Brambles Limited

Thank you for standing by and welcome to the Brambles Limited 2023 half-year results briefing. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Graham Chipchase, CEO.

Please go ahead. Good morning everyone and thank you for joining us for our 2023 half-year result. Before discussing our half-year result, I'd like to address the announcement we made earlier this morning regarding Nessa's intention to retire from Brambles and step back from full-time executive life. Over the past six years, Nessa has been instrumental in delivering our strategy and moving our company forward during a period of significant volatility. It has been quite the journey and I want to thank her for her dedication and for the leadership she has brought to our finance function during this time. As most of you have seen, Nessa has been an outstanding CFO, setting high standards and ensuring robust governance while also demonstrating mastery of the fine detail. As noted in the announcement, we will now commence a search for her successor. Nessa has agreed to work with us to ensure a smooth transition. Turning now to our result. Today, I'll start by providing a summary of our performance for the half year, then give an update on progress against our transformation programme and the revised FY23 outlook statement before Nessa takes you through the detailed financials. Turning to slide three and the key messages from our half year performance. I would like to start by calling out an outstanding result for Brambles in what continues to be a challenging operating environment. the business delivered revenue growth of 14%, which is driven by pricing to recover both operating and capital cost to serve increases. Volumes were slightly down in the half, with early signs of slowing consumer demand in the United States and Europe, as well as pallet availability challenges, which limited growth with new and existing customers. Underlying profit growth of 25% on a constant currency basis included benefits relating to deferred plant and transport costs due to lower pallet return rates and one-off insurance proceeds. Excluding these benefits, underlying profit increased 16%, with the business delivering operating leverage as pricing and surcharge income more than offset input cost inflation, higher pallet losses and incremental overhead investments to support growth and transformation initiatives. Cash flow from operations decreased $42 million as higher earnings and compensation recoveries were more than offset by an increase in cash capital expenditure. This is largely due to the timing of payments for pallet purchases, which also included $170 million impact of lumber inflation on the cost of new pallets. Free cash flow after dividends was in line with the prior year as the decline in cash flow from operations was offset by proceeds received from the repayment of a loan receivable relating to the divestment of the Hoover Ferguson Group investment in 2018. Earnings per share growth of 24% on a constant currency basis is in line with earnings performance and also benefits from a reduction of shares on issue compared with the first half of FY22 following the completion of the share buyback in June 2022. the strong earnings performance has given us confidence to declare an interim dividend of 12.25 US cents per share, an increase of 14% on the prior year. This represents a payout ratio of 49%. Finally, our return on capital invested of 19.8% increased 1.2 points as the strong profit performance more than offset the increase in investments in higher cost pallets over the past 12 months. Turning to the next slide, this strong performance was delivered in challenging operating conditions with ongoing disruptions and uncertainty across global supply chains. As outlined on slide four, the inflationary cost pressures and supply chain dynamics experienced in FY22 continued into the first half, adding both costs and inefficiencies across customers' supply chains and our own operations. Input cost inflation was persistent during the first half across key inputs including lumber, labour, transport and fuel in all regions. However, some of these pressures began to moderate towards the end of the half. Importantly, while we expect transport and fuel costs to continue moderating, labour costs are expected to remain elevated with wage inflation in many regions reflecting increasing cost of living pressures. lumber and pallet prices continue to remain well above historic levels, despite moderation in some markets. Nessa will provide more detail on lumber and pallet pricing dynamics in her slides, but the key points to highlight are, despite moderating lumber and pallet prices, the group weighted average pallet price is up 14% in the first half. And while we continue to expect lumber and pallet prices to moderate, the FY23 average price per pallet is expected to remain higher than FY22. Turning to supply chain dynamics, elevated inventory levels across retailer and customer supply chains continue to impact cycle times and plant stock levels in all regions. While Australia remains challenging with no material signs of destocking, we started to see early improvements in pallet return rates in North America