Brambles Limited (OTCPK:BMBLF) Q4 2022 Results Conference Call August 17, 2022 8:00 PM ET
Company Participants
Graham Chipchase – CEO
Nessa O’Sullivan – CFO
Conference Call Participants
Andre Fromyhr – UBS
Anthony Longo – JP Morgan
Justin Barratt – CLSA
Anthony Moulder – Jefferies
Niraj Shah – Goldman Sachs
Paul Butler – Credit Suisse
Matt Ryan – Barrenjoey
Cameron McDonald – E&P
Owen Birrell – RBC
Jakob Cakarnis – Jarden Australia
Scott Ryall – Rimor Equity Research
Sam Seow – Citi
Operator
Thank you for standing by and welcome to the Brambles Limited 2022 Full Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Mr. Graham Chipchase, Chief Executive Officer. Please go ahead.
Graham Chipchase
Hello, everyone, and good morning from Sydney. Thank you for joining us today for our full-year 2022 results announcements. Today, I’ll start by providing a summary of our performance for the year and give an update on progress against our transformation program and the FY ‘23 outlook statement before Nessa takes you through the detailed financials.
Turning to slide three and the key messages from our full year performance. We delivered results that were ahead of guidance with stronger-than-expected fourth quarter performance, providing good momentum as we head into FY ’23. On a constant currency basis, sales revenue growth was strong at 9%, underlying profit increased 10% highlighting the operating leverage we generated this year from price realization and supply chain efficiencies, offsetting both short-term transformation costs and cost to serve increases across the group. Free cash flow benefited from higher earnings and increased asset compensations, although this was more than offset by additional capital expenditure to support longer cycle times at retailers and manufacturers, as well as a $470 million impact of lumber inflation, which led to higher pallet prices year-on-year. This resulted in free cash flow after dividends being a net outflow of $218.6 million.
Our return on capital invested of 17.7% was in line with the prior period, which was an impressive achievement given the operating and inflationary headwinds the business is facing and emphasizes our disciplined approach to capital allocation. Earnings per share growth was strong at 23%, reflecting higher earnings and benefits from the share buyback program, which completed during the year. We increased the full-year dividend declared by 11%, representing a payout ratio of 53% and also increase the franking percentage by 5 points to 35%. In Australian dollar terms, dividends declared for the year increased by 18%.
Turning to some of the business highlights. The Shaping Our Future transformation program is building momentum and we are seeing early signs of financial benefits where these were offset by significant cost inflation headwinds. The importance of Shaping Our Future has never been clearer and this will underpin value creation over the medium to long term. To counter the significant cost inflation and broader challenging market conditions, we accelerated commercial and asset productivity initiatives and we made great progress against our ambitious 2025 sustainability targets, a key differentiator for Brambles and a source of value.
Turning to the next slide. The operating environment remains challenging with unprecedented disruption to global supply chains, ongoing impacts of the COVID-19 pandemic and increased geopolitical tensions. Global lumber supplies, transport capacity and labor availability have all been affected by supply shortages or capacity constraints. And we expect the price of these critical inputs to remain volatile in FY ’23. Specifically on lumber record levels of inflation and scarcity have impacted the supply and price of new pallets in all regions. The high level of inflation, supply chain constraints, and industry-wide pallet shortages have meant customers and retailers have increased their inventory holdings to derisk supply chains. We’ve also seen an increase in the unauthorized reuse of our pallets in response to the pallet shortages and the higher market value of pallets. In response to this, we have taken several actions to support our customers and keep supply chains moving. Specifically, we purchased an additional 8 million pallets in FY’22. However, due to increased cycle times and ongoing low rates of returns, these purchases were not enough to replenish our plant stocks to optimal levels with allocation protocol still in place across major markets in the US, Europe and Australia.
While conditions remain challenging, we expect the level of inventory holdings to partially unwind in the second half of FY ’23. We implemented new processes to refurbish 1.5 million additional pallets that would otherwise have been scrapped and we enhanced asset management capabilities, including increased use of data analytics and digital insights to improve the scale and efficiency of our pallet collection engine.
Turning to slide five. Considering the challenging market conditions and increasing macroeconomic uncertainty, I wanted to take a moment to reiterate the defensive characteristics of Brambles, which position us well to deliver value through all stages of the economic cycle. Looking at the composition of our FY ‘22 revenue, you can see that over 80% of sales is generated from the consumer staples sector, which underpins the resilience of our business during periods of economic downturn. Our performance during the global financial crisis in FY’09 and FY’10 is a great example of this point. Overall, sales growth was broadly flat in both years and CapEx spend fell by approximately $180 million each year, which in turn was a driver for the business generating strong free cash flow despite a reduction in underlying profits.
In addition, we know there is still significant addressable opportunities for growth in major regions with a strong business pipeline that we can pursue where now pallet stock is back at optimal levels. Regardless of the economic conditions, our conservative and flexible balance sheet with plenty of headroom provides a buffer from the ups and downs of market cycles. While our business is strong and inherently resilient we also understand the importance of further optimizing the performance of our business and investing to build the Brambles of the future. In fact, the difficult operating environment we currently face has only reinforced the importance of our transformation program.
Turning to the next slide, which outlines some of the key highlights across the Shaping Our Future transformation program. We are pleased with the tangible progress made in the year. The business has set the right foundations for the transformation program and it’s continuing to build momentum to deliver on the multi-year program. On business capabilities, our cloud migration is now complete, delivering data security and process efficiency benefits. We have also enhanced the project management and digital capabilities of the business. The current operating context has led to an increased focus on accelerating commercial initiatives to recover cost to serve increases, as well as asset efficiency, which we will cover in further detail later in the presentation.
Across our network, we delivered efficiency benefits through service center automation, including the delivery of end-to-end integrated prepare processes across seven of our largest service centers. In addition, we have begun piloting partially automated repair capabilities in small to medium size service centers which will enable us to automate even more of our network and deliver further efficiencies. Network optimization initiatives delivered further efficiencies with reduced transport and storage costs during the year. Pallet durability improved with initiatives undertaken across four key pallet types in the US, Europe and Australia, leading to a 100 basis point reduction in damage rates. This is 25 basis points ahead of our annual target.
Turning to digital on our customers, the foundation has been laid to digitize our pool and deliver on our smart asset strategy. We’ll expand on the progress to date later in the presentation. Turning to slide seven and our detailed scorecard, which tracks our progress against major initiatives. The majority of the metrics are progressing well and on track with some targets already achieved or completed during FY ’22. The progress to-date is a strong indicator of the early success of the program. However, some metrics are tracking below target, largely due to market headwinds. Pallet availability challenges, including lower return rates and broader supply chain dynamics adversely impacted some initiatives. Pallet availability has been the primary reason for net promoter scores tracking below target, as well as not achieving volume growth targets with existing customers. A number of our asset efficiency metrics were also below target for the year and there have been delays in the rollout of the automated end to end repair processes due to semiconductor and component shortages. While we are tracking slightly behind target on women in management roles, our FY ‘22 target of 34% was met in July 2022. We remain confident of achieving our FY’25 target of at least 40% of management roles held by women.
In the next few slides we will outline the comprehensive plans in place to mitigate current headwinds and deliver the operational and financial outcomes of the transformation program and improvements against metrics where we are tracking below target. Turning to the next slide, we understand that the market is looking for more granularity to understand the return on the investments we are making. So let me discuss some of the more important metrics in further detail. From reducing uncompensated pallet losses we are tracking slightly behind due to market conditions, which have led to higher unauthorized reuse and uncompensated loss of pallets. If a 30% reduction in uncompensated losses is achieved, the annual value is estimated to be approximately $150 million through savings on the cost of replacement pallets and increasing compensation coverage. We are tracking ahead of our target to reduce scraped pallets by 15% by the end of FY’25, which includes benefits from processes introduced in the US to refurbish pallets that would otherwise be scrapped. We expect to overachieve against the FY’25 scorecard targets. Finally, while we are behind on the rollout of the end-to-end repair process, we have mitigated some of the financial shortfall through other automation initiatives. We now expect the rollout to complete by the end of FY’25.
Turning to slide nine, the current operating environment has increased the importance of accelerating our asset efficiency initiatives. We are proud of the results achieved during the year with approximately 4 million pallets either recovered or salvaged in an environment where the supply of pallets during the year was constrained. While I don’t propose to go through every item on this page, there are some key call out from each category where additional context might be useful. Our improved collection ability allowed us to recover 2.5 million pallets during the year. These initiatives have been underpinned by insights from data analytics and leveraging our new technology capabilities. We ramped up our small truck fleet across North America and Europe, with the increased frequency of collections, reducing the time our pallets at a retailer or recycler and therefore decreasing the likelihood of loss. We estimate 900,000 additional pallets were recovered during the year. We continued our focus on engaging with non-participating distributors in the US, leading to 400,000 pallets being recovered during the year.
