Note on FX: The variance between actual and constant FX performance reflects the strengthening of Brambles' reporting currency, the US dollar, relative to other operating currencies, particularly the Euro, British pound and Australian dollar.

IFCO divestment: In May 2019, Brambles completed the US$2.5 billion sale of its IFCO RPC business. The post-tax gain on sale of US$945.7 million and IFCO's FY19 and FY18 results have been recognised in discontinued operations.

Sales revenue from continuing operations of US$4,595.3 million, increased 7% at constant currency and exceeded the Group's stated objective of annual revenue growth in the mid-single digits, with strong volume growth being achieved despite higher pricing across the Group.

Expansion with new and existing customers delivered volume growth of 4%, with strong contributions from net new business wins in Europe and the US pallets business. Like-for-like volume growth moderated in the second half of the Year, with the slowdown particularly evident in the European pallet and automotive businesses.

Price realisation delivered 3% revenue growth across the Group driven by pricing initiatives in response to high levels of input-cost inflation, particularly third-party transport, and cost-to-serve increases.

Underlying Profit of US$803.7 million increased 2% at constant currency as the sales contribution to profit and productivity gains were partially offset by Group-wide inflationary pressures and higher costs in CHEP Americas.

Transport costs increased in both Europe and the US, in FY19, with the rate of increase moderating in the second half of the Year following high levels of inflation in the second half of FY18.

In addition to inflationary cost pressures across the Group, the CHEP Americas segment continued to be impacted by broader cost challenges in each major business:

• In the US, the business experienced higher transport and pallet repair costs associated with changes in retailer and customer behaviour, inefficiencies related to network capacity constraints and US pallet quality investment. The US accelerated automation and lumber procurement programmes remain on track to deliver progressive efficiency benefits over FY20, FY21 and FY22;

• In Canada, the conversion to a mixed stringer and block pallet pool resulted in additional pallet repair and transport costs as well as higher ongoing operating costs; and

• In Latin America, profitability was impacted by increased costs to recognise a higher risk of loss in the region, notwithstanding improved asset management and a reduction in the capital intensity of the business during the Year. To address this higher cost-to-serve, the business has implemented pricing initiatives and invested in resources to support a new asset management framework focused on increased collections, improved asset controls and the active reduction in flows to high-risk areas of the supply chain.

Operating profit from continuing operations of US$740.9 million was in line with the prior year as growth in Underlying Profit was offset by a US$15.4 million increase in pre-tax Significant Items expense.

Current-Year Significant Items of US$62.8 million included US$42 million of IFCO-related restructuring and other costs, and a US$21 million expense associated with asset write-offs in Latin America, reflecting assets transferred to higher-risk supply chains in prior years which are now considered at risk of being irrecoverable.

IFCO-related items included restructuring costs of US$30 million and early debt repayment costs of US$12 million related to the US$500 million 144A April 2020 bond, which was repaid with IFCO sale proceeds in July 2019. The interest expense benefits and cash outflows associated with this early repayment will be recognised in FY20.

Profit after tax from continuing operations of US$454.1 million decreased 13% at constant FX as higher tax expense more than offset a reduction in net finance costs, largely driven by 2018 debt refinancing at lower interest rates.

Tax expense of US$198.3 million increased 68% at constant currency, reflecting the cycling of a US$65.2 million one-off credit in the prior year relating to US tax reform which was reported as a Significant Item. FY19 tax expense includes higher charges related to the introduction of the US Base Erosion and Anti-Abuse Tax (BEAT), which was also a key driver of the increase in the Group's effective tax rate on Underlying Profit from 27.4% in FY18 to 29.0% in FY19.

Net finance costs of US$88.5 million decreased by US$14.9 million, reflecting the lower coupon rate on the €500m European medium-term note (EMTN) issued in 1H18 and lower debt balances following the divestments of HFG, CHEP Recycled and IFCO. These decreases were partly offset by lower interest income following the repayment of the HFG shareholder loan in 2H18.

