Brambles profits snagged by charge at European division

Brambles Industries, the Anglo-Australian pallets group, yesterday announced a 39 per cent drop in profits from A$545m (£223m) last year to A$330m for the year to 30 June 2003. The results included pre-tax exceptional items of A$151m, largely related to restructuring costs in the group's Chep Europe pallet division.

Although most sections of the business were in line with previous forecasts, a disappointing result from Chep's US pallet operation saw the share price drop from Monday's close of 190.5p to 170p yesterday.

In February, the company announced one-off costs of £40m relating to the shedding of up to 400 jobs in the company's European unit and £22m of these costs were reflected in the figures out yesterday. But with more than £40m of further "one-off" costs still to come, analysts remained unenthusiastic about the company's prospects.

Kevin Lapwood, of ING Financial Markets, felt that the stock was overvalued against the sector and that the new business profile of increasing returns rather than going for growth, which had led to significant management restructuring in both Europe and the US, was unlikely to yield any significant improvement in what was a "lacklustre" set of figures.

Sir CK Chow, the chief executive, responded to criticism of the company's focus on asset productivity rather than revenue growth by stating that after an over-emphasis on growth in the 1990s the company was now looking for a greater return on assets which would, in turn, see a continued improvement in the cash position.

Sir CK also stated that a new "one-off" charge of £8m for pallet repair at Chep US, which was a key disappointment for analysts, would produce a benefit in excess of £25m in the second half of next year. The US operation had also seen savings made in transportation and collection costs eroded by a combination of higher repair costs and greater damage ratios.

Brambles had admitted to having approximately 14 million too many pallets in the system in November last year and although many of the "missing pallets" had now been accounted for there was still some way to go to complete the process, it said.