The value and demand for our pallets has shifted significantly and this has required us to incentivize our recyclers differently. While this has come at an increased fees, considering the current replacement value of pallet the incremental cost has been very worthwhile and led to the recovery of 500,000 pallet. Excitingly, we also expanded relationships with five recyclers to increase the breadth of our network two areas we cannot reach and have together created additional capacity to store, inspect and sore pallets and recovery of 500,000 additional pallets in the year. In an effort to improve pallet life and reuse and in line with our commitment to zero waste, we have now installed pallet re-manufacturing capabilities at 20 US service centers. In an environment where pallet prices remain elevated, the ability to re-manufacture pallets ultimately helps reduce our cost to serve. This year we re-manufactured 1.5 million pallets, 500,000 mare than expected. Finally, we increased pricing for high-risk lanes during the year, which can be seen in the higher asset compensations across the US and Europe. In the US, we doubled our coverage rate in half year to now cover 40% of NPD flows.
Turning to slide 10. We continue to build and refine our smart asset strategy. The data collected and analyzed across our smart asset deployments underpin the decisions we made to build the Brambles of the future. And will be a key driver of unlocking further value across our business and for our customers. We’d like to think of each stream as being interlinked and the scaling of any smart asset rollout follows a sequential pattern starting with targeted diagnostics laying the foundation to implement continuous diagnostics before moving to see serialization plus in any given region. There are early signs of value, and most importantly, we are building the right foundations for smart assets to be successful. Looking at targeted diagnostics, we reached our target of deployment in over 20 markets in FY’22 and the plan is to extend this to 30 markets in FY’23. The program injects specific asset pools with a small sample of full track and trace devices, because these deployments target known problems, be it suspected sources of loss or increased dwell times, the value these diagnostics deliver is generally material compared to the capital investment. For example, in the US this year $50 million of benefits were enabled by insights from targeted diagnostics, which allows the team to improve pricing for higher-risk lanes, as well as take actions to improve asset control in specific channels. While we do not advise scale of value generation is extrapolated across all smart asset deployments, the important point here is that, we are building the infrastructure and capabilities required, including collection points, data analytics and creating encouraging location way points to roll out further tracking initiatives.
Next continuous diagnostics brings track and trace capability to a small proportion of the generally between 0.1% to 1%, thereby increasing visibility of our assets as they travel through customer supply chains. We have now reached our target of deploying 200,000 smart assets by the end of the year into our two trial markets, the UK and Canada. While it is still early and takes time to collect, analyze and utilize the data we are seeing initial signs of benefits, which should scale progressively in the coming years. Taking the UK market, for example, with data from these smart assets we have identified and commercialized 35,000 pallet flows, which we were previously not getting paid for. We have also identified 650 new pallet collection points across our network and established relationships with 15 new recyclers, which will increase the number of pallets recovered from the supply chain. The increased visibility of our pallets and early insights into the value, we are confident in generating the future has also led to the decision to scale the Continuous Diagnostics program to North America.
Finally, we’ll be trialing serialization plus in Chile, which combines continuous diagnostics with another low cost unique identifier. Depending on the success of the trial there could be a pathway to accelerate serialization plus in the US. Importantly, we continue to test our hypothesis across a range of technologies and markets before making investment decisions and digital capabilities in FY ‘24 and beyond.
Turning to our customer value slides. We are aware of the price increases our customers have agreed to across all regions to recover cost to serve inflation. Against this backdrop, we understand that while these are genuine increases to input costs we also need to create more value for our customers, which comes down to the customer experience, the quality and availability of our pallets have been easier to do business with. We have a comprehensive list of initiatives to achieve this. We continue to look at ways to improve the customer experience from simplifying the on-boarding process, making self-service easier and quicker and providing greater visibility of pallet deliveries. We are continuing our proactive ordering pilots and have now design, proof of concepts for new customer solutions, which leverage our unique visibility across the supply chain and we look forward to sharing more details as this progresses. I’ve already detailed the numerous initiatives around pallet quality and availability in the previous slide. Finally, we are finding ways to make it easy to do business with us. From turning survey insights into actions, as well as migrating key systems to the cloud, which allows for seamless upgrades and reduce downtime. These are all important initiatives to improve the experience our customers have when interacting with us.
Turning over the page to our sustainability program. We continue to cement our leadership position with our credentials recognized worldwide. In FY ‘22, we announced our commitment to accelerate our decarbonization strategy by 10 years, achieving net zero greenhouse gas emissions across our whole supply chain by 2040. This is fundamental to our objective of maintaining our leadership in sustainability. We increased the number of customers we collaborated with by 25% and we are well on our way to achieving our 2025 target of 500 customer collaborations .We ended the year with 33% of management positions held by women. Finally, we signed a new $0.35 billion sustainability linked revolving credit facility in August 2022. The pricing of this facility is linked to sustainability targets, including decarbonization and highlights the increasing prominence of sustainability in capital markets.
Finally, moving to our FY’23 outlook. We expect the challenging macroeconomic and operating conditions experienced in FY’22 to continue into FY’23. This includes ongoing supply chain disruptions, inflationary pressures and geopolitical unrest, leading to increased market uncertainty and volatility in our key regions. Within this context, our FY’23 financial expectations are: sales revenue growth of between 7% and 10% at constant currency; underlying profit growth of between 8% and 11% at constant currency, which includes approximately $25 million of short-term transformation costs; free cash flow after dividends to improve on FY’22 but remain in net outflow. In addition to this underlying improvement, free cash flow after dividends will include the benefit of the $41.5 million of proceeds received in August 2022 from the repayment of the loan receivable from fast reserves. Finally, in line with our dividend policy, the payout ratio is expected to be between 45% and 60%.
I would now like to hand over to Nessa to present the FY’22 financial overview.
Nessa O’Sullivan
Thanks, Graham, and good morning everyone. Starting with our FY’22 results, the Group delivered strong constant currency sales revenue growth of 9% with operating leverage to deliver operating and underlying earnings growth of 10%. The earnings growth reflects recovery of significant cost to serve increases through pricing, surcharge recovery mechanisms and supply chain efficiencies. The earnings growth includes a 1 point net benefit due to activity cost savings associated with lower pallet returns, partly offset by related operating inefficiencies.
In FY’22, the business was also cycling a one-off 1 point earnings growth benefits in the prior year relating to a site compensation in the APAC region. Profit after tax for the Group increased 18% at constant currency and included a $22 million hyperinflation charge relating to Turkey. This was offset by a $21.6 million revaluation gain on the loan receivable from First Reserve. Since year-end this revaluation has been fully realized and loan settlement funds of $41.5 million have been banked. Brambles basic EPS growth was 23%, reflecting profit after tax growth of 18% and a 5 point benefit from the share buyback program, which was completed during the year.
Turning to slide 16. Group sales revenue growth increased 9%, driven by increased pricing with revenue growth across all segments. Pricing growth of 9% reflects recovery of input cost inflation and other cost to serve increases associated with the challenging operating conditions during the year. Group issue volumes were in line with the prior year as pallet availability was impacted by several factors, including lumber scarcity, pallet manufacturing constraints and lower pallet return rates due to longer cycle times and higher levels of stock holdings across global supply chain. Volumes with existing customers declined by 1%, offset by a 1 point increase in new customers volume, primarily in Europe, as well as rollover volume contribution from a large RPC contract in Australia, which commenced partway through the prior year.
Looking at the drivers of the group profit performance on slide 17. Sales growth combined with incremental surcharge income in North America contributed $574 million to profit growth in the year and offset material operation cost increases across the group. The $175 million increase in plant costs was driven by cost inflation of $183 million, primarily lumber and labor and additional repair costs associated with the refurbishment of pallets that would otherwise have been scrapped. These increases were partly offset by activity cost savings due to lower pallet return rates and damage rate improvements due to pallet durability initiatives. Transport cost increases of $154 million included fuel and freight inflation of $207 million and additional asset recovery costs in the US business. These increases were partly offset by network optimization efficiencies and lower activity costs due to lower pallet return rates in the period.
IPEP expense increased $38 million with $23 million of this increase due to higher pallet unit costs with the balance of $15 million due to a combination of additional loss charges in the Americas segment. Overall, Group losses as a percentage of the pool remained in line with the prior year. Transformation costs increased $53 million and included short-term cost of $48 million. The balance of the increase related to higher ongoing transformation costs primarily associated with digital transformation initiatives. Other costs increased $18 million as increased investment in resources to support future growth and improved commercial outcomes across the group were partly offset by higher asset compensations in the period. Finally, the year-on-year performance also included the impact of cycling $11 million of one-off compensations in the Asia-Pacific region, which primarily related to the mandatory relocation of a service center.