and the UK at the end of the first half. While phasing will vary between regions, we are expecting pallet return rates to continue improving in the US and Europe as supply chains in these regions progressively reduce inventory levels through the second half of FY23. As pallet return rates improve, this will continue to benefit our plant stock levels, which have been operating below optimal levels due to uncertainty in supply chains. Combined with our many asset productivity initiatives, plant stock levels have started to improve in most regions at the start of the second half. And with a progressive destocking anticipated, a gradual lifting of allocations in the US and new business activities being pursued in Europe is expected in the second half of the year. Turning to the next slide, I want to now take some time to provide you with a framework which outlines the potential impacts to our business of the progressive destocking scenario we are anticipating. This underpins a number of our second half expectations and the updated FY23 guidance we provided today. Our forecast scenario is very progressive destocking of inventory levels across supply chains, which is expected to result in an additional 5 to 6 million pallets gradually returning back to our network in the second half of the year. Our expectations of a progressive destocking scenario are informed by the various discussions with customers and other supply chain participants, but are ultimately dependent on a number of factors as outlined on the slide. Before getting into the details, I want to emphasise that our business is well-placed to manage a progressive destocking scenario, considering the challenges and net inefficiencies that increased inventory levels in supply chains have introduced into our operations. While we expect pallets returning to be a net benefit to the business, there are a number of variables to consider. On volumes, the increased pallet returns will allow us to redeploy these pallets and pursue pent-up demand, including net new business, which has been challenged due to pallet availability across our network. However, we anticipate that there may be challenges to like-for-like volumes, which are subject to macroeconomic conditions, as well as the one-off impact on volumes of destocking. Looking at plant stock, we have been operating at sub-optimal levels for some time. A progressive destock and associated pallet returns are likely to improve plant stock levels, which will increase the efficiency of our network. The increased pallet returns should result in a reversal of the deferred net repair and transport cost benefits called out this period. However, any cost headwind would be partially offset by improved network efficiency with less relocation of pallets between service centres to align to customer demand patterns and better utilisation of our plants by maximising the throughput capacity of fixed cost investments. These stocking will arguably have the greatest benefit to our pooling capex and cash flow as pallet return rates improve, reducing our requirement to invest in new pallets for the pool. While we expect destocking to occur in the second half, the cash flow benefit is weighted to FY24, largely due to a delay in realising the cash benefits associated with any capex avoidance. Finally, we expect rational competitive behaviour to continue over the medium term. With many pooling networks across the world having experienced challenges in their plant stock levels, a gradual destocking event is likely to replenish pallet supply to more optimal levels and gives us confidence that rationality will be maintained. As you can see, there are a number of moving parts in a destocking scenario that can impact the business. However, on balance, we believe that a progressive destocking scenario is likely to be a net positive for Brambles. Turning over the slide, the continued challenges to supply chain dynamics including inflationary cost pressures and increased inventory holdings, reinforces the importance of our transformation programme. One of the core goals of the transformation programme is to increase the efficiency and resilience of the company. Considering the asset productivity headwinds the business has experienced, our continued effort and discipline on asset efficiency has assisted in offsetting some of the challenges we have experienced. During the first half, we made improvements to our commercial terms to reward collaborative approaches to asset use and efficiency. This has supported our strong profit performance in the half and created greater alignment of outcomes, ensuring our pallets are used properly and returned in a timely manner. Combined with the continuation of the successful activities from FY22 to improve asset productivity, an additional 5 million pallets were made available for customers in the last six months, with further details on these specific initiatives outlined in Appendix 1 of today's presentation. Across our network, we have now commissioned nine integrated repair cells and expect this to reach 23 by the end of FY23. This is one less than initially forecast, although we expect the timing delay to be minimal. In addition to the nine sites already