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Brambles Industries (BI.)

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Wednesday 24 August, 2005

Brambles Industries

Final Results - Part 3

Brambles Industries PLC
23 August 2005


Brambles achieved a substantial improvement in trading performance for the year.

Sales from continuing businesses were £3.3 billion, an increase of 6% (8% in
constant currency) with improvements in each business. Sales for CHEP and Recall
grew by 7% and 6% respectively (9% and 8% in constant currency) whilst sales at
Cleanaway and Brambles Industrial Services were both 5% higher (6% and 5% in
constant currency).

Comparable operating profit was £452 million compared with £381 million the
previous year, an increase of 19% (20% higher in constant currency). CHEP's
comparable operating profit at £290 million was 29% higher (31% in constant
currency) with significant improvements in all regions led by CHEP Americas.
Recall improved after a challenging 2004 and at £47 million was 9% higher (14%
in constant currency). Brambles Industrial Services' comparable operating profit
grew by 12% to £38 million. Cleanaway however was 8% lower at £82 million, due
principally to lower results in Australia and the costs of the closure of
Cleanaway's international headquarters in London, but as expected had a much
better second half.

Profit before tax, goodwill amortisation and exceptional items was £378 million
compared with £307 million in the previous year, an increase of 23% (24% in
constant currency). Profit before tax, after goodwill amortisation and
exceptional items was £347 million compared with £224 million in the previous
year, an increase of 55% (56% in constant currency).

Profit after tax, goodwill amortisation and exceptional items (after minorities)
was £219 million compared with £126 million in the previous year, an increase of
74% (76% in constant currency).

Earnings per share before goodwill amortisation and exceptional items was 15.0
pence compared with 12.4 pence in the previous year, an increase of 21% (22% in
constant currency).

Brambles Value Added (BVA), calculated as comparable operating profit less a 12%
capital charge, was £80 million for the year, an improvement of £69 million.

Brambles generated free cash flow of £337 million, a surplus of £200 million
after dividends. The majority of this surplus was used to repay debt. Cash flow
from operations (after net capital expenditure) improved significantly to £488
million. All divisions remain firmly focused on the more efficient use of assets
(utilising the BVA methodology) and on cash generation.


Throughout this section, all amounts quoted in the text are 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.



                                  Year ended    Year ended        % Change
                                30 June 2005  30 June 2004
                                   Actual £m     Actual £m   Actual   Constant
Sales                                  1,488         1,394        7          9
Comparable operating profit 1            290           224       29         31
Cash flow from operations (after
net capital expenditure)                 327           230

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £288 million (2004: £179 million) are shown on
page 21.

CHEP produced a very strong performance in 2005 with an excellent increase in
contribution from CHEP Americas. Sales for the year increased by 9% while
comparable operating profit was 31% above the previous period. All regions
generated improved profitability and increased cash flow from operations (after
net capital expenditure).

Asset productivity continued to improve in CHEP with capital expenditure of £265
million being in line with prior year despite the increase in sales for the
year. These improvements are also reflected in the control ratio, one of CHEP's
key performance indicators, which measures the number of pallets returned to
CHEP from customers as a percentage of all those issued. CHEP is also continuing
to expand the number of customers that accept financial responsibility for
pallets under their control.

Across the world, CHEP continued to drive a culture of continuous improvement
using a programme called Perfect Trip which employs Six Sigma methodology.
During the year CHEP identified more areas in which best practice can be shared
across CHEP regions, hence further improving operational efficiency and
enhancing asset control. One example is a number of initiatives to improve
pallet repair consistency and cost across the entire Service Centre network. It
is expected that these improved practices and new Service Centre configurations
will be progressively rolled out worldwide over the next five years.


Sales in the Americas at £640 million were 10% higher than last year and
comparable operating profit at £111 million was 58% higher. The strong increase
in comparable operating profit was due primarily to higher volumes, improved
transport and plant costs and the non-recurrence of one-off costs incurred in
the prior year. The underlying improvement in comparable operating profit after
eliminating the impact of these one-off costs was 37%.