Slide 18 outlines are cost recovery performance in the year. Our ability to take pricing and adapt our business model and commercial terms to recover cost to serve increases is a key highlight of the results and demonstrates the resilience of the business. As you can see from the first two bars on the left hand side of the chart, we delivered $150 million net P&L benefit, which only partly offsets the increase in pooling capital expenditure during the year, which was driven by $520 million of lumber inflation increases and $155 million of additional pallet purchases to support increased cycle times and to replace lost pallet. The key thing to note is that the investment in pallets relates to 10 year assets and that we are therefore expecting to progressively recover this capital cost increase and generation appropriate return on that investment over multiple years.
Taking a closer look at lumber inflation on slide 19. This slide highlights both the extraordinary lumber cost inflation and lumber market volatility in the US and European markets, with the cost of lumber remaining well above historic averages. Historically, we have seen cyclical increases in lumber costs in the range of around 30% to 505%, which is well below the 200% plus levels of inflation we have seen in the lumber indices. The supply and demand dynamics impacting lumber continue to change with a range of factors including demand from China, potential recession, housing starts in the US, as well as the Russia-Ukraine conflict, adding further uncertainties to a material input cost to our business. Our own demand for pallets and lumber is also impacted by increased levels of stock holding and losses across supply chain, which have resulted in increased pallets required to service the same level of demand.
While lumber inflation impacts repair cost, the biggest impact of lumber inflation is on CapEx investment with the lumber representing over 80% of the cost of a new pallets. In FY’22, lumber inflation was the primary driver of the 40% increase in the weighted average price of pallets across the group and which added $520 million of pooling CapEx on an accruals basis. While we have seen some moderation of lumber pricing in the fourth quarter of FY’22, we expect FY’23 weighted unit pallet cost to increase over the FY’22 level with inflation impacting the price of new pallets to varying degrees in different regions. When thinking about the implications for cash and CapEx outcomes, it should be noted that a $1 increase or decrease in the weighted Group unit cost of pallets equates to approximately $50 million in annualized impact on cash flow and CapEx.
In terms of cash implications, there is also a two to three month lag on the cash flow relative to CapEx commitments. Hence, it should be noted that while we provide cash flow guidance that the price per pallets as well as the levels of stock holdings across supply chains remain material potential swing factors to CapEx investment spend and cash flow outcomes in FY’23.
Turning to the Group’s asset efficiency performance on slide 20. The Group’s asset efficiency metric, the pooling CapEx to sales ratio increased by 9 points to 30% in FY’22, which was driven by year-on-year pallet price inflation. The impact of increased pallet purchases on the CapEx to sales ratio of $1555 million to support longer cycle time and replacement of last pallets was offset by asset efficiency improvements, including higher asset recollections and re-manufacturing of pallets that would otherwise have been scrapped. We expect FY’23 CapEx to sales to reduce by 3 percentage to 4 percentage points, reflecting increased pallet return rates due to a combination of asset efficiency initiatives and destocking as we see global supply chains normalize. We expect group weighted unit pallet costs to remain above FY’22 levels.
Turning now to segment result. The Americas segment delivered top line growth of 12% at constant currency, largely reflecting pricing to recover cost to serve increases. Underlying profit increased 25% at constant currency as pricing gains, surcharge income and operational efficiencies, more than offset cost inflation in the P&L. Underlying profit margin increased 1.7 percentage points at constant currency, reflecting margin expansion across all markets and including a 1 percentage point margin improvement in the US business. The margin performance in the US business has been supported by material benefits from supply chain investments made over the last three to four years. These investments have included service center automation, which have added capacity and agility to our service center network and sawmill investments which has then enabled improve lumber yields, as well as commercial, customer service and sustainability benefits. Without these investments the cost impact of both volatility and demand and pallet scarcity would have added incremental cost to the US business over and above the actual increases reported in the year. Return on capital invested in the region improved 2.5 percentage points, reflecting the strong earnings growth.
Turning now to slide 22, looking at US pallets revenue. Revenue growth of 11% in the year reflected pricing growth to recover higher cost to serve. Pallet availability challenges continue to restrict volume growth with the like-for-like volumes down 4%. Net new business volumes was flat to the prior year, as the business prioritize servicing existing customers over targeting new business wins.
Turning to the EMEA region now on slide 23. CHEP EMEA delivered sales growth of 7% at constant currency, reflecting pricing growth of 4% in response to cost to serve increases, as well as net new business growth of 3%. Underlying profit increased 5% with the contribution from revenue, asset compensations and operational savings from lower pallet returns, partly offset by an acceleration of inflationary cost pressures. Despite supply chain efficiencies and increased pricing to recover cost to serve, overall margins declined by 0.3 points due to the increased inflationary pressures during the year. ROCI also declined by 0.7 points, but remained strong at over 23%.
Looking at the sales growth on slide 24, in the EMEA region, overall, sales growth in the region of 7% included pricing growth of 4%, reflecting the increased contractual price indexation and other pricing actions to recover the higher cost to serve in the region. Net new business volumes increased 3%, largely due to contract wins in Central, Eastern and Southern Europe. While like-for-like volumes were impacted by both softening demand in the European pallet business and the continued impact of semiconductor and other component shortages on the automotive industry.
Turning to slide 25, looking at CHEP, Asia Pacific. The business delivered sales growth of 5% at constant currency, reflecting pricing growth to recover increased cost to serve and also reflects increased pallet pool productivity and rollover volume contributions from the Australian RPC contract commenced partway through the prior year. Pallet availability challenges in the Australian business continued to impact volume growth. Underlying profit increased 20% and includes one-off impacts in both the current and prior years, which largely offset each other. FY’21 profit included $11 million of one-off benefits, primarily related to one-off site compensation in Australia, and FY’22 includes $10 million of net timing benefits from lower pallet returns. This FY’22 $10 million timing benefit is expected to unwind in FY’23 as pallet returns normalize. Excluding these items, profit growth reflects increased productivity of the pallet pool, the sales contribution to profit, and incremental uplift from the Australian RPC business, partly offset by inflation and overhead cost increases.
Return on capital investors improved by 2.3 percentage points at constant currency as the margin expansion in the period was partially offset by increases in ACI to support the Australian pallets and RPC businesses and reflects increased productivity of the pallet pool and scarcity of lumber supply limiting new pallet purchases.
Turning to slide 26 and the corporate segment. Total transformation costs of a $108.6 million increased by $53 million and included $48.4 million impact of short-term transformation costs. These short-term costs were in line with the $50 million estimate providers at the September 2021 Investor Day. Ongoing program cost of $60 million included approximately $40 million of digital transformation costs. Also in line with the guidance provided at the 2021 Investor Day. The balance of the spend was related to IT investments and initiatives to improve the customer experience. Corporate costs increased $7 million at constant currency and includes $5 million related to Brambles share of the MicroStar post tax losses. In addition to labor and insurance related overhead cost increases.
Turning to the cash flow now on slide 27. Despite the increased inflation in the period, the Group generated positive free cash flow before dividends. While the business delivered strong earnings growth and increased asset compensations, cash flow from operations of $372.6 million decreased $528.5 million over the prior year, due to higher cash capital expenditure and increased working capital. The year-on-year decline also reflects the cycling of the benefit in the reduction of plant stock in the prior year. Cash investment and capital expenditure increased by $597.3 million and included $470 million of lumber inflation and reflected the impact of cycle time increases and higher losses, which were partly offset by benefits from asset efficiency and scrap production initiatives. The year-on-year increase in working capital of $42.8 million reflects higher trade receivables at year-end, consistent with the strong fourth quarter revenue growth and the impact of lumber inflation also increase the value of working capital inventory balances. Financing costs and tax payments increased by $13 million and included the reversal of the prior-year tax timing benefit of $35 million. Free cash flow after dividend was a net outflow of $218.6 million after dividends payments in year of $304.8 million, which was an increase of $24 million over the previous year.
Turning to slide 28, on our balance sheet. The balance sheet remains strong and puts us in a great position to continuing investing to support future growth and to reward shareholders with dividends, while maintaining our strong investment grade credit ratings. At the full year we have $0.9 billion of undrawn committed facilities and cash balances of $158 million and a conservative net debt to EBITDA ratio of 1.47 times. We continue to have long dated debt maturity profile with no bond maturities until FY’24. And pleasingly, in August this year we leveraged our sustainability credentials to sign a new $1.35 billion five year sustainability linked revolving credit facility, which replaces $1 billion of existing bank facilities and adds an additional $350 million of committed headroom.
Turning to slide 29 and FY’23 considerations. I want to finish by covering some FY’23 outlook considerations to add some further context to our guidance, which Graham outlined earlier. Given our expectations that the challenging macroeconomic and operation conditions experienced in FY’22 will continue into FY’23, we also expect the pricing and surcharge mechanisms will continue to operate effectively to enable recovery of inflation cost pressures in the P&L and to support progressive recovery of the increased capital cost of pallets. Consistent with this, we expect sales revenue growth to be weighted to pricing across all regions as we continue to focus on recovering cost to serve increases. We also expect net new business wins to remain constrained. Pallet availability in FY’23 will be dependent on normalization of levels of stock holdings across supply chains, outcomes of asset efficiency initiatives, as well as demand from existing customers and overall lumber and pallet suppliers.
