Signs of turnaround at pallets business lifts Brambles

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Brambles Industries, the services group that has struggled to live down mislaying 14 million of its distinctive blue pallets in 2002, yesterday cheered investors with a 7 per cent rise in underlying annual profits and confirmation of a turnaround in its business.

The upbeat statement from David Turner, the chief executive of the Anglo-Australian group that is the world's largest pallets supplier, caused shares to jump 11 per cent to 242.5p.

Lower raw-material costs, as well as improving durability of its pallets, have combined with a rise in sales, lifting pre-tax profits to £307m. Operating profits in the second half rose 41 per cent on the first half of the year, and sales over the year were up 7 per cent.

"We are targeting continued generation of free cash flow as the concentration on value management continues across Brambles. The business is performing well in the early part of the financial year, and this, together with our focus on further operational improvements, is expected to form the basis for good progress in 2005," Mr Turner said.

Brambles has undergone two years of falling profits following news from the US that some 14 million of its pallets disappeared and a costly restructuring of the company. Chep, its biggest division, had expanded too rapidly in the US and lost track of its stock. It has since undergone a large-scale revamp, including the launch of a new pricing structure, which led to high restructuring costs in the first half. But a growth in sales in the second half saw Chep Americas increase its operating profits by 89 per cent in the six months to the end of June.

Karl Green, an analyst at Dresdner Kleinwort Wasserstein, said: "The real surprise is the cash flow, which was double our estimate with strength in every line - capital expenditure was 15 per cent below forecast at £344m, the working capital inflow was double last year's number and net debt was 12 per cent below forecasts at £1.3bn."

Free cash flow at the company was £249m, an increase of £157m on the previous year. Mr Turner said all parts of the pallets business were improving after closing Chep's global operations in Florida, and cutting 350 jobs in Europe. It has also closed the head office of its waste management unit, Cleanaway, in London, and moved control of Brambles' business to its Sydney headquarters.

Cleanaway, the waste management division where Brambles derives 23 per cent of earnings, saw profits drop 7 per cent.