements in debtor days were seen in CHEP USA, CHEP Europe and in Recall
Europe in particular.

Net debt declined from June 2004 by £50 million to £1,345 million. Financial
coverage ratios continued to improve, with EBITDA interest cover at 9.6 times
(1H04: 8.7 times) and net debt/EBITDA at 1.8 times (1H04: 2.3 times). Gearing
continued its steady improvement and has declined from 55.5% at 30 June 2004 to
52.7%.

In August 2004, Brambles completed a US private placement debt raising of US$425
million (approximately £233 million) with maturities in seven, ten and twelve
years. The proceeds were used to repay bank debt.

CAPITAL EXPENDITURE

Capital expenditure for the half-year was £210 million, £12 million lower than
the prior corresponding period, reflecting the disciplined approach to growth
adopted by CHEP.

Capital expenditure in CHEP was £138 million, a reduction of £24 million even
though the prior corresponding period had benefited from one-off savings in CHEP
USA. Each territory benefited from the continued focus on pallet management and
asset productivity. CHEP Americas capital expenditure was £69 million (1H04: £63
million); CHEP Europe £50 million (1H04: £80 million); and CHEP Rest of World
£19 million (1H04: £19 million).

In Cleanaway, capital expenditure reduced by £1 million to £38 million, whilst
Recall's capital expenditure was £2 million higher at £13 million. Brambles
Industrial Services capital expenditure increased by £9 million to £19 million
with investment in new and renewed contracts mainly in Australia.

Brambles' overall ratio of capital expenditure to depreciation was 1.3 times
(1H04: 1.3 times).

                                        7

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


TAXATION

Brambles' tax rate increased to 32.6% of profit before tax, goodwill
amortisation and exceptional items, reflecting the geographic mix of earnings in
particular the higher proportion of profits from the USA.

The effective tax rate is determined by the geographic mix of earnings and the
statutory tax rates in those jurisdictions. Going forward there could be a
marginal upward trend in the effective tax rate if the earnings contribution
from the USA continues to rise.

DIVIDEND

The Board has declared an interim dividend of 10 cents per share, fully franked,
for shareholders in Brambles Industries Limited and an interim dividend of 4.156
pence per share for shareholders in Brambles Industries plc. This is consistent
with the Board's stated policy of at least maintaining this level of Australian
dollar dividend per share. The dividend will be paid on 14 April 2005 to those
shareholders registered on 18 March 2005.

It is expected that the dividends will remain fully franked for Brambles
Industries Limited shareholders until at least the end of 2007.

                                        8

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


OPERATIONAL REVIEW

Throughout this operational review, all amounts are quoted at actual exchange
rates. All comparative trading measures referred to are in constant currency.
The underlying constant currency performance is shown in the table on page 4 and
a definition of constant currency is shown on page 5.

CHEP
----------------------------------------------------------------------------------------
                                   Half-year ended   Half-year ended    % Change
                                  31 December 2004  31 December 2003        
                                     Actual £m         Actual £m     Actual   Constant
£m                                                                            Currency
----------------------------------------------------------------------------------------
Sales                                  732               694           5        10
Comparable operating profit 1          137                96          43        48 
----------------------------------------------------------------------------------------                           
Operating cash flow after gross
capital expenditure                    119                65
----------------------------------------------------------------------------------------

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £136 million (1H04: £72 million) are shown on
page 22. All percentage comparisons shown below are in constant currency. The
definition of constant currency is shown in the footnote to the table on page 5.

Overall, CHEP continued to make significant progress in sales (£732 million, up
10%), comparable operating profit (£137 million, up 48%) and operating cash flow
after gross capital expenditure (£119 million, up £54 million). Continued
improvements in asset management led to capital expenditure reducing by £24
million without constraining sales growth.