Underlying profit growth is expected to be impacted by higher repair and handling costs as supply chains normalize and asset productivity initiatives lead to higher pallet return rates. In the APAC region, this is expected to lead to FY’23 ULP margins being below FY’22. The rate of margin improvement in the Americas segment is expected to moderate, given the strong results in FY’22. And in EMEA, we expect to see an improvement in the ULP margins as the region seeks to recover cost to serve increases. The expected improvement in the free cash flow after dividends in FY’23 will be weighted to the second half of the year has increased earnings, asset efficiency initiatives and the normalization of supply chains are all expected to be faced in the second half. The level of underlying improvement is dependent on the number of factors outlined on this slide.
On a full year basis, FY’23 ROCI is expected to decline by approximately 0.5 point to 1 point, reflecting the full year impact of FY’22 pallet purchases at elevated prices and progressive delivery of returns on assets with the 10 year life. Important to note, that the FY’23 ROCI remains well above the cost of capital.
I’ll now hand back to Graeme for his closing remarks before we go to Q&A.
Graham Chipchase
Thank you, Nessa. In summary, we are proud of our many operational and financial achievements during the year in challenging operating conditions. As a business, we continue to deliver on our purpose of connecting people with life’s essentials every day, playing a critical role in global supply chains by supporting our customers while investing for the future. We demonstrated our focus on delivering against our financial targets with our FY’22 result ahead of revised guidance, driven by strong fourth quarter performance.
Towards the end of FY’22 we completed our capital management program, which commenced in 2019. In total, we returned $2.8 billion to shareholders, which is evidence of our disciplined approach to capital management. We made tangible progress with our transformation program, building momentum for long-term success. Importantly, underpinning the long-term value of the transformation program is our sustainable business model with reuse, resilience and regeneration at its core. We continue to strengthen our sustainability leadership position with meaningful progress against our 2025 sustainability targets.
Finally, our FY’23 outlook continues to see the business generate strong profit growth with an improvement in cash flow generation despite continuing challenging macroeconomic and operating conditions. Thank you. And I’ll now hand over to the operator for Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instruction] Your first question comes from Jakob Cakarnis from Jarden Australia. Please go ahead. Pardon me Jake, your line is now live. Your next question comes from Andre Fromyhr from UBS. Please go ahead.
Andre Fromyhr
Good morning. Maybe just starting with the free cash flow outlook. That strikes me that with– coming in higher than the guidance for FY’22 giving double digit earnings growth into next year. Proceeds from [indiscernible] lower US lumber costs, you’ve also flagged and improving capital — CapEx to sales ratio, why we still expecting a negative number of just free cash flow after this year.
Nessa O’Sullivan
So thanks for the question. So a couple of things to note, look, we still did highlight that we expect lumber cost to increase year-on-year, because that’s the trend that we are still currently seeing in pallet prices. So, hence why we’ve called out, look, if we are wrong on that, and if we actually see the weighted average cost of our pallets declined, a $1 decline is worth $50 million incremental cash flow and $2 bucks, obviously, you guys can do the math on it, but because there is a range of uncertainties that impact us we factored in what we are seeing and what we expect to happen at this point. And through the year, we’ll be able to give more insights to what we actually see happening.
The other critical piece we’ve seen is that, we’ve had to put a lot more CapEx into supporting longer cycle times as across supply chains people are holding more stock. Now, we do expect to see that unwind or start to online certainly in the second half of the year, the timing of that will also impact the pallet purchases. So there are two key factors, they are material amounts and at this point we’re sort of — we’re highlighting we do expect an improvement, but that there are a number of material factors that are yet to be played out.
Andre Fromyhr
May be I can just move on to pricing. Obviously it’s a strong feature or main driver of sales growth at the moment and some of that will continue into FY’23, do you have a sense of how the market is — your competitors and the broader sort of whitewood environment is moving on pricing and where the level of attention with customers at the moment, this is sort of acceptable when you present the data and the risk analysis that you’ve been talking about, are you getting customers walking away on that basis? Or are you actually getting the behavioral responses that you’re expecting in terms of asset control.
Graham Chipchase
So I think there are quite a few bits in that question. So first of all, let’s talk about the competitors. As I think I’ve said pretty consistently, when it comes to the environment for pricing, you need three things, you need some inflation, which I think we’ve got a fair bit of it at the moment and we need tightness of supply and demand of pallets, which again, we’ve certainly got that at the moment and need rational competitors. And I think what we’re seeing is that the competitors are being rational and all the other prerequisites are there. So there is no reason to feel that the environment to be able to continue to get price increases is there. Now maybe I want your comments around the reaction in the market. At the moment, I think customers want pallets, because there are not enough pallets around. So to the extent that they are walking away, no one is walking away, because everybody desperately needs to pallets. I think the key thing is, as we continue to suffer costs — higher cost to serve and we are, because either, as Nessa said, we are still expecting to see higher pallet prices due to lumber inflation. But on top of that, we’re also seeing higher cost of service, because we are having higher inventory holdings and higher cycle times, that is increasing our cost to serve and therefore we should be increasing pricing to recover that. So we’re still seeing that and we would still expect customers to pay that, but at some time — at some point that is going to get more difficult and at some point we’ll see customers saying, look, there’s no shortage of pallets, we’re not happy with the prices you have been charging us and that is why it’s very, very important that we show our customers what we’re doing them beyond just supplying pallets at the right — the right place, the right time in the right condition. We’ve got to show them we are creating more value with our better networks, what we’re doing around digital to give insights to them, so that they can get benefits and extract some value out of their own supply chains. So I think that’s sort of — I’m not saying that’s going to be an issue in the next 12 months, but it certainly at some point is going to become something we absolutely have to deliver on. So I would say it’s okay at the moment, but are we getting lots of Christmas cards from customers thanking us for our price increases, of course not. I mean, no one likes it. But at the same time, of course, they are seeing massive inflationary cost increases in all their other raw material inputs. I don’t think we’re the only people that are saying this from which I think somewhat makes it a bit less contentious.
Andre Fromyhr
And just a little bit deeper on that one. Can you foresee a scenario where the core pricing sort of stays where it is or continues to tick up, but the customers experience — I guess I’m thinking about the Americas here, where the customers’ experiences actually a price reduction, because surcharges dropping away.
Graham Chipchase
Well, I think surcharges will drop away at some point, because they’re driven by the index which constitutes the cost element. So either fuel prices or lumber. So that will absolutely happen. The question is, do we hold on to the core pricing, the regular pricing which we put in there, because the cost to serve has gone up and if we have things that change in the markets that make the cost to serve go down, then we will probably want to look at that on a customer by customer basis. That’s the whole point about having a dynamic pricing model, which is driven by better data so that those customers who give us our pallets back quicker will see a benefit compared to those customers that don’t, because at the end we really want to get the pallets back quicker. And I think to the extent to which our pricing model drives the change in behavior, that’s actually a good thing for us. So yeah, I mean we have to wait and see what happens when conditions change. We’re not seeing the conditions change, so it’s hard to answer accurately.
Andre Fromyhr
Great. Thank you.
Operator
Thank you. Your next question comes from Anthony Longo from JP Morgan. Please go ahead.
Anthony Longo
Good morning, everyone. I just had a quick question on the pooling CapEx to sales and improvement. Just wondering if you could perhaps give a little bit more color as to why you’re not expecting it to improve more from that 30% down to 26%. Is that potentially reflective of a longer cycle times and pellets being with manufacturing and retailer customers and potentially higher damage rates as well.
Nessa O’Sullivan
Less so about damage rates, more about cycle time and the actual unit cost of the pallets, because the reduction is really driven by more efficiency in the pool that we’re expecting year-on-year. We are still expecting year-on-year increase in the pallet prices, again, that is a material swing factor. So if we end up in a much better place with pellet prices that would enable us to get quicker to a lower CapEx to sales. But we factored in that we — despite an increase in the unit cost of the pallets that we’ve seen some good outcomes in the asset efficiency this year, and that we’re expecting more of that to flow through next year. And that’s despite us expecting — currently we’re running our pallet pool with below ideal levels of inventory and that’s restricted our ability to go after new business wins. We’re expecting to be rebuilding that pallet pool as well through FY’23 and that’s factored into the outlook.
Anthony Longo
That’s great. Thanks, Nessa. And then just a further question on pricing. I appreciate we spoken a little bit about it already, but in the context provided on some of the high-risk loans that you had some – that you had flagged and in the context of the inflation that we have seen, as well as understanding that the surcharge dynamic as well. I mean to the extent, how much are you still expecting pricing to increase over the next little while, because it looks like that second half number was particularly strong, particularly in the Americas.