Cash flow from operations (after net capital expenditure) was again strong at
£127 million, an increase of £10 million over the previous year. Working capital
improved due to better creditor and debtor management. Capital expenditure only
increased by £23 million as further improvements in asset control partly
compensated for the one-off benefit in 2004 of a backlog of pallets being
brought back into use. The strong capital management discipline coupled with
sharply higher earnings contributed to a significant increase in return on
capital invested, up from 9% to 16%.

Transportation costs continued to improve and in 2005 were £25 million lower
than the previous year. In the USA, significant improvements were seen during
the year in the unit cost of delivery of pallets and in collection. The
completion of the reconfigured Service Centre network in 2003 has successfully
shortened the average length of haul for pallets and allowed the optimisation of
pallet logistics. The bulk of the anticipated benefits have now been delivered.

Plant costs in the Americas reduced by £15 million, primarily driven by the use
of lower cost Chilean lumber in pallet repairs and the non-recurrence of prior
year one-off costs. Further 


initiatives were introduced during the year to enhance consistency in pallet 
inspection. In CHEP USA, the damage ratio and conditioning ratio remained slightly 
below 30% for the full year.

Other costs were £20 million higher than the previous year, largely as a result
of an increase in irrecoverable pooling equipment provision expense. This
reflects the results of the audit programme for pallets at distributors. Pallet
audits will continue to be a feature of CHEP's asset management programme. CHEP
also continues to sign customers (existing and new) to contracts to take
financial responsibility for pallets under their control. In addition,
approximately 3.8 million pallets were returned by more than 1,150 pallet
recyclers in 2005. The number of recyclers actively participating in the CHEP
USA Asset Recovery programme continues to increase and this contributed to an
improved control ratio.

The annual customer satisfaction survey in the USA again showed improvements,
reflecting improvement in on-time delivery and customer responsiveness.

In Latin America, the business is growing strongly and in each of the region's
four countries (Mexico, Brazil, Chile and Argentina) sales growth exceeded 15%
in 2005. Profitability also grew strongly, driven by both increased sales and
improved operational efficiency.

CHEP Canada continued to increase market penetration and generate solid
improvements in profit. The pipeline of new customers should underpin further
good growth.


Sales in CHEP Europe were £660 million, 7% higher than the previous year, with
the growth coming largely from pallet pricing and from improvements in the
automotive containers business.

Comparable operating profit was 17% higher at £122 million, with the
restructuring programme contributing £11 million of the improvement.

Cash flow from operations (after net capital expenditure) was £148 million, a
significant improvement of £75 million compared with the previous year. Capital
expenditure reduced by £33 million to £92 million reflecting the impact of best
practice asset management techniques and improving asset responsibility by our
customers. Return on capital invested improved to 17%.

The rationale for the CHEP Europe restructuring programme and for the
introduction of activity-based pricing was to improve asset efficiency by better
control of the pallet pool whilst also ensuring that the prices paid by CHEP's
customers fairly reflect CHEP's costs. This realignment in pricing is expected
to be largely finalised by the end of calendar year 2005.

The sharing of best practice with other CHEP regions is expected in time to lead
to further efficiencies in transportation and plant costs. CHEP is also
implementing a number of 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. Automotive
containers performed particularly well.

CHEP - Rest of World

Sales in the CHEP businesses in the rest of the world were strong, increasing by
12% to £188 million with comparable operating profit at £57 million, 21% above
2004. The pallet business continued to show good growth, with activity
particularly strong in Australia in the first half, 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.



                                  Year ended    Year ended        % Change
                                30 June 2005  30 June 2004
                                   Actual £m     Actual £m    Actual   Constant
Sales                                  1,094         1,037        5          6
Comparable operating profit 1             82            89       (8)        (8)
Cash flow from operations (after
net capital expenditure)                  81            89

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £67 million (FY04: £60 million) are shown on
page 21.