CHEP AMERICAS

Sales in the Americas were £314 million, an increase of 12%, whilst comparable
operating profit improved significantly and at £52 million was 111% higher. Even
allowing for the £11 million of one-off costs in the prior corresponding period
in CHEP USA the profit growth remained substantial at 50%. Operational
efficiency improvements contributed significantly to the USA results. Canada and
Latin America also performed well.

Operating cash flow after gross capital expenditure was £50 million, an
improvement of £13 million compared with the prior corresponding period. Capital
expenditure remained tightly controlled, increasing by only £6 million to £69
million, even though the prior corresponding period benefited from £25 million
lower capital expenditure as a backlog of damaged pallets was repaired and
brought into use. These significant ongoing improvements in asset productivity
have been achieved without impeding sales growth. Working capital also improved
due to better creditor and debtor management.

In the USA, pallet pooling constitutes the vast majority of CHEP's sales. Volume
growth was strong and continued to result both from existing and from new
customers, with over 150 new contracts signed in the half.

Transportation costs have seen a significant reduction, even after adjusting for
the prior corresponding period one-off costs, and were £17 million below the
prior corresponding period. A number of initiatives have been successfully
implemented, including increased forward purchasing of known minimum transport
requirements, more effective tendering, greater use of rail transportation for
long haul, and more efficient use of transport thus reducing extra charges such
as wait time.

Operational efficiency improvements, including timber sourcing, have also
favourably impacted service centre costs.

Improvements in asset control continued throughout the period, reflected in all
key measures including cycle times and the control ratio (which measures the
number of pallets returned as a 


                                        9

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


percentage of all the pallets issued). Work is continuing to reduce the purchase 
cost of a pallet without reducing the quality or increasing the ongoing repair 
costs.

Improved pool efficiency resulted from shorter cycle times, and leaner plant
stock management at service centres from more effective supply chain management
will continue to support capital spending constraints without hampering growth.

The market for Reusable Plastic Containers (RPCs) in North America remains
competitive. Hence, sales remained flat as CHEP continued to market the benefits
of RPC's to large grocery retailers.

CHEP EUROPE

Sales in CHEP Europe were £327 million, 8% higher than the prior corresponding
period which included particularly strong beverage volumes because of the hot
summer. The implementation of the new activity-based pricing initiatives,
discussed in more detail below, is progressing well and is still expected to be
completed by December 2005.

Comparable operating profit of £57 million was 19% higher than the prior
corresponding period.

Operating cash flow after gross capital expenditure was £56 million, an
improvement of £37 million compared with the prior corresponding period. Capital
expenditure reduced by £30 million to £50 million as the combined effect of the
implementation of best practice asset management techniques and the revised
pricing architecture started to take hold.

The activity-based pricing architecture (ABPA) being introduced throughout CHEP
Europe seeks to ensure that the prices paid by CHEP's customers fairly reflect
CHEP's costs and customer usage of CHEP pallets in the light of different and
changing supply chain conditions. In addition, these initiatives are designed to
incentivise appropriately CHEP's customers to take responsibility for handling
CHEP pallets and reporting pallet movements accurately and in a timely manner.
The implementation is now more than half way through, across the whole of
Europe, and is expected to be finalised by December 2005.

The use of a common pricing mechanism throughout Europe will also allow the
development of a simplified process and a trial using a new and common invoice
has been well received.

The benefit in the first half of the restructuring programme first started in
2002 was £5 million. The effects of increased pricing and lower staff numbers
were in part offset by ongoing costs required to achieve further improvements in
control over the pallet pool. The full annualised benefit of this programme is
expected to be realised in the year to June 2006.

CHEP is also implementing a number of non-price based operational changes and
initiatives with distributors, transporters and consolidators designed to
further improve pallet control.

The container businesses contributed 17% of CHEP Europe's sales of which
autocrates performed particularly well, with increased sales and more efficient
plant operations.

