23/06/05 Brambles paints bright pallet picture (Blair Speedy)

INDUSTRIAL services giant Brambles has promised investors continued improvement in its results, reaffirming profit targets and expectations of strong growth from its Chep pallets division.

Analysts were cautiously optimistic that Brambles could continue to lift its performance after it reaffirmed earnings forecasts for 2004-2005 and assured investors the Chep pallets division was growing.

"The company expects good progress in both profit and cash generation for the full year," it told the stock exchange.

The Chep Americas division was showing "very strong" profit growth, with sales up 10 per cent over the 11 months to the end of May. Chep Europe "remains strong", growing sales by 6 per cent over the same period, compared to 8 per cent growth in the first half.

Investors pushed Brambles shares up 12c to $8.45 at the open, but concerns over the growth at Chep Europe dragged them back to finish 2c lower for the day at $8.31.

Macquarie analyst Paul Huxford said the reduction in European sales momentum probably reflected the effect of price hikes by Chep since last November, which would translate into higher margins as low-value customers switched to unbranded pallet providers.

The rehabilitation of Chep has been a priority for Brambles chief executive David Turner, who succeeded CK Chow after he quit in 2003 following a 39 per cent plunge in annual profit and news that the company had lost track of 14 million of its trademark blue pallets.

Morgan Stanley analyst Philip Wensley described the update on Chep as "slightly more positive," noting the company didn't repeat a warning made at the release of first half-results in February, when Mr Turner cautioned that profit growth would be lower in the second half than it was in the first.

Full-year profitability at waste removal division Cleanaway was still expected to be down on last year's results, but "the second half is showing an improved performance over the first half", the company said.

Document storage division Recall was expected to post higher profits in Europe, although the US business was being affected by fluctuations in waste paper prices.

"When prices are high, new entrants provide cheap bins to get the paper," Macquarie's Huxford said, adding that he was comfortable that Recall's earnings would be up 8 per cent in the second half, in line with sales growth over the 11 months to the end of May.

The company said its industrial services division, which provided haulage, waste removal and construction services to the steel and construction sectors, was expected to achieve "steady profit growth" for the year, with new contracts underpinning future earnings growth.

Brambles, which is listed on both the Australian and London stock exchanges, is scheduled to report full-year earnings on August 24.