Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brambles Ltd (BMBLF, Financial) reported a strong financial performance for FY '24, with sales revenue growth of 7% and underlying profit growth of 17%, both ahead of guidance.
- The company achieved a significant improvement in free cash flow before dividends, amounting to USD 882.8 million, which supported a 30% uplift in total dividends.
- Brambles Ltd (BMBLF) announced two capital management initiatives: increasing the target dividend payout range and an on-market share buyback of up to USD 500 million in FY '25.
- The transformation program led to substantial improvements in customer experience, sustainability credentials, and asset efficiency, contributing to a more resilient business model.
- The company made considerable progress towards its FY '25 sustainability targets, including a 7.9% reduction in greenhouse gas emissions and a 24% reduction in injury frequency rate.
Negative Points
- Despite the overall positive performance, Brambles Ltd (BMBLF) faced challenges with volume growth due to weak macroeconomic conditions, inventory optimization, and dual sourcing initiatives by larger customers.
- The company is tracking below target in some transformation metrics, such as reducing the pallet damage ratio and achieving the target of 40% women in management roles.
- The capital cost of new pallets, although reduced by 15% from the prior year, remains higher than historic levels, impacting overall cost efficiency.
- The company expects ongoing cost-to-serve increases due to persistent labor inflation, which may continue to pressure margins.
- Brambles Ltd (BMBLF) acknowledged that the competitive landscape remains challenging, with no significant change in competitive intensity from six months ago.
Q & A Highlights
Q: My first question is about the free cash flow outlook into next year. Can you talk through some of the moving parts from FY '24 to '25?
A: Yes. We've given a guidance range of 13 to 15 percentage points of sales. There's $5 million of inventory optimization pallets that we will use in FY '25. Normalizing that, it's running at about 15.5%, still below the 17% target from Investor Day 2021. Additionally, non-higher CapEx spend in FY '25 is guided to up $130 million, continuing automation and digital spend. - Joaquin Gil, CFO
Q: Specifically around margin expansion, how significant a part of the margin story is IPEP going to be in FY '25?
A: There's still an opportunity in asset efficiency and IPEP. We expect to reduce the number of units on an uncompensated loss basis, but the average cost of pallets written off will increase. The benefit from IPEP won't be as significant as in FY '24. Operating leverage next year will be driven by operational efficiencies in supply chain and cost management. - Joaquin Gil, CFO
Q: Comments on CapEx and the 16 million pallets salvaged. How does that feed into your CapEx expectations?
A: We see an opportunity to improve that number through asset recovery and go-to-market. Benefits from digital, data analytics, and GPS units help us track pallets, and we see further runway on that. It's a more gradual progression than it has been up until now. - Joaquin Gil, CFO
Q: Competitive dynamic, has it increased in intensity, eased, or remained flat compared to six months ago?
A: Overall, there's not much change. However, there's a slightly lower intensity of customers wanting to switch to dual sourcing and signs that whitewood prices in the US have stabilized or are moving slightly upward. The competitive landscape remains competitive but not irrational. - Graham Chipchase, CEO
Q: Pricing outlook going forward given the cost to serve and commercial discipline?
A: Labor inflation is still present globally, driving cost-to-serve increases. We aim to recover these costs through pricing. The environment for our customers is tough, so we must also focus on our productivity and operational excellence. We don't see much change going forward based on current information. - Graham Chipchase, CEO
Q: Volume growth in the fourth quarter and expectations for FY '25?
A: As we cycle the period of inventory optimization, like-for-like volumes improve. We expect growth in like-for-like volume and an improvement in net new wins. Early signs of whitewood pricing stabilizing give us confidence in conversion rates improving in FY '25. - Joaquin Gil, CFO
Q: The ROCI targets in the LTI framework and their alignment with business performance?
A: After a couple of years of good performance, targets need to be stretching. Revenue targets remain in line with investor value propositions. ROCI targets are set to balance stretching goals with the need for longer-term investments like digital. - Graham Chipchase, CEO
Q: The impact of fewer pallet purchases and the availability of new pallets?
A: In Europe and the US, inventory optimization is largely complete, with some destocking expected in Australia. We're not struggling for access to new pallets, and improvements in asset productivity mean we need to purchase fewer pallets. - Joaquin Gil, CFO
Q: What do you think customers are noticing that's different from CHEP now and in the next 2-3 years?
A: Customers are noticing better on-time delivery and improved pallet quality. We're focusing on delivery, quality, and ease of doing business. Initiatives like myCHEP and proactive ordering are gaining traction. We're also emphasizing our sustainability credentials to help customers with their targets. - Graham Chipchase, CEO
Q: Shaping Our Future transformation costs and CapEx sustainability?
A: Some initiatives are becoming business as usual, but continued investment in digital and customer service improvements is expected. We'll provide more details at Investor Day. - Joaquin Gil, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