CHEP - Rest of World

Sales in the CHEP businesses in the rest of the world were strong at
£91 million, an increase of 12%. The pallet business continued to show good
growth, with activity particularly strong in Australia in pre-Christmas trading.
The RPC and automotive container businesses continued to gain from the roll out
of new contracts. Asset productivity initiatives continued to drive strong
financial returns.

Comparable operating profit was £28 million, 33% above the prior corresponding
period.

                                        10

The effects of currency are shown in tabular format on pages 4 and 5.



Brambles


CLEANAWAY
----------------------------------------------------------------------------------------
                                   Half-year ended   Half-year ended    % Change
                                  31 December 2004  31 December 2003        
                                     Actual £m         Actual £m     Actual   Constant
£m                                                                            Currency
----------------------------------------------------------------------------------------
Sales                                  544              518            5         6
Comparable operating profit 1           37               43          (14)      (14)
----------------------------------------------------------------------------------------
Operating cash flow after gross
capital expenditure                     38               32
----------------------------------------------------------------------------------------

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £29 million (1H04: £32 million) are shown on
page 22. All comparative trading measures shown below are in constant currency.
The definition of constant currency is shown in the footnote to the table on
page 5.

Sales in Cleanaway were £544 million, an increase of 6%, but comparable
operating profit was 14% below the prior corresponding period. The closure of
Cleanaway's international headquarters in London adversely impacted results by
£2 million in the first half, with savings anticipated to commence in the second
half of the financial year. In addition and despite stronger results in the UK
(particularly municipal and landfill), margins were adversely affected by the
contract retendering in Germany, and by start-up costs on new municipal
contracts in Australia and lower volumes in Asia.

Operating cash flow after gross capital expenditure improved to £38 million,
despite the reduction in profit. Working capital improved in each region and
capital expenditure at £38 million was £1 million lower.

Cleanaway is well positioned in the markets in which it operates. A number of
the operational efficiency and profit improvement programmes are starting to
have a positive effect. More can still be done to maximise the potential of the
business and to gain from sharing best practice with Brambles Industrial
Services following the management restructure in August 2004.

UK

In the UK, sales were £245 million, an increase of 8%. Comparable operating
profit also improved over the prior corresponding period.

The municipal business performed well in the first half, gaining from improved
contract rates and additional more profitable short-term contracts. In 2005
Cleanaway UK achieved a success rate on tenders of just under 50%, and the
municipal order book at the end of December stood at £828 million.

Restructuring in the Commercial and Industrial (C&I) business resulted in some
redundancy costs, the benefits from which are expected in the latter part of the
financial year. Customer churn rates have remained high as Cleanaway focuses on
revenue retention at acceptable margins. The business remains under some
pressure though the management actions taken are expected to improve results in
due course.

Recycling and Disposal Services saw a growth in landfill volumes at an improved
price and mix. The Greenwich Material Recycling facility (MRF) was commissioned
in December 2004 and officially opened by Margaret Beckett, UK Secretary of
State for the Environment, in early February 2005. Total capital expenditure on
the MRF was £8 million and it is underpinned by a 23 year contract from
Greenwich Council.

                                        11

The effects of currency are shown in tabular format on pages 4 and 5.





Brambles


Germany

In Germany, sales of £185 million were 6% above the prior corresponding period
though comparable operating profit was lower.

The adverse margin impact of the first phase DSD (Packaging Recycling scheme)
contracts, which started 1 January 2004, was mitigated by operational efficiency
measures taken in previous periods. The associated re-tendering of municipal
waste paper contracts did however affect profits in the half. Contracts awarded
in the second phase of the DSD re-tendering process commenced on 1 January 2005.
As previously reported, Cleanaway has successfully gained market share in DSD as
a result of the re-tendering process and has taken action to mitigate the
associated margin reductions wherever possible.

The PET recycling business was profitable and achieved both higher volumes and
improved prices. Margins in the C&I business improved due to the impact of
increased pricing and ongoing productivity improvement measures.