commissioned, we currently have an additional four sites where the installation is either nearly complete or awaiting commissioning, which gives us confidence of the continued ramp-up expected in the second half of the year. Improving our network is not just about automating repairs, but also working on ways to improve the durability of our pallets. We improved our damage rate by 35 basis points against FY22 through improved pallet design, repair techniques and investments in quality, which means they can be reissued more quickly to our customers. I will provide further detail on our digital transformation on slide eight. So we'll move now to customers where we continue to prioritise improvements to their experience and the quality of interactions we have each day. Our goal remains to make Brambles the natural partner of choice today and tomorrow. Improvements during the period include further rollout of our dynamic delivery notifications, which provides greater visibility of orders to allow our customers to better plan their daily production activities. Multiple process improvements to our MyCHEP portal, a key touchpoint for our customers to make orders and manage their accounts. And a simplified commercial model for smaller customers in Canada, which streamlines the fee structure and also provides them with greater certainty of overall fees. Finally, we continue to support our customers in keeping supply chains moving as pallets return, as well as increased investments in countries like Australia. Turning to the next slide, our Shaping Our Future scorecard outlines the metrics and measures we are targeting and the building blocks of our transformation programme. Each metric contributes to the strength of our sustainable business model to transform the business and unlock value for customers and shareholders. As you can see, some metrics have already been achieved and others are progressing ahead of target, while most are progressing and are on track. However, in challenging operating conditions and amid uncertainty across global supply chains, some metrics are tracking below target. Consistent with FY22, supply chain dynamics led to higher cycle times, increased misuse of pallets and pallet availability challenges across our major regions, which impacted volume growth and customer net promoter scores. While pallet availability challenges are a large reason for the net promoter score tracking below target, we are not relying solely on the improvement in supply chain dynamics to increase our MPS score and customer satisfaction. As an example, we are gathering feedback in real time and gauging the quality of our customer interactions with approximately 7,000 completed surveys this half, providing us with actionable insights. The market conditions continue to create challenges for asset efficiency metrics, with both the pooling capex to sales ratio and uncompensated pallet losses tracking below the scorecard target. Despite the challenging operating conditions, the group's pooling capex to sales ratio improved in the first half of FY23 by two points, and we expect further improvements for the full year. Importantly, comprehensive plans are in place and being implemented to mitigate any headwinds from the metrics below target and successfully deliver on the benefits of the transformation programme. We're also beginning to see early signs of improvement in the operating conditions, which should have a positive impact on a number of the metrics currently below target. Turning to the next slide, we continue to make strong progress on our digital transformation, utilizing data and technology to provide better visibility of our assets and network, as well as underpinning new customer experience trials. We now have over 300,000 smart palettes across our network. More than 50,000 are live in over 25 countries, having been injected into the network in a targeted manner to test a specific hypothesis. In the period, we expanded the targeted diagnostics program to five additional countries. We also have over 250,000 smart palettes deployed to deliver continuous diagnostics more widely across our network. This includes 200,000 deployed in the UK and on our string of palettes in Canada, which continue to deliver insights on unauthorised activities and flows of our palettes. We've also progressed the rollout of continuous diagnostics in North America and in Chile as part of the Serialisation Plus trial. The Serialization Plus trial, which aims to uniquely identify every palette, is progressing well. And as of December 2022, we had approximately 180,000 palettes serialized. The process ramped up significantly in January 2023 with a step change improvement in the tagging rate, giving us confidence that we're on track with our FY23 priorities. Turning to customer experience, We're excited about the trial of three solutions, which are all designed to remove inefficiencies across customers' supply chains. These trials leverage our unique visibility across the supply chain to generate customer value. On the right-hand side, we have our FY23 priorities for each initiative outlined. I don't propose to go into detail on each of the FY23 priorities, but we continue to make progress. with