Sales in Cleanaway were £1,094 million, an increase of 6%, but despite a much
improved second half, comparable operating profit was 8% below the previous
year. This was principally due to lower results in Australia and the closure of
Cleanaway's international headquarters in London. There were stronger results in
the UK (particularly municipal and landfill) but improvements in Germany (in
Commercial and Industrial (C&I) and PET) were offset by the impact of contract

Cash flow from operations (after net capital expenditure) remained strong at £81
million. Capital expenditure at £83 million was £1 million higher than the
previous year.

Cleanaway is well positioned in the markets in which it operates. A number of
the operational efficiency and profit improvement programmes are now having a
positive effect, as can be seen from the improved second half performance. More
will be done to optimise the potential of the business in all territories
through disciplined management including the use of tools such as Six Sigma.


In the UK, sales were £495 million, an increase of 6%. Comparable operating
profit also improved over the prior year.

The municipal business continued to gain from new contracts, improved rates and
additional more profitable short term contracts. New wins included waste
collection and street cleaning for the Royal Borough of Windsor and Maidenhead.
The municipal order book at the end of June stood at £831 million.

The C&I business showed consistent improvements in margin in the second half, as
management actions took hold. Further improvements in route density and customer
service levels are expected and Cleanaway will continue to focus on revenue
retention at acceptable margins to improve profitability.

Recycling and Disposal Services saw improvements in landfill price and a better
mix of land filled waste. The Greenwich Materials Recycling facility (MRF),
which was commissioned in December 2004, is already at break-even.

The detailed management focus on all aspects of the business using Six Sigma
methodology will continue and is expected to improve returns further,
particularly in the municipal and C&I businesses.



In Germany, sales of £360 million were 5% above the previous year with
comparable operating profit slightly lower. Notwithstanding the DSD and
associated waste paper contract re-tendering, the business had a good year.
Cleanaway 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.

Sustainable improvements have been made in other areas within Cleanaway Germany.
Significant management attention has been paid to the C&I business and has
resulted in better margins, with better pricing and ongoing productivity
improvement measures. The PET recycling business was profitable, with
improvements in volumes and in production processes.

The new TASi regulations, which require the pre-treatment of waste before it can
be sent to landfill, came into effect from 1 June 2005. The increased waste
disposal costs are expected to be passed on to end users.

Australia/New Zealand/Asia

Sales in Cleanaway Rest of World were £239 million, 6% higher than the previous
year with comparable operating profit impacted by costs related to the start up
of new municipal contracts in Queensland being higher than anticipated. There
has also been some restructuring which is designed to improve the ongoing
profitability of the business. The municipal contract order book increased to
A$950 million at the end of June 2005.

Asia's performance was adversely affected by the deferral of a number of short
term treatment and disposal contracts.



                                 Year ended    Year ended        % Change
                               30 June 2005  30 June 2004
                                  Actual £m     Actual £m     Actual  Constant
Sales                                    291           274        6          8
Comparable operating profit 1             47            43        9         14
Cash flow from operations (after
net capital expenditure)                  61            35

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £38 million (FY04: £30 million) are shown on
page 21.

Recall's sales grew by 8%, of which 6 percentage points represented organic
growth. 47% of the sales came from the Americas, with 32% from Europe.

Comparable operating profits improved by 14% to £47 million, with significant
improvements seen in Europe, particularly in Document Management Solutions (DMS)
in the UK.

Cash flow increased significantly with capital expenditure held at last year's
level of £26 million and further improvement in working capital. The sale of an
investment in Hyland Software Inc. contributed £10 million of the improvement.