Australia/New Zealand/Asia

The operating environment in Cleanaway Australia, New Zealand and Asia has been
challenging, with sales at £114 million, 2% higher than the prior corresponding
period and comparable operating profit lower. The municipal business in
Australia has seen volume growth but there have been start-up costs on new
municipal contracts in Queensland and results have also been affected by higher
fuel costs. The municipal contract order book increased to A$563 million (£289
million) at the end of December 2004.

Asia's performance was adversely affected by fewer short-term contracts and
lower landfill-gas-to-energy volumes.


                                        12

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


RECALL
----------------------------------------------------------------------------------------
                                  Half-year ended    Half-year ended    % Change
                                  31 December 2004  31 December 2003        
                                     Actual £m         Actual £m     Actual   Constant
£m                                                                            Currency
----------------------------------------------------------------------------------------
Sales                                  143              137            4         9
Comparable operating profit 1           22               21            5        14
----------------------------------------------------------------------------------------
Operating cash flow after gross
capital expenditure                     12               15
----------------------------------------------------------------------------------------


1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £16 million (1H04: £14 million) are shown on
page 22. All comparative trading measures shown below are in constant currency.
The definition of constant currency is shown in the footnote to the table on
page 5.

Recall's sales grew by 9%, of which seven percentage points represented organic
growth. The Americas accounted for 48% of the total sales and Europe 31%. Seven
small acquisitions were made during the period for a total consideration of £11
million. These included four Secure Destruction Services (SDS) businesses in
North America, an Indian business providing national coverage, and the balance
of what was previously a joint venture Document Management Services (DMS)
business in Denmark.

Comparable operating profits were £22 million, an improvement of 14%.
Significant improvements were seen in Europe, particularly in DMS in the UK. The
Sentinel acquisition made in March 2003 has now been fully integrated and
advantages have been seen from the sharing of best practice.

The DMS business accounted for 58% of Recall's sales. DMS sales were 13% above
the prior corresponding period, with strong volume growth particularly in Europe
(especially UK and the recently acquired business in Denmark) and Australia.
Recall now has 161 information centres globally, with the new state of the art
facility in Sydney due to be completed in 2005. The Integrated Document
Solutions (IDS) business which contributes 4% of Recall's sales continued to
show good growth, up 11%, with Brazil particularly strong. The combination of
our physical and digital document services into one integrated business will
result in the formation of Document Management Solutions.

In SDS, paper prices have remained high, particularly in North America. This has
encouraged lower price entrants into the market and increased customer
attrition, particularly amongst smaller customers. Sales in SDS grew by 6% and
accounted for 26% of Recall's sales. Despite this, the market remains
attractive, with growth driven by new identity theft protection laws, such as
the legislation in the USA which will require the shredding of all customer
credit documents.

Data Protection Services (DPS) showed low overall growth as the larger North
American business saw increased competition and pricing pressure, leading to
some customer losses. Profits in North America were also adversely affected by
the completion of new facilities which are not yet operating at optimal volumes.
Asia Pacific recorded strong sales and profit growth.

Cash flow remained strong, with increased capital expenditure (up £2 million at
£13 million) offset by further working capital improvements and improved
trading.

Recall's strategy remains to offer high quality products with a strong focus on
customer service. It continues to invest in sales and marketing and has now
completed the integration of the separate service line sales teams into one
integrated organisation. At the same time, the North American sales team has
been increased significantly. The increased use of Recall's new web based system
is further improving customer service.


                                        13

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


BRAMBLES INDUSTRIAL SERVICES
----------------------------------------------------------------------------------------
                                   Half-year ended   Half-year ended    % Change
                                  31 December 2004  31 December 2003        
                                     Actual £m         Actual £m     Actual   Constant
£m                                                                            Currency
----------------------------------------------------------------------------------------
Sales                                  146               144           1         4
Comparable operating profit 1           17                17           -         6
----------------------------------------------------------------------------------------
Operating cash flow after gross
capital expenditure                      -                16
----------------------------------------------------------------------------------------

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £15 million (1H04: £15 million) are shown on
page 22. All comparative trading measures shown below are in constant currency.
The definition of constant currency is shown in the footnote to the table on
page 5.