Graham Chipchase
Yeah. Well, as you know, we can’t address all of the contracts at the same time. So there’s still contracts that we haven’t looked at in terms of changing the MPD surcharge or additional charge. So that will still go on through FY’23. And contracts continuing to come up for renewal and we are continuing to renew them at higher prices to reflect the higher cost to serve. So we don’t anticipate any significant change in that sort of directional position on pricing. I mean, I think we — it is a dynamic situation and we have to look at it very carefully. We have to be — what we’ve seen though is that increasing the NPD charge in the US hasn’t really changed behavior as much as we thought and that clearly is because there is such a big shortage of pallets, people are very wary about some — moving on to whitewood, because there is not enough whitewood either. I think we’ve also going to be a little bit careful because recognize that our customers don’t necessarily ship all their product to an MPD, though some of them will be begin to participating distributors and if we run that risk, if we push too hard on the NPD charge, they’ll start saying actually we just going to do away with pulled on both NPDs and PDs and it will be counterproductive. So we do look at it on a case-by-case basis, where we feel it’s appropriate, we will continue to pursue. But in other cases, we’ll say no if we think enough is enough. So again, it’s a bit of a dynamic situation.
Anthony Longo
Okay, great. Thanks. Graham. And look, just a final one for me. I won’t overstay the welcome. But aside from the FY’23 guidance goes, there was a slide that you did highlight things for — your targets for uncompensated sort of pallets, pallet scrapped, et cetera. For your FY’23 guidance, is that — does it mean that you need to get those targets to hit that guidance? Or is that largely an aspirational target that you’ve set there?
Nessa O’Sullivan
So included in FY’23 we do include targets that take us along that glide path to improvement. So you should be expecting that we will be showing progressive improvement over the next few years on that, but it does include improvement in FY’23. Yes.
Anthony Longo
Okay, excellent. Well, congratulations on the results and thanks for the time.
Graham Chipchase
Thanks.
Nessa O’Sullivan
Thank you.
Operator
Thank you. Your next question comes from Justin Barratt from CLSA. Please go ahead.
Justin Barratt
Hi, guys. Thanks very much for your time today. Just a couple maybe for Nessa. Nessa, the one half ’22 result, you sort of highlighted the pressure that you’re seeing on both demand and supply side in terms of lumber pricing. I was just wondering if I could get an update on how you see that currently. And I guess I was just asking in the context of you commented again about the unit pricing for pallets expected to be higher in ’23 than ’22. I just wanted to again ask if I understand why that’s the case given the record, I guess, lumber prices that we saw throughout ’22.
Nessa O’Sullivan
Yes. So a couple of things to note. First is, if you look at the shape of where we saw lumber inflation going up, we saw it really accelerating in the US If you look last year, we had a much bigger impact. This year, we sort of saw those impacts flowing through to Europe where we saw that acceleration. And then if you look particularly in Europe, you look at Russia, Ukraine. And although we don’t actually access much lumber from Russia, Ukraine markets, as a percentage of our total global supply that’s a very small number. The challenge is, it cuts off supply to other people who are buying lumber, which means there’s now more people trying to buy the same lumber we are, even though there’s an underlying potential decrease in demand and some challenges with affordability and sort of consumer demand that as people think about could there be a recession. You still have this underlying piece that is a challenge in lumber and particularly in Europe.
And then if you actually look at what we’re seeing in Americas and the US, while we’ve seen some moderation, if you look at the overall group weighted cost, which we do across all of the regions, while we saw some moderation, we haven’t yet seen a sustainable decline. So part of it’s also impacted. The US pallet price, for instance, is also impacted by the number of imports that we get from Latin America. So there’s also supply issues there that impact the net cost, and that’s always been a benefit to us. So as we’re looking a little bit more constrained in supplies from them, their weighted cost is also impacted. So we try to outline the number of factors. We’re not going to capture them all for sure. But things like housing demand in the US potentially isn’t going to be as strong as we thought it was 12 months ago as we look at some changes in customer dynamics. But we still think flows from Latin America are going to be — remain a bit challenged from a supply perspective, and we expect that impact in Europe of flowing through from Russia, Ukraine to be going the other way in terms of pricing.
So it’s a combination, and that’s why we’re highlighting, look, we do expect an increase. It’s not at the level that we’ve seen in FY ’22. It’s a materially lower level of increase, but we’re saying we’re not seeing a decrease. But that remains to be played out. And so we’re very open to saying we’ll continue updating the market depending on what we actually see. And remembering also that the lumber we buy isn’t an exact match to what you see in the lumber indices. And so lumber indices, if you look at that level of increase that went up 200%, our weighted average cost of pallets went up 40%. And that’s a bit due to the phasing on the lumber inflation that happened in the different markets. It’s a bit about the mix, but also we do buy better than the market, buying lumber and lumber supply. And remembering it’s sustainable lumber supply, so we’re quite choiceful about where we buy from. We have outperformed the market in terms of how we buy lumber.
So they are all factors just to think about. So when the lumber indices comes down, it doesn’t necessarily directly translate to us in terms of our costing, but you can be sure we’ll continue to be very aggressive in terms of how we buy lumber and making sure that we get the best possible price in terms of the pallets that we buy but making sure we stick to good quality lumber that meets our sustainability requirements.
Justin Barratt
Great. Thanks for that detail. Second one, just in terms of net plant and transport costs as a percentage of revenue. I just noticed that in EMEA, they’re a little bit higher than historic levels. Is that just sort of due to the slight lag in pricing indexation that you get in that region? And then just in Australia, it was much lower than it has been in the past. Is that just due to those lower pallet returns that you’ve called out? And hence, we can see that rise or expect that to rise again in FY ’23 back to sort of where it has been historically?
Nessa O’Sullivan.
Yes. Look, I think you’ve done a good job on your analysis there because if you look at it overall, you take the net plant cost to sales that we set out in Appendix 5 and the net transport cost to sales, it’s still around 55% on a combined basis relative to sales. But you’re right, we do see some movements and partly lower activity in Asia Pacific that we’d expect to moderate. And if you see an increase in EMEA, particularly in areas like the UK, where there’s been particular issues with transport scarcity, we have seen transport capacity challenges increase the cost. So they are the things to think about. And in terms of plant cost in EMEA, too, we’ve had the impact, too, of heat treating of pallets post Brexit that has been added in there.
Justin Barratt
Fantastic. And then one final one for me. I was just surprised by the reduction in your IPEP expense in the second half of ’22 just given where, I guess, supply chains or the constraint on supply chains remain. Can you just describe to us what the key drivers of that reduction were in the second half?
Nessa O’Sullivan
Yes. Well, you need to look at it on an annual full year basis year-on-year because the timing of the expenses also depends on when we complete the audits and some of those is down to access to sites. So I kind of wouldn’t read too much into what you see on a half-on-half. I’d look at the full year basis. And on a full year basis, you’ll see that the loss rate in the pool was sort of around that 8.3% overall, so sort of similar year-on-year. And the overall increase we’re seeing is — of the $38 million is sort of largely driven by FIFO cost of pallets, which is $23 million, and the balance of $15 million is that, that’s slightly the increase in losses overall. So that’s what — looking at it, it’s best to look at it on a full year basis because depending on when we do the major audits, that’s where we book — that it impacts the timing of what we book.
Justin Barratt
Fantastic. Thanks very much.
Operator
Thank you. Your next question comes from Anthony Moulder from Jefferies. Please go ahead.
Anthony Moulder
Good morning all. If I can step back on pricing, please, those very strong pricing increases in the period. I guess the question is how many of your customers are now paying a pricing that reflects that higher cost to serve. I guess I’m trying to understand as to how many more periods those pricing increases need to continue for or is just going to continue to roll.
Graham Chipchase
So I mean, half of your answer is that, there’s still more contracts to address because, again, if you think about the view, the average length is three years, so we’re going to be doing one-third each year. So — and again, in terms of cost to serve increases, those are continuing to increase. So on that basis, even if they had stopped last year, we still have another third or two-thirds to go. But they’re not, we’re still seeing a higher cost to serve. So I think the environment is still there for us to continue to need to be fairly robust on price increases. And that’s, I think — our outlook statement for ’23 kind of reflects that.
Anthony Moulder
And I see that in the very low surcharge income, which tells me that the surcharge structure wasn’t properly implemented when it was put into the US It wasn’t like the European program. So those price increases, they can only go through at the contract reset? Or is there a discussion that can happen within that three years that you can get a high cost to serve in the interim?
Graham Chipchase
So the surcharge mechanism, you can see, I think it was $76 million worth of increase in ’22. So I think with — and that was in the US, I mean, that is, I think, quite material. And I think that’s a result of all the work that’s been done over the last few years to get surcharge wording into the contracts to cover things like lumber and fuel. But the other thing, which is, I think, is the one that we’re really driving at here is the real cost increases in the contracts relating to either cost to serve, but in reality making sure that the contracts are profitable and creating value, which again, over a long period of time was probably not happening in the US. That we’ve been addressing, again, every time a contract comes up for renewal, and we’re continually looking to raise the bar across the network. So every time a contract comes up for renewal, we’re looking at, well, is it now below the average? Does it really reflect the cost to serve? And if it doesn’t, we are still going in with robust price increases. And I think that’s exactly what we should be doing. And there’s — and I think there’s no intent to step away from that, provided the three underlying factors are still there around tightness of supply, inflation and rational competition. And those always got to be the prerequisites for that sort of a robust pricing environment.