each priority on track, and I look forward to providing a further update in August 2023. Importantly, we remain disciplined in our approach of deploying capital, with future investments in FY24 and FY25 conditional on demonstrating value and scalability. Turning to our sustainability highlights, we are extremely proud of our track record in delivering improvements against our 2025 sustainability targets. Some highlights for the first half year include an improvement to our injury frequency rate and a two point increase in the representation of women in management positions, which reached 35%. We've also reduced our scope one, two and three emissions during the half, which represents a positive step forward since our June 2022 commitment to net zero emissions by 2040. there was also an improvement to our waste diverted from landfill across our owned and third-party sites. Another step towards our 2025 commitment of zero product material was being sent to landfill. Finally, we have further enhanced our leading ESG assessment credentials in the first half, including the top position in the Dow Jones Sustainability Index in our industry category, being named the world's third most sustainable company by corporate knights, and being recognised as a global top employer. Turning to the outlook, Brambles has upgraded its FY23 sales and earnings guidance, which reflects better than expected price realisation, driven by both commercial actions and customer mix, combined with improvements to both our pipeline of productivity initiatives and outlook on the macroeconomic environment. For the year ended 30 June 2023, Brambles now expects sales revenue growth of between 12% and 14% at constant currency, underlying profit growth of between 15% and 18% at constant currency, including US$25 million of short-term transformation costs. We expect free cash flow after dividends to benefit from the upgraded earnings guidance and to be an improvement on FY22, albeit still a net outflow. The level of underlying improvement is dependent on lumber and pallet pricing, normalization of inventory levels and flows across global supply chains, and other productivity improvements in the asset pool. Dividend payout ratio to be consistent with the dividend payout policy of 45 to 60% of underlying profit after finance costs and tax in US dollar terms. The outlook is dependent on a number of factors as outlined on the slide. I'll now hand over to Nessa to provide the financial update.

Thank you, Graham, and good morning, everyone. Starting with our first half results, the group delivered strong sales revenue growth of 14%. Other income of 181.5 million increased by 80 million in constant currency, with almost half of the increase due to higher surcharge income in North America, with the balance due to increased asset compensations and one of our flood insurance proceeds in Australia. North American surcharge income is linked to market indices for lumber, transport, and fuel, with the increase in the first half largely driven by fuel surcharges. Lumber surcharge declined year on year in line with the decline in lumber prices in the US. Underlying profit growth of 25% at constant currency included seven points of deferred plant and transport cost timing benefits associated with lower pallet return rates, and a two-point benefit from one-off insurance proceeds relating to Australian floods. Excluding these timing and one-off benefits, underlying profit increased 16% at constant currency and delivered operating profit leverage. Profit after tax for the group increased 20% at constant currency The net finance cost increase was driven by increased interest rates on variable rate debt and higher average net debt over the period. And the effective tax rate remained broadly in line with the prior comparative period. The first half results also included a hyperinflation charge of 12 million, reflecting Bramble's operations in Turk IE, Argentina and Zimbabwe. Bramble's basic EPS, increased by 24%, reflecting the group's profit after tax growth of 20%, and includes a four-point benefit from the share buyback program, which was completed in June 2022. Turning to the revenue growth on slide 13, group sales revenue increased 14% at constant currency, driven by strong pricing in all regions to recover both operating and capital costs to serve increases. Group volumes declined 1% as net new business growth was offset by a decline in like-for-like demand. Net new business volume increased 1% as pallet availability limited the business's ability to pursue new contract wins in the half. Growth in the period reflected rollover contributions from prior year contract wins in the European pallet business. Like-for-like volume decline of 2% reflected pallet availability constraints and softening demand across key markets. Looking at the group profit analysis on slide 14, sales growth and the North American surcharge income contributed 454 million to group profit, which more than offset the impact of cost inflation and other operating cost increases in the period. Plant costs increased 126 million, reflecting input cost inflation, including repair lumber, of 92 million, and inefficiencies associated with the scarcity