The DMS business accounted for 63% of Recall's sales with DMS sales 12% above
the previous year, reflecting strong volume growth in all regions. In Europe, UK
and France in particular showed improvement. Margins in Australia benefited from
high capacity utilisation and improved labour costs. The new state of the art
facility in Sydney is due to be completed in December 2005 and the transition to
this new facility will take place towards the end of the current financial year.

Sales in Secure Destruction Services (SDS) grew 3% and accounted for 25% of
Recall's sales. Customer attrition levels were high in North America,
particularly amongst smaller customers, as lower price entrants were encouraged
into the market by the high paper prices in the first half. Paper prices have
since dropped back to more normal levels. Despite these short term issues,
strategic growth opportunities in SDS remain attractive, 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) performed well outside North America, but the
larger North American business saw increased competition and pricing pressure,
leading to some customer losses. The relative maturity of this business segment
means there is limited industry growth and resultant spare capacity.

Recall's strategy is to offer a high quality service with a strong focus on the
customer. It continues to invest in sales and marketing resources, particularly
in North America. The increased use of Recall's new web based system is further
improving customer service, with over one quarter of all work orders now
captured through it. Recall will continue to invest in new state of the art
facilities such as those in Sydney and Sao Paulo.

Eleven small acquisitions were made during the year for a total consideration of
£14 million. These included six SDS businesses in North America and the balance
of what was previously a joint venture DMS business in Denmark.



                                  Year ended    Year ended        % Change
                                30 June 2005  30 June 2004
                                   Actual £m     Actual £m   Actual   Constant
Sales                                    301           287        5          5
Comparable operating profit 1             38            34       12         12
Cash flow from operations (after
net capital expenditure)                  21            51

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £33 million (FY04: £26 million) are shown on
page 21.

Sales in Brambles Industrial Services were £301 million, 5% higher than the
previous year. The Northern Hemisphere (48% of sales) saw stronger volumes in
the steel industry for most of the year. Australia achieved solid sales but
growth was affected by the closure and divestiture of non-core businesses.

Comparable operating profit was 12% higher than the previous year with both the
Northern and Southern Hemispheres contributing to growth. In the UK and France,
higher throughput and the full year impact of new contracts favourably impacted
profitability. In Australia, the positive impact of new and renewed contracts
more than offset the effect of non-core activities previously divested or
closed. Several non-core activities were disposed of during the year.

The committed order book at the end of June 2005 was almost £1 billion.

During the year, Brambles Industrial Services in Australia won a number of
contracts for mine site haulage utilising innovative technology of powered
trailers, along with a contract at BlueScope Steel for automatic guided vehicles
(AGVs) for handling coil products. Capital expenditure increased by £23 million
to £47 million to support these new contracts and contract extensions.



                                  Year ended    Year ended        % Change
                                30 June 2005  30 June 2004
                                   Actual £m     Actual £m   Actual   Constant
Sales                                    133           117       14         19
Comparable operating profit 1              9             5       80         80
Cash flow from operations (after
net capital expenditure)                   7             9

1 A definition of comparable operating profit and a reconciliation to statutory
profit before interest and tax of £9 million (FY04: loss of £16 million) are
shown on page 21.

Regional Businesses continued to recover strongly led by the Interlake racking
business. Improved pricing and the impact of a number of cost initiatives
contributed to Interlake's improved profitability.

Eurotainer's performance also improved, with growth in the number of containers
coupled with an increase in the fleet utilisation rate only partially offset by
the weaker US dollar. The global demand for containers remains strong and an
acute shortage of new gas tanks following the bankruptcy of a major container
manufacturer is pushing up some short term pricing.

TCR continued to see strong sales growth on the back of contract wins in the UK
and this underpinned a strong lift in profit.



There were no material divestments in the year.

In 2005, the net effect of exceptional items after tax was nil. An operating
exceptional charge for deferred tax adjustments in Cleanaway Germany was offset
by a non-operating profit on Recall's sale of its investment in Hyland Software
Inc and a reduced tax liability on the sale in 2004 of Meineke Car Care Centers,
Inc, also shown as a non-operating exceptional item.