Nessa O’Sullivan
And worth noting that, if you like, some of that surcharge mechanism, if you like, if you’re to translate that into Europe, that happens with the indexation. Yes, there’s a time lag in terms of if you take it on 1 July, but we have, in the last number of years, also taken some increased pricing in the Europe market that has been out of cycle for that indexation. It’s not across every contract, but it has — we have where there have been increased costs. Brexit cost has been an area where we’ve gone back and increased costs, for instance, for heat treatment of pallets and where we had particularly acceleration in inflation for transport costs, which is going back into FY ’22. We also took additional pricing going into the second half. So there’s a time lag in indexation in Europe, which obviously makes it less ideal in lots of — when you have high inflation. But we have taken steps where we needed to, to address it. But in the US, we’d say, in North America, we think those surcharge indexes are working pretty well for us.
Anthony Moulder
Good. Thank you. And I guess that leads into the higher pallet costs that are being addressed by these pricing increases. Can they continue, given that the costs to your business is going to be through the P&L at least? It’s going to be higher depreciation costs and higher IPEP costs that, as you pointed out, like in the last 10 years, how you’re getting to a point that those cost offsets reflected in the pricing increases that you’re driving over the next few years.
Nessa O’Sullivan
Yes. So good — really good question, Anthony. So what we do as contracts come up, we look at sort of the whole cycle, and we factor in what the cost of the assets are into those contracts. So if we have multiple years where asset prices remain higher, then that will impact the pricing we put in. We do expect there to be some moderation in lumber costs over time, so that’s factored into our thinking on pricing. We have opportunities to reprice contracts on average sort of every three years, but some of them are shorter than that. And we continue to look at what is the total cost to serve over the contract period? What’s our outlook? What do we expect? And so it does get factored in on a total basis. But for us, and I know there was some asks for us, why can’t you recover it all in the one year? That would be inappropriate for our customers for a 10-year asset to try and factor it all in.
So if you like, we look at real cash on cash, what is the cost to service the customer, what do we earn from the customer, and that’s the input to determining the pricing. But you’re right, as a follow-on, when we spend more on a pallet, there will ultimately be, for instance, higher depreciation costs and the penalty for losing a pallet is higher because we have to replace it at a higher cost and obviously take a hit to the P&L. As you go forward, it will ultimately, over time, affect the FIFO values. But that’s over a longer time the FIFO values.
Anthony Moulder
I guess that’s a point that — I guess the question is whether or not you’re recovering enough of that in the earlier period because that cost will remain in the P&L for the next decade.
Nessa O’Sullivan
Well, I think you have to look at the [Multiple Speakers] sorry, I just think you have to look at what’s the economic cost of the assets. So the depreciation is one component, and you can see we’re managing that with over recoveries. But we’re also looking at getting an appropriate return for the additional invested capital in the business. And that’s why we’ve been at pains to actually show those charts with how much are we recovering over and above the cost in the P&L. So then you can actually see what are you putting into the ACI and does this make an appropriate return for us.
Anthony Moulder
Like a BVA. The last question I’ll ask more for tomorrow at 10:30, but I wanted to ask about the CapEx of the digital transformation that looked lower for ’23. Is there some delay on some of those programs into ’24, please?
Graham Chipchase
Part of it is, we are not putting quite as many of the Ultra devices, which are the high — obviously, the high-spec devices in because we — as everyone knows, there is a shortage of semiconductors. So we’ve not been able to acquire as many as we want. But also part of it is us taking our time to make sure that the projects we want to invest in are going to deliver what we want. So a good example is something we were going to do for the customer experience sort of part of digital transformation. We’ve just decided to wait a couple of extra months because we’re talking to a specific customer on that. And we were thinking we might launch it by the end of FY ’22. It’s going to be happening in the next couple of months.
So I think those sorts of things have given a slight delay. But if you look at it in the round, we’re saying it’s on track between — across ’22 and ’23. But the outcome of what we’re doing in ’23 will inform the CapEx spends in ’24 and ’25 because as we said back in the Investor Day, we are stage gating those investments, and we haven’t seen the conclusion of the trials yet, which will determine whether we go ahead with some of the things in ’24 and ’25.
Anthony Moulder
Okay. Thank you.
Operator
Thank you. Your next question comes from Niraj Shah from Goldman Sachs. Please go ahead.
Niraj Shah
Hi. Good morning, Graham and Nessa, Just sort of following up from that last question. I appreciate the discussion and the sensitivities you’ve provided around pallet pricing for pooling CapEx. Non-pooling CapEx is probably more controllable. Are you able to provide some sort of guidance on what that should look like in fiscal ’23 or at least the major moving parts between ’22 and ’23?
Nessa O’Sullivan
In relation to non-pooling CapEx?
Niraj Shah
Yes.
Nessa O’Sullivan
Well, I think we set out at Investor Day what our investments were going to be through supply chain, digital, et cetera, and CapEx, and we should be broadly in line with those indicators. So if you use that as a rough guide, some phasing changes, some mix changes, but generally, that should be a fairly decent guide.
Niraj Shah
Got it. Thank you. And you mentioned the allocation protocols. Are you able to sort of comment on sort of how your DIFOT or whatever delivery metrics compare to competitors in the key regions? And what are the customers sort of actually doing in response to being shorted these pallets?
Graham Chipchase
So, I think one of the important things to note is that whilst customers are on allocation in some of our regions, that doesn’t necessarily mean that they are not able to run their production lines. It means that their safety stocks are incredibly low, and that obviously creates a lot of frustration and concern for them. And what it’s meant is we’ve had to manage the business on a sort of day-to-day basis rather than being able to do it on a month-to-month basis because of what might have done when safety stocks were higher. So I think it’s important just to recognize that, yes. And as a result, we are spending a lot of time and effort trying to go to our customers on a site by site, week by week, what are your requirements, making sure that we’re giving them exactly the minimum and no more because there isn’t enough to go around pallets to keep their operations running. Now occasionally, there will be plant outages, but they are pretty — we’re keeping those to a minimum. So that’s been the reaction. How our competitors’ DIFOTs, well, I have no idea, but — and I wouldn’t expect to know. However, what we see is our competitors are also struggling to get enough pallets. We’ve had some inquiries in some markets, and I won’t say which, where our — where customers who are either wholly supplied by some of our competitors or dual supplied by us and a competitor have asked whether they could switch to a higher percentage of supply by us because the other competitor is definitely struggling, and we appear to be managing the situation, admittedly not perfectly, but somewhat better. So I would gather or expect that we’re doing pretty good. But that will be because we’ve got the broadest networks, the deepest networks, and we had invested in our pools quite a lot leading up to the current situation.
So — and as we talked through the presentation, we’ve tried to be reasonably innovative about things like refurbishing and recovering pallets that we weren’t before. So I think we’re doing just fine, but I don’t want to say we’re doing significantly better than compared to A, so I don’t know, and I think B is just sort of a little bit inappropriate in a situation where everybody’s really struggling.
Niraj Shah
Excellent. Thank for the color guys.
Operator
Thank you. Your next question comes from Paul Butler from Credit Suisse. Please go ahead.
Paul Butler
Good morning. Thanks for the presentation and congratulations on the great result.
Graham Chipchase
Thanks, Paul.
Paul Butler
I just wanted to ask about your comments, Graham, where you were saying you’re expecting in the second half a partial inventory unwind. I’m just sort of — and also your comment that — I mean — which, I mean, I think you’ve said a number of times before that customers are holding higher levels of pallets or at least trying to hold higher levels of pallets as a safety stock. So what’s the risk, in your view, that we go from this environment of pallet shortages to a risk of an oversupply if we do see a slowdown in market demand as well as the safety stocks that your customers are holding come down as well?
Graham Chipchase
Yes. So I mean, again, it’s a really interesting and difficult question to answer because no one knows. But when we talk to retailers, in particular, because I think these are — that’s where a lot of the buffer stock is being built up, is at the retailers more than the manufacturers. It appears that they think after Christmas, they will start reassessing the inventory levels and moving perhaps more to just in time than just in case. And I think that’s — it could happen a bit sooner because if you think about interest rates, no one is going to be wanting to hold lots of inventory in. I don’t know if you saw the Walmart results released overnight, where they’re talking about trying to dramatically reduce levels of inventory as well. So that’s all sort of consistent with people are definitely thinking about when are they going to start moving.