of pallets, with the balance of the increase driven by additional repair costs associated with the manufacturing of 1 million pallets that would otherwise have been scrapped. These plant cost increases were offset by approximately 20 million of plant cost benefits due to repair cost deferrals relating to lower pallet returns and includes damage rate improvements in the US and European businesses and automation benefits. Transport cost increases of 72 million included 48 million of fuel and transport inflation, increased relocation costs driven by less than ideal plant stock levels, and incremental costs to increase asset collections, which yielded approximately 4 million pallet recoveries in the half. The transport operation cost increases were partly offset by a $15 million benefit of deferred costs due to lower pallet return rates. Depreciation increases of $36 million largely reflects the impact of lumber inflation on pallet purchases. IPEP expense increased 21 million and a half, largely due to higher pallet losses in the U.S. Finally, other cost increases of 86 million reflect overhead investments across the group to support growth and the delivery of the overall transformation program. These investments in increased capability were partly offset by higher asset compensations and a reduction in the short-term transformation costs which is in line with the fiscal year 23 expectations we outlined at the full year FY22 results presentation. Now turning to slide 15 and taking a closer look at the market lumber inflation on our pallet price evolution in our largest regions. After a prolonged period of extraordinary lumber inflation, including historic highs over the past two years, we've started to see market lumber costs moderating. Looking at the lumber market dynamics in our key regions on the left-hand side of the chart, US market lumber prices peaked in the second half of last year, and we are seeing lumber costs moderating, reflecting improved supply and lower demand for lumber in the market. While US market lumber prices are currently well below the peaks in the prior year, they remain above pre-pandemic levels. European market lumber pricing increased in March 2022 due to the Russia and Ukraine war impacting global lumber supplies. More recently, lumber prices have begun to moderate. And in Latin America, pallet prices have stabilized but remain high due to the strong demand for lumber from Latin America across the globe. Turning to the impact of these lumber market dynamics on our pallet prices, The charts in the middle of the slide show the movement of Bramble's pallet prices for the primary pallet in each region since June 2020. Prices have been rebased to June 2020 to capture the movement of pallet prices during this period of elevated lumber inflation. As you can see, the dynamics in all three markets vary, as does the average pallet price we're paying each month across the regions. However, overall, our pallet prices in all three regions are following the general downward market trend, noting there will always be a delay in the flow-through of market lumber rates into our pallet prices, given how we source lumber. Despite this trend, pallet prices in all regions increased over the first half of the prior year. Combining the various factors across the regions, the group weighted average pallet price increased by 14% over the prior year first half, with a mixed impact due to the higher number of pallets purchased in higher price markets, and also impacted by the mix of where the lumber has been sourced. Looking to our expectations for the rest of this financial year, in line with our outlook in August 2022, We continue to expect the full year group weighted average pallet price to increase over FY22 due to the region and sourcing mix. However, in terms of the second half year-on-year pallet price outlook, given the prior year half-two peaks in lumber, we expect the weighted average pallet price to be below the prior year half-two levels. Despite these significant increases in pallet prices which have impacted cash flow and pooling capex in recent years, we are confident we will be able to deliver appropriate returns on these higher-priced pallets through a combination of pricing and surcharges, noting that the recovery of appropriate returns is phased over multiple years given the related assets have a 10-year life. Now turning to slide 16 and the group's asset efficiency performance in the period. Pooling capex to sales, which is the group's asset efficiency metric, improved, with the ratio decreasing by 2.2 percentage points despite a 3 percentage point impact of lumber inflation in the period. The improvement in the pooling capex to sales ratio was largely due to both the revenue growth and an overall reduction in the number of pallets purchases compared to the prior corresponding period. Pallet purchases were made to support cycle time increases, replace scrapped and lost assets, and to increase plant stock. They were offset by lower issue volumes in the period and successful asset productivity initiatives detailed in Appendix 1 of the ASX slide deck, which resulted in 5 million additional pallets recovered and refurbished. On a full year