Recent Financial Performance and Capital Structure
In the 5 years period leading to the sale of IFCO, Brambles experienced consistent growth in revenue. As of 30 June 2019, operating revenue stood at almost US$4.6 billion, an increase of 7% from the prior year. Underlying profit from continuing operations was over $US800 million representing a 2% growth year on year. Brambles operated in 60 countries, employed 11,000 people, owned 330 million pallets, crates and containers through a network of more than 750 service centres. The company’s 2019 profit and loss statement is detailed in Exhibit 2.
In Exhibit 2, basic EPS was calculated as net profit attributable to the parent entity, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares. On the other hand, diluted EPS was calculated as net profit attributable to the parent entity, adjusted for costs of servicing equity (ither than dividends) and preference share dividends, the after-tax effect of dividends and finance costs associated with dilutive potential shares and other changes in revenue or expenses that would result from the dilution of potential ordinary shares. An example of dilutive potential ordinary shares is performance share rights granted under Brambles’ share plans.
In the financial year ended 30 June 2019, the weighted average number of shares used in the calculation of basic EPS was 1,593,400,000 shares while the number of shares used in the calculation of diluted EPS was 1,598,500,000 reflecting an adjustment for share rights of 5,100,000 shares.
Exhibit 2 – Consolidated Profit and Loss Statement for the year ended 30 Jun 2019
| 2019 (US$mil) | 2018 (US$mil) | |
| Continuing Operations | ||
| Sales Revenue | 4595.3 | 4470.3 |
| Other Income | 150.4 | 133 |
| Operating Expenses | -4004.8 | -3812.8 |
| Shares of results of joint venture | 0 | -11.8 |
| Operating Profit | 740.9 | 778.7 |
| Finance Revenue | 15.3 | 28.3 |
| Finance Costs | -103.8 | -131.7 |
| Net Finance Costs | -88.5 | -103.4 |
| Profit Before Tax | 652.4 | 675.3 |
| Tax expense | -198.3 | -121.8 |
| Profit from Continuing Operations | 454.1 | 553.5 |
| Profit from Discontinued Operations | 1013.6 | 139.2 |
| Profit for the year attributable to members of the parent entity | 1467.7 | 692.7 |
| Other comprehensive income | -60.9 | -85.4 |
| Total comprehensive income for the year | 1406.8 | 607.3 |
| EPS (US cents) | ||
| Total basic | 92.1 | 43.5 |
| Total diluted | 91.8 | 43.4 |
| Continuing operations – basic | 28.5 | 34.8 |
| Continuing operations – diluted | 28.4 | 34.7 |
Data Source for table: Brambles 2019 Annual Report
The company’s balance sheet as of 30 June 2019 is detailed in Exhibit 3. The reported Reserves primarily related to the unification reserves created when the company unified its listing structure in 2006. In particular, on unification, Brambles Limited issued shares on a one-for-one basis to Brambles Industries Limited (BIL) and Brambles Industries plc (BIP) shareholders who did not elect to participate in the Cash Alternative. The unification reserve of US$15,385.8 million was established on 4 December 2006 representing the difference between the Brambles Limited share capital measured at fair value and the carrying value of the share capital of BIL and BIP at that date. In September 2011, a reduction in share capital of US$8,223.4 million was applied against the unification reserves resulting in a unification reserve balance of US$7,162.4 million. Other reserves include share-based payments (expense recognized in relation to equity-settled options and share rights issued but not yet exercised) and foreign currency translations.
Like all other businesses, Brambles faced an operating environment that was characterised by increasing competition, macro-economic uncertainties, and ongoing inflationary and cost pressures. Competition in all markets was intense as the customer base adapted to changes in the retailing landscape that included omni-channel proliferation, ongoing growth of e-commerce and automation in the supply chain. Brexit impacted inventory level across retail supply chains in the UK that contributed to lower organic growth in Western Europe while input cost inflation remained high particularly relating to lumber and transport costs.
Exhibit 3–Consolidated Balance Sheet as of 30 June 2019
| 2019 (US$mil) | 2018 (US$mil ) | |
| Assets | ||
| Current Assets | ||
| Cash and cash equivalents | 1691.3 | 180.2 |
| Term deposits | 411.2 | 0 |
| Trade and other receivables | 768.9 | 1247 |
| Inventories | 59.8 | 60.3 |
| Other assets | 61.5 | 70.9 |
| Total Current Assets | 2992.7 | 1558.4 |
| Non-Current Assets | ||
| Other receivables | 52.8 | 50.4 |
| Property, plant and equipment | 4313.2 | 5139.7 |
| Goodwill and intangible assets | 286.2 | 1022.8 |
| Deferred tax assets | 73.6 | 38.2 |
| Other assets | 11.8 | 18.1 |
| Total Non-Current Assets | 4737.6 | 6269.2 |
| Total Assets | 7730.3 | 7827.6 |
| Liabilities | ||
| Current Liabilities | ||
| Trade and other payables | 1208.5 | 1954.3 |
| Borrowings | 556.8 | 91.2 |
| Tax payable | 31.7 | 61.8 |
| Provisions | 75.5 | 65.9 |
| Total Current Liabilities | 1872.5 | 2173.2 |
| Non-Current Liabilities | ||
| Borrowings | 1643.4 | 2397.1 |
| Provisions | 14.8 | 12.6 |
| Retirement benefit obligations | 37.3 | 29.7 |
| Deferred tax liabilities | 353.1 | 434.9 |
| Other liabilities | 1 | 1.7 |
| Total Non-Current Liabilities | 2049.6 | 2876 |
| Total Liabilities | 3922.1 | 5049.2 |
| Net Assets | 3808.2 | 2778.4 |
| Equity | ||
| Contributed Equity | 6187.4 | 6218.5 |
| Reserves | -7322.5 | -7253.7 |
| Retained earnings | 4943.3 | 3813.6 |
| Total Equity | 3808.2 | 2778.4 |
Data Source for table: Brambles 2019 Annual Report
Despite the challenging operating environment, Brambles continued to invest in digital capabilities and platform innovations with a focus on converting customers to sustainable share and reuse solutions. Accordingly, the company aimed to achieve a sustainable mid-single digit revenue growth in the longer term.When determining its capital structure, Brambles paid special attention to financial risks and considered various factors including expected future cash flows, funding needs for internal investments and external acquisitions, the cost of capital and accessibility to funding sources. As shown in Exhibit 4, both the Gross Leverage Ratio (Total Debt/Total Assets) and Net Leverage Ratio (Total Debt – Cash/Total Assets) for the company ranged consistently between 30% to 40%. In 2019, the Net Leverage Ratio fell significantly to about 7% reflecting the cash balance received from the sale of IFCO. Figure 1 provides a graphical presentation of Brambles’ leverage ratios between 2013 and 2019.
Figure 1 – Leverage Ratios 2013 to 2019
Data source: DatAnalysis Premium
Brambles also actively maintained an investment grade credit rating. As of 30 June 2019, Brambles held investment credit ratings of BBB+ from Standard and Poor’s and Baa1 from Moody’s. To achieve its desired capital structure, Brambles had several initiatives at its disposal. These included adjusting the amount of dividends paid to shareholders, repurchasing existing shares, issuing new shares, selling assets to reduce debt and managing discretionary expenses. Brambles may also consider modifying the maturity profile of its borrowings to further optimise its capital structure.