Cash flow from operations (after net capital expenditure) again improved
significantly to £488 million, up £88 million from the previous year. Free cash
flow of £337 million was also £88 million higher than the previous year. Free
cash flow after dividends was £200 million.

Net interest expense remained steady at £74 million. The lower average
outstanding debt balance was offset by higher interest rates and the impact of
the lengthened maturity profile from the US Private Debt placement.

Working capital reduced by £22 million reflecting the significant progress that
has been achieved in recent years, particularly on debtor days and ongoing tight
control over creditors.

Net debt declined by £165 million to £1,230 million at 30 June 2005. Financial
coverage ratios continued to improve, with EBITDA interest cover at 10.5 times
(2004: 9.6 times) and net debt/EBITDA at 1.6 times (2004: 2.0 times).

Gearing (measured as net debt/net debt plus equity) declined to 49.7% from 55.5%
in the previous year.


Capital expenditure for the year was £428 million, £30 million above the
previous year. This reflected the ongoing disciplined approach to asset
allocation, particularly in CHEP, offset by investment in new contracts in
Brambles Industrial Services.

In CHEP, capital expenditure at £265 million was £1 million above the previous
year. CHEP Europe achieved a reduction in capital expenditure of £33 million as
a result of initiatives designed to improve asset control, particularly the flow
of pallets to non-cooperative distributors. This was offset by a £23 million
increase in capital expenditure in CHEP Americas resulting from the absence of a
one-off reduction in un-repaired pallet stocks in 2004 and strong sales growth.
Expenditure in CHEP Rest of World increased to support strong sales growth of
pallets and RPCs.

Capital expenditure in Cleanaway was £83 million (2004: £82 million), in Recall
£26 million (2004: £26 million) and in Brambles Industrial Services £47 million
(up £23 million, reflecting new contracts and contract re-wins particularly in

The ratio of capital expenditure to depreciation was 1.3 times (2004: 1.2


Brambles' tax rate rose from 31.6% in 2004 to 32.5% of profit before tax,
goodwill amortisation and exceptional items.

The effective tax rate is determined by the geographic mix of earnings and is
expected to trend marginally higher if the earnings contribution from the USA
continues to rise.


The Board has declared a final dividend of 11.5 cents per share, fully franked,
for shareholders in Brambles Industries Limited (BIL) and a second interim
dividend of 4.815 pence per share for shareholders in Brambles Industries plc
(BIP). The total dividend for the year will therefore be 21.5 cents for BIL
shareholders and 8.971 pence for BIP shareholders, the increase when compared
with 2004 reflecting the significantly improved earnings and cash flow in 2005.
This is consistent with the Board's stated progressive dividend policy. The
dividend will be paid on 13 October 2005 to those shareholders registered on 23
September 2005.

For Brambles Industries Limited shareholders, both the interim and final 2005
dividends are fully franked. It is expected that the dividends in respect of the
2006 financial year are likely to remain fully franked.


The 2005 Annual General Meeting of Brambles Industries plc will be held in
London on Tuesday 25 October and the Brambles Industries Limited meeting will be
held in Sydney on Friday 11 November.


CHEP is expected to deliver good growth in all regions in 2006, driven by
continued sales growth and benefits from operational improvements that have
already been implemented.

Cleanaway is expected to show a marked improvement in performance in the year
ahead as a result of improvements in the UK and benefits from the closure of
Cleanaway's international headquarters. Further margin improvements in the
Commercial and Industrial sector in Germany are expected to offset the full
twelve months impact of the DSD re-tendering and Australia is expected to
rebound in 2006.

Recall is expected to see continued growth in sales and profit.

Brambles Industrial Services and Regional Businesses are likely to deliver an
improved performance in 2006.

In the early part of the current financial year the Group is performing well.
Brambles expects further good progress in profit and solid cash generation for
the year ahead.


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