basis, we previously guided to the market, despite pallet price inflation in the year. We expect the pooling capex to sales ratio to improve by 3 to 4 points versus FY22 levels, reflecting ongoing sales revenue growth, as well as the expected improvement in pallet return rates, as US and Europe's supply chains progressively destock and benefits are delivered from our asset productivity initiatives. Turning to the segment results for CHEP Americas, the Americas segment delivered sales growth of 15% at constant currency, reflecting strong pricing growth to recover cost-to-serve increases across the region. The region also delivered both margin and ROSI improvements, despite inflationary cost pressures and higher asset losses due to challenging supply chain dynamics. Underlying profit growth of 26% at constant currency included a 12 percentage point timing benefit with lower pallet return rates driving lower transport and plant activity costs. Excluding this timing benefit, underlying profit increased 14% reflecting strong sales flow through to profit, as well as incremental North American surcharge income and pallet durability benefits. These benefits were more than sufficient to offset plant and transport cost inflation, additional asset recovery and remanufacturing costs, higher asset charges and overhead investments to support future growth and the transformation program. The North America surcharge income, which delivered 38 million of incremental income in the period, is, combined with the headline pricing, intended to recover the inflation impacts on operating costs and to enable delivery of appropriate return on increased capital costs of pallets. Return on capital invested improved 1.4 percentage points at constant currency, driven by the increased earnings partly offset by a 17% increase in the average capital invested, which reflects the impact of lumber inflation on pallet purchases over the previous 12 months. Turning to slide 18 for the revenue profile of the US business. Sales revenue for the US business, which excludes surcharge income, increased 13% with pricing growth of 19%, reflecting rollover contributions from prior year pricing actions and additional pricing initiatives to recover operating and capital cost inflation in the first half. Volumes in the period were down 6%, half of which was due to softening consumer demand, with the balance reflecting constrained pallet availability impacting both like-for-like volumes and net new business volumes, which was in line with the prior year. Turning to the EMEA region on slide 19, CHEP EMEA delivered sales growth of 14%, reflecting strong pricing to recover operating costs to serve increases and progressively recover the impact of lumber inflation on the capital cost of pallets. At constant currency, underlying profit increased 16%, with margins improving by half a percentage point as the sales flow through to profit and higher pallet compensations more than offset the impact of input cost inflation across plant, transport and overhead costs. In addition to inflation, overhead investments in the period included additional resources to support growth and the transformation program. Looking at CHEP EMEA sales growth on slide 20, Overall sales growth in the region was 14%, driven by pricing growth of 12% to recover operating costs to serve increases and progressively deliver a return on the capital cost of pallets, noting that the pallets have a 10-year useful life. The increase in price in the region includes indexation. Volumes were up 2 percentage points, with the rollover from prior year contract wins partly offset by a 1 percentage point decline in like-for-like volumes, largely due to the softening of demand. Pallet availability constraints in Europe continue to impact both like-for-like volumes and net new business wins in the period. Turning to the Asia-Pacific region on slide 21. The business delivered revenue growth of 10% in constant currency, driven by both pricing and volume growth in the pallets business and growth with existing customers in the Australian RPC business. Underlying profit growth of 31% included 8 million of one-off benefit from insurance proceeds relating to floods in Australia and a 6 million timing benefit on deferred repair costs due to lower pallet return rates. Excluding these one-off and timing benefits, underlying profit increased 13% as sales growth and automation benefits delivered in the Australian RPC business were sufficient to offset inflationary cost pressures. The 5.4 percentage point increase in ROSI in the period was largely due to the one-off and timing benefits recognised in the underlying profit, which accounted for just under five points of ROSI growth, with the balance of the ROSI improvement driven by underlying earnings growth more than offsetting the impact of an 11% increase in the average capital invested. The ACI increase relates to pallet purchases and the increase in per unit cost of a pallet, impacted by both domestic lumber inflation and the sourcing of higher cost offshore lumber. I'll now take you through the corporate segment on slide 22. Overall costs in the corporate segment increased 3 million at constant currency, as a reduction in