Spike and slide as Brambles rides viral wave

The coronavirus pandemic has placed heavy cost strains on supply chain company Brambles.

The coronavirus pandemic has placed heavy cost strains on supply chain company Brambles. Picture: Bloomberg

The coronavirus pandemic has placed heavy cost strains on supply chain company Brambles as it shifts its pallets and containers all over the world, booking strong sales in key segments but suffering revenue collapses in other markets such as transporting beer kegs.

Brambles on Wednesday posted a 68 per cent slide in its full-year net profit as it accounted for the previous sale of its IFCO containers business, while at its continued operations the pandemic drove a spike in pallet demand across the globe but at higher costs as its own supply chain was pressured to keep up.

The pallet and logistics business was at the coal face of the coronavirus crisis as it turned from an outbreak in China to a pandemic, with parts of its operations supplying core retailers rushed off their feet but other supply activities within Brambles such as its transport of beer kegs shaken by worldwide closures of pubs, clubs and hotels.

The rush of demand for consumer items as the coronavirus spread from Europe to the US and Africa helped its pallet business, especially in the fourth quarter as demand rocketed, but there was a decline in sales for its automotive and kegs units that represent about 5 per cent of group revenue.

Lockdowns and pub closures especially pinched sales between March and June for Kegstar, which transports beer, wine and cider, and collectively automotive and Kegstar suffered a 50 per cent dive in sales in the fourth quarter that stung Brambles’ underlying profits by $US23m. Brambles booked a $US28m impairment against Kegstar because of the impact of COVID-19 and ongoing uncertainty about the future strength of the craft beer segment.

Together with the absence of its IFCO business that it sold last year for $US2.5bn, statutory net profit for Brambles sank 68 per cent to $US448m. However, underlying profit on continuing operations in constant currency rose 4 per cent to $US795m.

Sales revenue lifted 6 per cent to $US4.733bn as strong revenues from its core global pallet business offset cost inefficiencies caused by COVID-19 and falling sales for its automotive and keg operations.

The company said COVID-19 started affecting Brambles’ largest businesses in March as the virus spread across Europe and North America, followed by Latin America and Africa. These impacts varied across regions and Brambles’ portfolio of businesses.

“Approximately 80 per cent of Brambles’ revenues are derived from customers in the consumer-staples sectors, which are primarily serviced by the pallet businesses. During March and April 2020, the pallet businesses experienced strong levels of customer demand across global grocery supply chains,” it said.

This initial surge in activity was followed by a period of high volatility in demand during May and June as regions across the globe progressed through different phases of the pandemic. But the revenue spike came at a cost.

“While revenue growth increased in line with higher pallet volumes, servicing the additional customer demand and managing volatility and disruptions across Brambles’ network led to higher supply-chain costs during the period from March to June 2020.

“These cost increases largely related to additional transport, handling and repair costs required to ensure continuity of pallet supply while minimising the level of capital expenditure to service these temporary spikes in customer demand.”

Assuming no further widespread lockdowns in its markets and a U-shaped economic recovery, Brambles is forecasting underlying profit growth in 2021 of flat to 5 per cent. The company declared a final dividend of US9c, payable on October 8.