Now the risk for us or the opportunity for us, depending on how you want to look at it is, I think it’s best if this happens gradually for sure. I think everyone doing it at the same time on the same take would be very unhelpful. But I think compared to the past, where we have had an issue with a big flowback of pallets around extra storage costs, extra repair costs, we are on a slightly — you can say it’s better because it’s not been better for the last couple — 18 months or so. We’re in a better position in that we desperately need to rebuild the plant inventory levels. So actually, if we get a few more coming back than we expected a bit quicker than we expected, we will be able to use them to rejuvenate and replenish the network.
So I think we’re in pretty good shape, but it’s something we’re clearly keeping a very close eye on, again, other exogenous factors that are going to affect this, recession, which markets, when, if at all, how deep, how long. These are all things that will impact that flowback of pallets, obviously, combined with our own actions in terms of getting them back quicker regardless. So it’s something we’re looking at very closely. We’re talking to retailers and our customers pretty regularly. But at the moment, I would say no one’s got a really clear idea about what to expect. But our working assumption is after Christmas, people will start making those decisions.
Paul Butler
Okay. And just a bit further on that. Like what percentage of the pool could you absorb into getting the plant stocks back to the optimum level? And I guess also in relation to that, I mean, you’ve talked about how, just on the previous question, where you’re being far more nimble in terms of managing the supply of customers, given the shortage of pallet availability. Is there not sort of an opportunity to make this business as normal and be able to run the business with a much smaller plants inventory? I mean particularly given your investment in digital and things like that to track things better.
Graham Chipchase
Yes. So to try and answer that first of the question first. I think we’re sort of saying is 5 million to 6 million pallets will get us back. That’s what we need to absorb to get us back to the right place. But on top of that, I think remember that we haven’t been going out and getting new business at all for the last 18 months. So there’s another opportunity there, which again, somewhere like the US was always 1% to 2% of potential net new business wins. We believe the pipeline is there. We’ve got targets in that pipeline so we can go out and, again, do some of that. So that’s another chunk.
And I absolutely agree with you that all the self-help that we’re going through in terms of all the different actions, both digitally enabled and nondigitally enabled, will also allow us to change the model. So we should be able to run the business in due course in a much more efficient and effective way with a lower holding inventory across the network. But we’re not — I don’t think that’s for the short term. That’s for the medium term. But I think there’s quite a lot we can do both through either building up the plant stocks or going after extra growth, which we’ve not wholly factored in because we don’t really know what the timing is going to be like for this next 12 months.
Paul Butler
Okay. And just one more, if I may. Back to pricing. Sorry, we’ve had a few questions on that. But in the second half, in the US, I think you did something like 17% price and mix improvement. How much of that related to across the board price increases versus addressing the cost to serve issue with specific customers?
Graham Chipchase
I think one could assume that a significant amount was the cost to serve type of increases. So I think that’s what I would — I would leave it at that. We’re not going to break it down much more than that, but a significant amount of that total.
Paul Butler
Great. Thank you very much.
Operator
Thank you. Your next question comes from Matt Ryan from Barrenjoey. Please go ahead.
Matt Ryan
Thank you. I just wanted to clarify with the comments around the higher weighted per unit pallet costs coming through in 2023 versus 2022. Just wanting to know what that’s based on in terms of are you making an assumption for where that might go to over the course of the year? And maybe just related to that, what is your sort of visibility when you make those sorts of assessments?
Nessa O’Sullivan
Okay. So when we make the assessments, remember, we sort of buy them probably with the lead time of three months. So in terms of our visibility and clarity, it’s low. So hence, why we’re clarifying that we’ve assumed an increase based on what we understand, and it’s also for us about our mix of pallets. So when we’re looking at this, we’re factoring in the types of lumber we buy, where we’re going to source it from and what that mix looks like. And I reference that we’re assuming a bit of a lower mix from Latin America that has historically averaged down our price in the US, and we’re looking at some increased inflation in Europe. And we’re looking at our specific flows from our specific sustainably-linked suppliers as well. So it can change materially, hence, why we’ve called it out a number of times through the presentation. But that is our best view currently about what — where we see the year playing out. But we’re very much aware that the market dynamics may continue to change.
And I think you also have to go back to that reference point. If you just looked at the indices, it went up 200%. Our pallet prices went up 40%. And we’re calling that out, so it can help you to kind of understand or join the dots. While the indices are useful, they’re not fully informative about things like our mix, what our arrangements for supply are, et cetera.
Matt Ryan
Thank you. And I was going to ask about Europe. So I mean do you feel like you’ve got pretty good visibility with lumber and nails and other things that might have been impacted by sanctions or other things?
Nessa O’Sullivan
Yes. We think we do have a good view. The challenge is that if I just even take lumber, we bought less than 1% of our global lumber from the Russia, Ukraine, they might have been 1% each or somewhere between 1% to 2%. The challenge for us is why we’ve got visibility about that. We haven’t got so much visibility about how many other people are going to want to buy the same pools of lumber that we want to buy, and what happens as that supply becomes more challenging. So we have part of the equation, but we can’t fully see and what happens with demand. So if there is more recession, if we do see recessionary impacts, then there’s likely to be less competition for that lumber. We expect, for instance, now housing starts in the US to be lower than we previously thought.
So it’s not one factor. There’s a whole combination of factors. And as you can imagine, we get our supply chain team involved. We get our lumber experts involved. We look at external. But we’re very much aware that whatever we pick, we’ll be wrong. But it’s on the basis of the best information we have right now, but knowing that really, we don’t look that far ahead in terms of having our supply chain and pricing locked in.
Matt Ryan
Thanks. I mean just to clarify one thing with that European situation, though. I appreciate that you don’t actually source that much from those places you mentioned. But the broader market sources quite a bit from those markets. So are you seeing an impact from that?
Nessa O’Sullivan
Yes. So that’s why we’ve been seeing more inflation in Europe. So definitely. So that’s what we’re seeing. But it’s a question of what happens if there is more of a feel for consumer spending going down, what will that mean for demand from others as well. We are consumer staples, and we know we’re pretty resilient in those environments. But that will potentially affect other demand from other places. But we are seeing that impact.
Matt Ryan
Okay. Thanks for that.
Nessa O’Sullivan
Thanks.
Matt Ryan
Thank you.
Operator
Thank you. Your next question comes from Cameron McDonald from E&P. Please go ahead.
Cameron McDonald
Hi. Good morning, Graham. Good morning, Nessa. Just sort of a couple of questions from me, if I can. You’ve mentioned sort of the very strong growth in the fourth quarter. which was stronger than expected and contributing to the full year result. Can you just talk a little bit about where you saw that growth and where you saw that strength and what was contributing to that, please?
Nessa O’Sullivan
Yes. So in terms of where we thought we would be, our revenue was higher than we had forecast. And we sort of looked across the group, and we had a pretty strong fourth quarter really across the group, but we had a higher mix of pricing than we were expecting. So it had a bigger flow-through effect in terms of our overall bottom line. The other thing that we saw in terms of the fourth quarter that gave us a better result than expected was that we saw some moderation in transport inflation in the US that had been tracking higher. And when you look at it, there’s a lot of — or attributing slowdown in demand from China that accounts for about 20% of the activity, the transport activity in the US, we saw that. We also saw some increased asset compensations come through across our businesses. And again, so we had an upside in our earnings because of the pricing, the transport and the compensation, but actually, we had even a better flow-through to our cash flow because the bias for those components that supported the better outcome were cash-driven.
Cameron McDonald
Yes, that was going to be my next question is, obviously, you’ve come in at 2018 negative free cash flow after dividends relative to your previous guidance of $300 million to $350 million, which you sort of reiterated earlier in the year. Is that really all of the back of that better asset compensation?
Nessa O’Sullivan
So it’s not just asset. If you were to take what would I say roughly, roughly is the flow-through to cash flow improvement from the P&L, I’d say maybe $40 million-odd has been due to that. So you look at the earnings, and there’s an increased impact, if you like, on the cash flow. And the balance is really due to CapEx. So pooling CapEx was sort of about $15 million better than we had been expecting. That’s a timing thing relative to how much CapEx we buy. It’s purely a phasing, it doesn’t really impact too much. In terms of non-pooling, we had a bigger phasing there, which was probably worth about another $30-odd million if you’re trying to get the top line. Part of it is due to just the timing of completion, frankly, on one of the sawmills that we had, and another one just in terms of timing of delivery of equipment, which we’re also caught up with some of these supply chain challenges. You saw the rephasing of [indiscernible] on the glide paths that we showed for our scorecards. Part of that’s due to timing of delivery of equipment which impacts when we pay for it. So of, I suppose, that change, maybe we get about $25 million of that reverses in FY ’23 in totality when we look at it.
Cameron McDonald
Yes. Okay. Great. And you’ve called out the potential or the expectation that perhaps in the second half of ’23, you start to see some inventory destocking. Some of your key customers and also counterparties, not customers, but certainly counterparties have started calling out in the US elasticity of demand given the inflationary pricing. What are your thoughts around that? And maybe even just reflect on — because the last time we sort of had some sort of economic impact of any severity in the US, what you actually saw and how that impacted your business?