Sales in Brambles Industrial Services were £146 million, 4% higher than the
prior corresponding period. The Northern Hemisphere (approximately 48% of sales)
made good progress, with stronger volumes in the steel industry and additional
short-term contracts. However, sales in Australia were flat, with the completion
of some contracts not yet offset by growth in new areas.

Comparable operating profit was 6% higher than the prior corresponding period.
Sales in the UK improved but margins were adversely affected by fluctuating
production volumes at Port Talbot. In Australia, there was a short-term
reduction in volumes through the PCI plant which supplies BlueScope Steel,
though volumes have since recovered.

The committed order book at the end of December 2004 was £926 million. It
includes contracts in Eastern Australia which are due to start in the second
half of this financial year.

Brambles Industrial Services reported breakeven operating cash flow after gross
capital expenditure in the first half (1H04: £16 million). Capital expenditure
increased by £9 million to £19 million to support new contracts and contract
extensions, particularly in Australia with working capital also higher.

Brambles Industrial Services' strategic partnership model continues to help the
identification of real growth opportunities with existing customers on existing
sites. Further steady growth is anticipated as those contracts already awarded
come on stream and new areas of developments are identified.


                                        14

The effects of currency are shown in tabular format on pages 4 and 5.




Brambles


REGIONAL BUSINESSES
----------------------------------------------------------------------------------------
                                   Half-year ended   Half-year ended    % Change
                                  31 December 2004  31 December 2003        
                                     Actual £m         Actual £m     Actual   Constant
£m                                                                            Currency
----------------------------------------------------------------------------------------
Sales                                   64               52            23        33
Comparable operating profit 1            4                -           n/a 2      n/a 2
----------------------------------------------------------------------------------------
Operating cash flow after gross
capital expenditure                      2                -
----------------------------------------------------------------------------------------

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £4 million (1H04: loss of £21 million) are
shown on page 22. All comparative trading measures shown below are in constant
currency. The definition of constant currency is shown in the footnote to the
table on page 5.
2 Not calculated as the profit in the current year compares to breakeven in the
prior corresponding period.

Much of the improvement in the Regional Businesses came from the Interlake
racking business. High steel prices continued to inhibit volume growth, but
pricing improved and there was a positive impact from previous cost containment
measures.

Eurotainer's performance also improved, with an increase in the fleet
utilisation rate and good control of repair and maintenance costs.

TCR continued to see strong sales growth, particularly in the UK.


                                        15

The effects of currency are shown in tabular format on pages 4 and 5.





Brambles


OUTLOOK

CHEP is expected to deliver good results in all regions for the full financial
year although the rate of profit growth in the second half is expected to be
lower than in the first half. CHEP Americas should continue to trade well and
the restructuring in CHEP Europe is expected to continue to deliver benefits
through the remainder of 2005 and 2006.

Second half performance in Cleanaway is expected to be better than the first
half. Cleanaway's full year profit in constant currency is expected to be lower
than last year due to the impact of the re-tendering of DSD contracts in
Germany, costs of closure of Cleanaway's international headquarters in London
and continued challenging conditions in Australia.

Recall is expected to grow sales and profits for the full year.

Brambles Industrial Services and Regional Businesses are expected to continue to
show steady growth for the full year.

Overall, while the rate of profit growth in the second half is expected to be
lower than the first half, Brambles expects good progress for both profit and
cash generation for the full year.


                                        16

The effects of currency are shown in tabular format on pages 4 and 5.






                      This information is provided by RNS
            The company news service from the London Stock Exchange

MORE TO FOLLOW
IR UOOVRVARUURR