Basic earnings per share from continuing operations was US28.5 cents, down 18%, or 6 cents at actual FX rates, reflecting the US$65.2 million Significant Items tax credit in the prior year which accounted for 4 cents of the decline. The balance of the decrease largely related to foreign exchange movements. In constant currency terms, the decline was 13% as higher Significant Items expenses offset earnings growth in the current fiscal year.

Average Capital Invested (ACI) of US$4,130.6 million increased 5% at constant currency, largely due to capital expenditure in the year to support: volume growth in pallets and the European automotive business; Brexit-related increases in retailer inventory levels; and ongoing investment in supply chain programmes including the US automation and lumber projects funded by FY18 asset actions.

These increases in capital expenditure were partially offset by a reduction in ACI following the exit of the HFG JV and repayment of the HFG shareholder loan in 2H18.

Return on Capital Invested was 19.5%, a reduction of 0.6 percentage points at constant currency, reflecting the Underlying Profit performance and ACI balance increases in the current Year.

Cash Flow Reconciliation

Free Cash Flow after dividends was a deficit of US$89.6 million, reflecting a US$73 million investment in US supply chain efficiency programmes (including accelerated automation and lumber procurement initiatives) which was funded by FY18 asset actions and the impact of only 11 months of IFCO cash flows.

Compared to the prior year, FY19 cash flow decreased US$292.0 million. US$206 million of this decrease reflected proceeds from the HFG shareholder loan repayment of US$150 million included in the FY18 cash flow, and an incremental investment in US supply chain efficiency programmes of US$56 million. An additional US$60 million of the year-on-year decline relates to the reversal of FY18 working capital timing benefits as previously advised to the market at the FY18 result.

Capital expenditure (cash basis and including US supply chain investment) of US$1,062.4 million increased US$109.8 million, partly driven by the timing of capital payments.

On an accruals basis, capital expenditure increased US$91.2 million at constant currency, notwithstanding US$34 million of benefits from improved asset efficiency. The increase reflects:

• US$63 million of additional capital expenditure to support volume growth, particularly in the EMEA automotive business;

• US$18 million of additional capital expenditure to support Brexit-related retailer stocking;

• US$37 million increase in non-pooling capex driven by accelerated investment in the US automation and lumber procurement projects, partly offset by lower spend across the Group; and

• US$8 million increase in unit pallet costs due to lumber inflation.

The US$23.9 million decrease in dividend payments, driven by a weaker Australian dollar, and the US$11.4 million decrease in Significant Items outflows collectively offset:

• A US$28.6 million decrease in cash inflows from discontinued operations reflecting 11 months of IFCO trading results in the current year compared to a 12-month contribution in FY18; and

• A US$5.7 million increase in financing and tax outflows as a higher Australian tax instalment rate and the loss of interest income following the repayment of HFG shareholder loan in FY18 offset interest expense savings following favourable debt refinancing in FY18.

Sales revenue

Pallets sales revenue of US$2,228.9 million increased 7% at constant currency, reflecting strong volume and pricing growth across the region.

US pallets sales revenue of US$1,651.1 million increased 5%:

• Pricing growth of 3% was driven by pricing actions to recover higher costs-to-serve. Effective price, which includes transport and lumber surcharges that are recognised as an offset to costs, increased by 4%;
• Like-for-like volume growth of 1% was driven by the grocery and beverage sectors and reflected a moderation in growth during the second half of the Year; and
• Net new business growth of 1% was primarily driven by new customer contracts won in the second half of FY19.

Canada pallets sales revenue of US$265.0 million increased 5% at constant currency, reflecting both strong price realisation and expansion with new and existing customers.

Latin America pallets sales revenue of US$312.8 million increased 17% at constant currency, driven by volume growth across the region and pricing actions taken primarily in the fourth quarter of the Year to cover a higher cost-to-serve, particularly in Mexico.

