Negative Points

• Brambles Ltd ( BMBLF ) faced significant operational challenges in the US during the fourth quarter due to repair capacity constraints, resulting in a USD90 million negative earnings impact and USD40 million of additional pooling CapEx.

• The company experienced a convergence of issues in the US, including a tightening labor market, subcontractor turnover, and higher-than-expected customer demand, which disrupted its ability to fully meet customer demand and onboard new business.

• Persistent inflationary pressures, including increased labor, fuel, and transport costs, particularly in the US, continue to weigh on the company's cost base and require ongoing commercial discipline to recover.

• Subdued consumer demand and macroeconomic uncertainty in key markets like the US, Europe, and Latin America led to a 2% decline in like-for-like volumes, with inventory optimization in Australia further reducing pallet demand.

• The company expects a mid- to high single-digit profit decline in the first half of FY27 due to the ongoing impact of US repair capacity constraints, with a total adverse year-on-year impact of USD35 million to USD55 million expected for the full year.

• Brambles Ltd ( BMBLF ) anticipates a structural increase in supply chain costs in FY27, including higher labor rates and additional repair capacity investments, which will reduce earnings by USD25 million to USD35 million before being offset by pricing and efficiency initiatives.

Q & A Highlights

Q: Can you help us quantify how much your repair capacity was reduced by versus normal in the fourth quarter and the magnitude of the demand uplift you saw? A: Graham Chipchase (CEO): The impact on repair capacity varied by region, but we guided to an impact of somewhere between 5% to 10%. The demand uplift also varied significantly by region, but we saw a significant lift versus our forecast, with some areas experiencing high single-digit demand growth.

Q: What gives you confidence in being able to offset those structural costs from fiscal '27 and holding on to the productivity benefits given how subdued the end demand backdrop is currently? A: Graham Chipchase (CEO): We recognize that to the extent this is self-inflicted, we have to eat it. However, the structural costs, such as labor availability in the US, are not just a Brambles issue but a general market issue. This lends confidence that it will be part of the normal inflationary related cost-to-serve increases we have been able to recover through our contracts for many years. We have very clear plans with the US team around both the pricing element and the productivity piece, with detailed plans, milestones, and resources to attack both parts of the solution.

Q: On the underlying EBIT growth you're expecting in your business, excluding the repair costs, it looks like in FY27, if I adjust out those supply costs, you're expecting ULP growth around 4% to 5%. Is that correct? And it appears slightly lower than the value propositionis that a function of lower like-for-likes? A: Graham Chipchase (CEO): We've guided underlying profit growth of between 2% to 6%. If you look at the total year-on-year impact in FY27 of US repair capacity constraints, that's $35 million to $55 million, so you'd add that back to the number. The lower growth reflects the fact that restoring service levels in the US impacts our ability to chase new business, so we expect US net new wins to be lower in FY27 as we're not converting new business until the second half. Also, some supply chain efficiency initiatives will take longer to execute as the focus in the US is against restoring service levels.

Q: Am I right in understanding that because the numbers are quoted as year-on-year, and the improvement in the second half is not fully recovering the $90 million that you've just recorded in the second half '26, there's also a steady add run rate of about $60 million of structural costs expected? A: Joaquin Gil (CFO): You're right that in the second half of FY27, the short-term cost benefit is $55 to $65 million, and we don't fully reverse the $90 million incurred in FY26. Part of that is because the volume impact takes time to recoverit's about building relationships with customers again and converting those customers or lanes back to us. At the end of the first half '27, essentially, there are no more short-term costs. Then there are the structural costs or investments, which end up being $25 million to $35 million that we don't cover in the first half. From the second half onwards, we recover those through other productivity initiatives and through price realization.

Q: The non-pooling CapEx budget for FY27 is quite a step-up from the run rate we've seen in previous years. How much risk is there to the timing of getting the automation equipment and deployment that you want on those initiatives? And is the $110 million S+ spend a very firm signal that you're leaning towards proceeding with that initiative? A: Joaquin Gil (CFO): While you do see that step-up in non-pooling CapEx, there is also that step-up in digital of $110 million for serialization. You have to adjust the numbers when you think about the run ratethat brings us back to a more normalized level of about $240 million of non-pooling CapEx. On the risk of timing, we have a really detailed plan, and the team has done a good job of delivering against it. What may change is the timing of payments with suppliers. We would like to spend all of that non-pooling CapEx because what we're trying to do is set the business up for the long term.

Q: On the group sales growth, the implied price/mix in the second half was flat to get to the 1% on the slide. Can you help me understand what dynamic has gone on there at the group level? A: Graham Chipchase (CEO): Price realization is around the recovery of cost to serve, taking away the short-term costs that we feel are not recoverable from customers. Also, our pricing surcharges in the US are not included in that price realization, so that's not the only way we've recovered cost-to-serve increases in the market. Joaquin Gil (CFO) added: We're very disciplined about recovering that cost to serve. For example, with the spike in fuel costs where our recovery mechanisms weren't going to recover at all, we put in fuel surcharges in Europe and Latin America. Where it's a structural increase in costs, we will recover that cost to serve in the pricing mechanisms or other mechanisms we have available.

Q: You're still committing to the 300 points of margin expansion relative to FY24 by FY28, but you've told us FY27 will have modest underlying expansion. How do we reconcile the $50 million to $100 million that you need to do in FY28? A: Joaquin Gil (CFO): I think of the starting point as the underlying performance of the business. The $1.9 million you quoted is impacted by the US fourth quarter and those costs coming into FY27. If you think of the underlying at the end of FY26, we're running at 3.1, and we did say 3 points plus. On supply chain productivity, if you adjusted that for the impact of US repair capacity, it would essentially be flat over 2 years, so that's the opportunity area. We're still storing excess pallets in the US, and we'll work our way through that, which will give us a tailwind into FY28. There's still opportunity in overhead productivity and asset efficiency.

Q: On the pricing recovery of the $25 million to $35 million structural costs, how much of that is price you're expecting to recover through the second half of '27? A: Graham Chipchase (CEO): Our first priority is to drive efficiencies within the business to offset that. Where we can't, that flows through to pricing to customers. Our customers would expect us to look for efficiencies in our

For the complete transcript of the earnings call, please refer to the full earnings call transcript .