Brambles cashes in on pandemic demand

The pallets and logistics major also upgraded its 2021 profit and revenue forecasts.

A big increase in consumer demand during the COVID-19 pandemic helped boost the company’s CHEP pallet business. Picture: Bloomberg

Pallets and logistics major Brambles benefited from strong consumer demand during the COVID-19 pandemic, spurring a five per cent increase in first half net profit and an upgrade in earnings guidance for the 2021 financial year.

Its consumer staples business, which represents about 80 per cent of its revenue, cashed in as retailers boosted their stock levels in response to lockdowns and more people staying at home along with Brexit uncertainty.

Brambles — which owns the ubiquitous CHEP pallets business which has a large exposure to the fast-turnaround food sector — said underlying profit rose five per cent to $US465m ($597m) on a constant currency basis in the half year with sales revenue up six per cent to $US2.56bn.

It also upgraded its guidance for 2021 underlying profit growth to 5-7 per cent from the prior 3-5 per cent range, on a constant currency basis, with revenue tipped to lift 4-6 per cent from 2-4 per cent previously.

While customer demand will remain strong for the second half of the 2021 financial year, revenue growth will moderate from the six months to December 31 with record levels of pallet demand easing from a year earlier. Brexit demand is also expected to reverse in the second half.

Operational costs rose during the half as changes in customer demand patterns resulted in extra pallet collection along with a hike in repair costs and wage inflation, partly offset by an accelerated automation program and increased prices.

Its automotive and beer keg business suffered big falls due to manufacturing shutdowns and government lockdowns.

Revenues were down six per cent and 56 per cent respectively as the pandemic persisted with less people driving and more pubs closed.

“While the recovery of automotive production has been stronger than anticipated, customer demand remains below prior-year levels and we maintain a cautious outlook for the business in the second half of the year,” Brambles said.

The Australian multinational declared an interim dividend of 10c per share which translates to an Australian dollar payout of 13.08c per share, with franking of 30 per cent.

Chief executive Graham Chipchase said Brambles is predicting a dividend payout ratio of 45 to 60 per cent for the year, in line with its payout policy, while its share buyback program will continue “subject to the ongoing assessment of the group’s funding and liquidity requirements in the context of increased economic uncertainty”.

Brambles sold its IFCO RPC business that supplies crates for moving fresh produce to retailers in Europe, Asia and the Americas for $US2.4bn to the Abu Dhabi Investment Authority in February 2019. It had investigated separating the business either through a demerger or a sale.

The company’s results were released after the market closed on Tuesday. Brambles rose 0.2 per cent to $10.42.