Brambles : 1H16 Results ASX and Media Release

Microsoft Word - Brambles 1H16 Result ASX Announcement Cover letter 22 February 2016

22 February 2016

The Manager - Listings

Australian Securities Exchange Limited Exchange Centre

20 Bridge Street

SYDNEY NSW 2000

Via electronic lodgement

Dear Sir / Madam

Brambles Limited

ABN 89 118 896 021

Level 40 Gateway 1 Macquarie Place Sydney NSW 2000 Australia

GPO Box 4173 Sydney NSW 2001

Tel [phone] Fax [phone]

www.brambles.com

Brambles reports results for the half-year ended 31 December 2015

Attached is a release to the Exchange from Brambles Limited on its financial report for the half- year ended 31 December 2015.

Yours faithfully

Brambles Limited

Robert Gerrard

Group Company Secretary

This page has intentionally left blank

{RNG 00087786}

Brambles 1H16 Underlying Profit1 up 10% at constant currency2 on strong Pallets performance; FY16 sales and Underlying Profit guidance lifted

• Sales revenue up 8% at constant currency, driven by new business wins, sales mix and like-for-like volume growth in Pallets globally, and expansion with new and existing retailers in European RPCs
• Strong profit growth reflects margin improvement in Pallets operations worldwide:

  • Statutory operating profit up 12% at constant currency

  • Statutory profit after tax up 14% at constant currency

  • Underlying Profit (which excludes Significant Items3) up 10% at constant currency

• Disciplined capital allocation across the portfolio:

  • Growth capital expenditure primarily supporting well-established Pallets and European RPCs businesses

  • Lower new investment elsewhere: total FY16 growth capex to be below US$500 million previously forecast

  • Focus on all business units' ability to deliver satisfactory scale and returns

• Interim dividend increased to 14.5 Australian cents per share, up 0.5 Australian cents, 25% franked4:

  • Non-underwritten Dividend Reinvestment Plan to remain in place at 1.5% discount

• Guidance increased for FY16 sales revenue and Underlying Profit growth:

  • Growth now expected of 8%-10%, at constant currency, compared with previous range of 6%-8%

  • New guidance translates to Underlying Profit of US$1,015-1,035 million at 30 June 2015 exchange rates5

1H16 result		Growth vs. 1H15
(Continuing operations)	(Actual FX)	(Constant FX)	(Actual FX)	(Constant FX)

Results Highlights

Statutory basis Sales revenue	US$2,752.2M	US$3,026.0M	(2)%	8%
Operating profit	US$462.7M	US$521.0M	(1)%	12%
Profit after tax	US$290.9M	US$325.4M	2%	14%
Basic earnings per share	US18.5¢	US20.7¢	1%	13%
Interim dividend per share	A14.5¢	A0.5¢
Non-statutory basis
Underlying Profit	US$473.8M	US$532.4M	(2)%	10%
Underlying Profit after tax	US$296.3M	US$330.7M	(2)%	10%
Underlying earnings per share Return on Capital Invested (ROCI)6	US18.8¢ 14.7%	US21.0¢ 15.2%	(3)% (0.8)pts	9% (0.3)pts
ROCI, excl. acquisitions since Dec 20137	16.1%	16.6%	0.1pts	0.6pts

Brambles generated sales revenue of US$2,752 million in the six months ended 31 December 2015 (1H16),

down 2%, as a result of the translational impact of the strengthening of Brambles' reporting currency, the US dollar, relative to other currencies of operation.

[Commentary continues on next page.]

1 A non-statutory measure that Brambles uses as a key internal performance indicator. It represents profit from continuing operations before finance costs and tax and omits Significant Items, thereby providing a clearer indication of profit trends over time. Underlying Profit is clearly reconciled to statutory operating profit in the segment note on page 10 of Brambles' 1H16 financial statements.

2 Calculated by translating reported period results into US dollars at the actual monthly exchange rates applicable in the prior corresponding period.

3 Items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: outside the ordinary course of business; or part of the ordinary activities of the business but unusual because of their size and nature.

4 The unfranked component of the interim dividend is conduit foreign income. Consequently, shareholders not resident in Australia will not pay Australian dividend withholding tax on this dividend.

5 At 30 June 2015 exchange rates, Brambles' FY15 Underlying Profit of US$986 million translates to US$943 million and the 1H16 Underlying Profit of US$474 million translates to US$491 million.