Containers sales revenue was US$58.9 million, up 10% at constant currency, driven by continued growth in the North American IBC and automotive businesses.

Profit Underlying Profit of US$298.4 million declined 9% at constant currency as the US$88 million sales contribution to profit was more than offset by:

• Net transport cost increases of US$30 million, largely driven by inflation and additional transport miles associated with changes in customer and retailer behaviour and increased relocations driven by network capacity constraints;
• Net plant cost increases of US$34 million, reflecting higher pallet repair and handling costs due to inflation, investments in US pallet quality and the impact of the stringer-to-block pallet transition in Canada, which reflects a higher damage rate on the block pallet pool;
• Depreciation cost increases of US$16 million, in line with growth of the pallet pool and investments in US supply chain programmes; and
• Other cost increases of US$37 million, mainly reflecting IPEP increases of US$18 million predominantly in Latin America and investment in additional resources across the region to support growth, network efficiencies and improved commercial and asset management outcomes.

Return on Capital Invested Return on Capital Invested of 15.4% decreased 2.2 percentage points at constant currency due to lower profitability in the region and increased capital investments to support volume growth and US supply chain programmes. 

Sales revenue

Pallets' sales revenue of US$1,558.9 million increased 7% at constant currency, reflecting the impact of prior and current year customer wins in Europe and inflation-related pricing actions across the region.

Europe pallets sales revenue of US$1,353.2 million increased 5% at constant currency:

• Net new business growth of 4% reflected strong contributions of current and prior year wins particularly in Southern Europe and Central and Eastern Europe;
• Price growth of 1% was driven by annual contract indexation across the region and an out-of-cycle surcharge in the second half of the Year to recover ongoing transport cost increases; and
• Like-for-like volumes were in line with prior year, reflecting a slowdown in macroeconomic conditions across the region in the second half of the Year.

India, Middle East, Turkey and Africa (IMETA) pallets sales revenue of US$205.7 million, an increase of 14%, reflecting strong price and volume growth in the region.

RPC and Containers contributed US$290.2 million to sales revenue, up 13% at constant currency, largely due to strong volume growth in the automotive and Kegstar businesses driven by new business wins. Like-for-like volume growth in the automotive business moderated in the second half of the Year in line with broader automotive industry trends.

Profit Underlying Profit was US$441.8 million, up 5% at constant currency, as the strong contribution from revenue growth to profit of US$73 million was partially offset by:

• Net transport cost increases of US$12 million, reflecting third-party transport inflation and additional relocation costs due to Brexit-related pallet pool inefficiencies;
• Net plant cost increases of US$9 million as higher pallet repair and handling costs were only partly offset by efficiency savings;
• Depreciation increases of US$18 million to support volume growth and Brexit-related retailer stocking; and
• Other indirect cost increases of US$14 million due to higher IPEP charges, reflecting higher unit pallet costs and increased losses in the IMETA region.

Return on Capital Invested Return on Capital Invested was 24.9%, down 1.7 percentage points at constant currency, largely reflecting the impact of macroeconomic conditions on operating costs and increased investment to support growth and Brexit-related retailer stocking. 

Sales revenue

Pallets sales revenue was US$343.2 million, up 4% at constant currency, reflecting solid pricing and like-for-like volume growth in the Australian pallet business.

RPC and Containers contributed US$115.2 million to sales revenue, up 2% at constant currency. Growth was driven by the Australian and New Zealand RPC business, which delivered solid price and volume growth.

Profit

Underlying Profit of US$118.3 million increased 14% at constant currency driven by sales mix benefits, effective cost control, and a number of one-off items including a government infrastructure grant in Asia of US$1 million and the benefits of asset recovery outcomes more than offset transport and wage inflation across the region.

Return on Capital Invested

Return on Capital Invested was 27.9% up 2.8 percentage points at constant currency, reflecting the improvement in the Underlying Profit margin.