Corporate actions: CHEP Recycled, Brambles' North America recycled pallets business, which was formerly part of CHEP Americas, has been classified as held for sale and recognised in discontinued operations in FY17, pending its divestment. Prior year comparatives for CHEP Americas have been restated.
Pallets' sales revenue was US$2,025.4 million, an increase of 3% at actual FX rates. Constant-currency growth of 4% was primarily driven by strong expansion in Latin America pallets and modest volume growth in the US and Canada pallets business.
US pallets' revenue was US$1,513.7 million, up 2% comprising:
- like-for-like volume growth of 1%, including improved volumes in the second half of year following particularly challenging trading conditions in the second quarter;
- net new business growth of 1%, reflecting the rollover impact of prior year contract wins and new business wins during the year. The rate of net new business growth was lower than prior years due to increased competitive pressures and lower whitewood pallet prices, which slowed the rate of new customer conversions to pooled pallet solutions. The rate of net new business growth increased in the final quarter of the fiscal year following several contract wins; and
- Reduced price realisation due to competitive pressures and unfavourable customer mix. During the second half of the year the business was also cycling strong price and sales mix performances in the prior corresponding period, primarily due to an increased proportion of sales from higher cost-to-serve channels.
Canada pallets' sales revenue was US$241.2 million, an increase of 2% on both an actual FX and constant-currency basis, reflecting solid like-for-like volume growth and sales mix benefits in the current fiscal year, which more than offset the impact of prior year contract losses.
Latin America pallets' sales revenue of US$270.5 million increased 12% at actual FX rates. Constant-currency growth of 18% largely reflected: strong like-for-like volume growth; net new business growth particularly in Mexico, Brazil and Central America; and solid pricing growth consistent with the inflationary environment in the region.
Containers' sales revenue (comprising the IBCs and Automotive businesses in the region) was US$48.1 million, an increase of 16% on both an actual FX and constant-currency basis, reflecting strong volume growth with new and existing customers in both Automotive and IBCs.
Underlying Profit for the region of US$395.1 million declined 10% at actual FX rates over the prior year. The primary driver of this decline was lower Underlying Profit in the US pallets business reflecting: lower margins in line with increased competition; higher cost-to-serve and increased depreciation expenses relating to the accelerated sales growth in the second half of the prior year; and structural changes to the network cost structure. One-off costs relating to excess pallet holdings and lower demand in the second and third quarter of the fiscal year also impacted the performance of the business in FY17.
The constant-currency decline of 9% reflected:
- Volume, price and mix contributions of US$40 million, reflecting strong growth in Latin America pallets, and modest contributions from volume growth in the US and Canada pallets businesses;
- Net plant cost increases of US$27 million, primarily in the US pallets business, as higher pallet repair volumes following strong growth in the second half of the prior year, other structural cost increases and one-off costs associated with excess pallet holdings were unable to be fully offset by supply chain efficiencies. Higher operating costs in the Canada pallets business associated with the transition to the "block" type pallet and inflationary impacts in the Latin America pallets business also contributed to plant cost increases in the period;
- Net transport costs increases of US$19 million as supply chain efficiencies did not fully offset additional costs associated with higher pallet inventory balances and structural cost pressures in the US pallets business;
- Depreciation expense increases of US$25 million due to the significant capital investment in the US pallet pool in the prior year in anticipation of higher growth, as well as investments in pallets to support growth in Latin America; and
- Indirect cost increases of US$8 million, largely reflecting higher IPEP expenses due to customer mix changes in the US pallets business and a combination of volume growth and higher unit pallet values in the Latin America pallets business.
Operating profit of US$377.3 million declined 11% at actual FX rates and 10% at constant currency. Significant Items of US$17.8 million primarily related to the One Better program, the roll out of the CHEP brand refresh in the US pallets business and other restructuring initiatives.
Return on Capital
Return on Capital Invested was 20.2%, down 4.9 percentage points, reflecting the decline in Underlying Profit and growth in Average Capital Invested. The growth in Average Capital Invested was primarily due to: capital expenditure to support volume growth, particularly in Latin America; and the significant growth in the size of the US pallet pool, particularly in the prior fiscal year.