6 Underlying Profit, annualised, and divided by Average Capital Invested (defined in footnote 4 on page 4).

7 In December 2013, Brambles set an objective to achieve ROCI of 20% by FY19, prior to the impact of any future acquisitions or divestments. As such, the following acquisitions made since December 2013 - Airworld, Braecroft, Ferguson Group, IFCO Japan, Kegstar, Rentapack and Transpac - are excluded from ROCI for the purpose of comparison.

At constant currency, sales revenue was up 8%. The largest contributors to growth were: strong new business wins in the Pallets operations, in particular in the USA pooling operations; increased like-for-like volumes and sales mix benefits in the developed market Pallets operations; and retailer expansion in European RPCs.

Underlying Profit, which is a non-statutory measure of operating profit that excludes Significant Items, was US$474 million, down 2%. At constant currency, Underlying Profit was up 10%, primarily reflecting incrementally

positive margins on sales growth and improved cost performance in the Pallets business. Underlying Profit after tax was US$296 million, down 2% (up 10% at constant currency).

Return on Capital Invested was 14.7%, down 0.8 percentage points (down 0.3 percentage points at constant currency) reflecting the impact on capital invested of acquisitions since the start of 1H15. Excluding the impact of all acquisitions since December 2013 (the basis at which Brambles is targeting Return on Capital Invested of 20% by FY19), Return on Capital Invested was 16.1%, up 0.1 percentage points (up 0.6 percentage points at constant currency).

Cash Flow from Operations8 was US$260 million, down US$8 million. Although underlying EBITDA increased strongly at constant currency, supporting increased growth capital expenditure, it was insufficient to offset fully the translational impact of non-US dollar earnings. Free Cash Flow9 after dividends was positive at US$37 million.

Growth capital expenditure was US$203 million, driven by investment in Pallets and European RPCs but lower levels of new investment elsewhere. Brambles now anticipates total growth capital expenditure for FY16 will be lower than the US$500 million previously forecast as a result of lower investment in Containers and North American RPCs.

Dividend

The Board has declared an interim dividend of 14.5 Australian cents per share, up 0.5 Australian cents on each of the 2015 interim and final dividends, franked at 25% and payable on Thursday 14 April 2016 to shareholders on Brambles' register at 5pm on Friday 11 March 2016. The non-underwritten Dividend Reinvestment Plan (DRP) will remain in place for this dividend, at a discount of 1.5%.

Brambles Chairman Stephen Johns said: "The Board's decision to increase the dividend reflects these strong first- half results and our view of the robustness of Brambles' medium to long-term capacity for both profit growth and cash generation. We expect to maintain the franking rate of 25% through FY17. The retention of the non- underwritten, discounted DRP reflects our short-term funding needs. For future dividends, subject to financing requirements, it is our current intention to offer the DRP with no discount and to neutralize any dilutive impact on earnings per share by buying back an equal number of Brambles shares to any we issue."

CEO Commentary

Brambles' CEO Tom Gorman said: "We are very pleased with this first-half result, which reflects our strategy of investing in our strong network position to drive growth, as well as the delivery of indirect cost and supply chain efficiencies and a lessening of some external cost pressures.

"We continue to see considerable opportunities to invest for growth at attractive rates of return, where we can leverage the strength of our existing customer relationships, intellectual property and embedded network scale. As such, we continue to anticipate growth capital expenditure during FY17 to FY19 of approximately US$1 billion.

"In Pallets, we are leveraging our market-leading portfolio of solutions to generate continued new business wins, while pricing and like-for-like volume growth trends have continued to improve in developed markets. Constant- currency sales revenue growth in emerging markets of 16%, remains robust despite some economic uncertainty.

"The strong profit growth in Pallets reflected sales mix benefits on new business, the continued delivery of direct cost efficiencies, the delivery of overhead savings under the One Better business improvement program, and the lessening of plant and transport cost pressures in the USA.

"In RPCs, the ongoing adoption of our solutions by existing and new retailers continues to enable us to expand our market leadership position, in particular in Europe and Australia. In North America, we remain focused on achieving increased penetration and scale.

8 Cash flow generated after net capital expenditure but excluding Significant Items that are outside the ordinary course of business.

9 Cash Flow generated after net capital expenditure, finance costs and tax, but excluding the net cost of acquisitions and proceeds from business disposals.