transformation spend of 4 million was offset by an increase of 7 million in corporate costs reflecting both labour inflation as well as additional resources and other employee-related costs. Shaping our future spend decreased 4 million at constant currency, with the 11 million reduction in short-term transformation costs, largely consulting fees, partly offset by 7 million of additional investments to support the digital transformation and other group-wide initiatives, including improving the customer experience. It's important to note that there are additional ongoing transformation costs that are reflected within the regions and not included in the corporate segment. Turning to our cash performance on slide 23, cash flow from operations decreased 42 million at actual FX rates, driven by 154 million increase in cash capex, largely due to lumber inflation and the timing of pallet payments. with approximately 170 million outflow in the first half due to lumber inflation on pallets relating to the purchases in the final quarter of FY22 and in the first quarter of FY23. Free cash outflow after dividends of 147 million was in line with the prior year, with the decline in cash flow from operations and 8 million incremental outflow on financing costs and tax offset by a 51 million increase in cash flow from discontinued operations. The increase in discontinued operations reflected 41.5 million final settlement from First Reserve with the balance of the increase relating to cash flows from CHEP China now recognised in discontinued operations following the proposed transaction announced in November 2022. Dividend payments remained broadly in line with the prior year as an increase in the DPS on the final FY22 dividend was offset by the benefit from the share buyback program, which was completed in June 2022. Turning to our balance sheet, the balance sheet remains strong with a billion of undrawn committed bank facilities and cash balances of 188 million. We maintained our strong investment grade credit ratings with our financial ratios remaining well within our policies. During the half, a green finance framework was established alongside a Euro medium term note shelf program to facilitate bonds issuing in a green format. To provide some further context for the upgraded guidance which Graham outlined earlier, I'll finish by outlining some updated considerations which underpin our FY23 outlook. We expect sales revenue growth to be weighted to pricing as we continue to focus on recovering cost to serve increases in all regions, particularly in the EMEA and the Americas segment. Price realisation in half two is expected to include rollover contributions from pricing in the first half, half-two pricing initiatives to recover cost-to-serve increases, as well as customer mixed benefits. Group volumes are expected to be broadly flat to prior year, with ongoing downward pressure on like-for-like volumes due to macroeconomic slowdown and one-time impacts of destocking, offset by the reissuing of return pallets to service existing customers and to pursue new business. Timing benefits of approximately 35 million are expected to reverse in the second half of 2023, in line with 5 to 6 million of pallet destocking expected in the second half. The North America surcharge income is expected to decline year-on-year in the second half, reflecting anticipated year-on-year decline in lumber costs. For shaping our future, we expect full-year short-term transformation costs of approximately 25 million, down from 48.4 million in FY22. Ongoing corporate transformation costs are expected to include digital transformation operating costs of approximately 80 million, in line with the guidance provided at the full-year FY22 results presentation. Overhead costs, excluding shaping our future costs, are expected to increase at the same run rate as in the first half of this year, reflecting the impact of the first half headcount increases and additional investment to support transformation. Full year margins across all regions are expected to be above FY22 levels, despite a moderation in the second half margins, including the reversal of deferred plant and transport cost timing benefits. Pooling capex in the second half is expected to be below the second half 22 levels, reflecting improved pallet return rates, including anticipated progressive destocking. Asset efficiency is also expected to continue to improve in the second half, with the full year capex to sales ratio expected to reduce by three to four points over the prior year. Cash flow benefits of lower pooling capex related to higher pallet return rates are expected to be weighted to FY24. The level of underlying improvement in the capex to sales ratio is dependent on a number of unknown factors, including lumber and pallet prices, destocking and the rate of reduction of inventory levels across supply chains, and other productivity improvements in the asset pool. ROSI is expected to remain broadly in line with FY22, reflecting the full year ACI impact of second half 22 and first half 23 pallet purchases at elevated pallet prices and reversal of first half 23 timing benefits impacting the second half underlying profit. I'll now hand back to Graeme.