Graham Chipchase
So if we go back, as we said in the sort of the main part of the presentation, when we go back to ’08, ’09 sort of crisis and the impact going into ’10, across the group, the impact on revenue wasn’t significantly or wasn’t significant, and that’s because 80% of what goes on the pallets is consumer staple. So — and I think that would be a very reasonable read across to what we’re seeing right now. And if you look at what some of the large retailers in the US are saying at the moment in terms of where they’re looking at destocking, it’s not the consumer staples. It’s in some of the other things like garden furniture and clothing and that sort of stuff. So I think that’s a reasonable read across. And then what we also saw was clearly the ULP was affected but not dramatically. I think in ’08, so I think it was ’08 or ’09 — ’09, the first year, it was high single digits impact on ULP.
But the important thing in terms of value is that we generated a lot more cash because as you would expect, we start seeing some flowback of pallets, less activity. We don’t have to do so much CapEx. So I think that’s — we would expect that to happen if there was a recession going forward. We have some impact on top line, not much, some impact on the ULP, but we’d get a lot more cash coming back. The conversations with the retailers and the customers, as I think I said in an earlier question, was — is that no one knows. We’re getting different comments from different people. I think a good guideline is to assume that they’ll start looking at it after Christmas.
But yes, we saw Walmart last night say that they were going to address, what they would call, as overstocking or certainly very cautious stocking levels. They’re starting to address it now because they had a lot of feedback from their last results call three or four weeks ago, that was not so good, and they are now going to address that. That will probably affect us in due course as well, I would think. But a lot of what they’re addressing in the short term is these things which are nonconsumer staples. So I think people are still concerned in that lead-up to Christmas that they don’t have enough product to satisfy need, and they will look at it in the new year. But if we see a recession come upon us in some markets really quickly, which it might, although I think the signs are mixed on that, then it might happen before Christmas. But my gut feel is just that, that’s why we’re saying in our outlook that we expect things to potentially unwind a bit in the second half of our fiscal year after Christmas.
Cameron McDonald
Thanks. And just a final question. At the Investor Day, you guided to sort of ULP guidance of low single-digit growth ’23, ramping up in ’24 and ’25 to high single-digit growth. Given what you’ve just delivered and then the guidance into FY ’23, how do we think about what the implications are for those longer-term objectives of the business, please?
Graham Chipchase
I think we would say unchanged, I think, would be our view about those longer-term things we said at the Investor Day. Because I think you have to sort of recognize that in the recent history and possibly the recent — the short-term future, a lot of it is driven by inflation, high levels of inflation and what we have to do to recover cost to serve. But eventually, those will become less of an issue. And then we can revert, I think, to what we said for those outer years back in September ’21, I think are still absolutely valid.
Cameron McDonald
So just to be clear, though, are you talking about getting to the absolute level in FY ’25? Or would you still expect to deliver in ’24 and ’25 high single-digit ULP growth?
Graham Chipchase
Talking about the percentage growth rates because I’m not going to go and reiterate ’25 or ’24 guidance at this point. I mean those numbers were part of that showing the shape of the financials. So we still think the percentage increases in revenue ULP and getting back to cash flow positive are valid. That’s what we’re still looking to do.
Cameron McDonald
Okay. Thank you.
Operator
Thank you. Your next question comes from Owen Birrell from RBC. Please go ahead.
Owen Birrell
Yeah. Hi, guys. Just can I just follow up on the previous comment around the safety stocks and that you would prefer another $5 million to $6 million pallets to replenish that safety stock? Can I just ask, if you had those $5 million to $6 million pallets today, what sort of cost savings would you be looking at through the next 12 months?
Nessa O’Sullivan
Well, I think you need to look at it in a few different ways. So the first thing is we’d have more net new business growth. So that’s the first. Potentially a bit more organic growth as well, but we’d have net new business growth. We talked about — we gave you the net inefficiency that we had that — and we basically said, look, we had a net benefit worth about $8 million this year because if you take our net inefficiencies from not having enough stock and then the saving of not doing any repairs because processing those because we didn’t get those pallets back, we kind of came up with, as we did it, it’s not an exact science, but our estimates would get us to — we got about 1 point benefit. And that was cycling.
Remember, in prior year, we had 1 point benefit from the one-off site compensation in Asia Pacific. And it isn’t uniform across all the regions. I would say one of the APAC is the one that probably had the biggest net benefit, if you like, from deferred repairs, which is that sort of $10 million that we called out. So you can see that there was kind of a mixed bag of inefficiencies versus benefit, but APAC had a net benefit that we’re calling that out as reversing in FY ’23.
Owen Birrell
So roughly, so $10 million in terms of net benefits on effectively plant costs. What about transport cost savings? Because there was a significant amount of additional transport runs to go and collect pallets.
Nessa O’Sullivan
Yes. So that’s what we — we’ve included all that together, but what we’ve done is we separated what we think are the inefficiencies due to not having enough pallets, and that’s where we come up with the net amount, but we’re saying APAC just think, $10 million in total. Yes, yes. And if you have a look overall, you look at the transport cost, and the increase in transport cost is below inflation level because we did have some optimization and other initiatives that helped us with the overall transport costs.
Owen Birrell
I’m just trying to get a sense that if we do see pallets coming back in the second half, but we do sort of fall into a bit of a recessionary environment, what’s the cost savings that are going to come out as the pallet pool rebalances itself.
Nessa O’Sullivan
Net-net, we’d be saying just think about the $10 million is probably the biggest impact. The rest of them kind of seem to wash with inefficiencies, and we’d expect, as we get additional repair costs, we get additional plant efficiencies is probably how I would think about it simplistically.
Owen Birrell
Okay. Sounds good. I just wanted to draw into the CHEP Americas ROCE improvement that we saw in the second half, 260 basis points in what seasonally is a weaker period. Just wanted to understand proportionately how much of that came from Canada versus US versus LatAm, specifically for the second half.
Nessa O’Sullivan
[indiscernible] like that. But I would bear in mind that as you think about where we would be low on plant stock, that, that would be one of the key areas. So if you think about being 6 million short, a chunk of that still, obviously, in Australia, we’re short, but a chunk of that is also in the US. So while they’ve had to deal with the plant — with having minimal plant stock, there’s also an ACI benefit that as we replenish sort of comes through. But no, we’re not going to split that out by business.
Owen Birrell
Okay. And then just in terms of that ROCE improvement. Is it fair to say that a large proportion of that improvement was really underpinned by the transformation program in terms of the use of automation or deployment of digital assets in that region?
Nessa O’Sullivan
Look, it has to be a combination. Separating out — look, as you know, we went through a big investment program in the US, automating and also in co-investing in sawmills. That was — that’s been a big benefit to us adding capacity and agility. What’s helped us a lot with the transformation is we’re leveraging the use of data a lot more, and that’s helping us to recollect assets. That’s helping with the profitability. It’s also helping us to inform pricing and get a better view for what the real cost to serve is. And we expect to be able to continue to get better insights over time.
So I think it’s really hard to separate which piece exactly, how much would you have done without all the support, but definitely the access to data and the transformation initiatives, which is now bringing us to more efficiencies, and we talked about some of those initiatives on transport, they’re all contributing.
Owen Birrell
You’ve mentioned — just on the deployment of digital assets. You’ve mentioned the deployment of those assets into LatAm and into Canada. Have you deployed any digital assets into the US market outside of the [indiscernible]
Graham Chipchase
Yes. So I mean, actually, the first place we have deployed the digital asset was the US Some of the very early trials were there, and we put some into Walmart in the last couple of years. So they’ve had a history of being actually one of the adopters of the technology rather than one of the laggers. And one of the things we’ve decided to do based on the readouts and some of the benefits we’ve seen from deploying the Ultras into the U.K. and Canada is to accelerate what we’re calling the continuous diagnostics piece into the US. So that means putting a lot of the Ultras into the system because just letting them run around and around the system rather than necessarily putting them into places where we know there’s a big problem. We think there’s enough benefit for doing that to help with underpinning the asset efficiency improvements and some of the pricing data, which leads to support the increased pricing in the US. Yes, that’s happening for FY ’23 as we speak. So — but the key thing is if the results of the trial in Chile on serialization plus go well, then we would look to, through ’24, start building up the serialization plus model in the US if we think the benefits are there.
Owen Birrell
Can I ask just a further question on the continuous diagnostics rollout? You’ve mentioned — you’ve called out adding another 300,000 pallets or devices into the North American market. Can I just ask just within the U.K. market specifically, have you fully rolled out in that market? And if not, how much further is there to go there? And what proportion of that pool do you expect to serialize?
Graham Chipchase
So there was a couple of mixed bits in there in terms of — so in the U.K., we’ve put in — so if you look at the 250,000 smart devices we’ve deployed, 50,000 were on various targeted diagnostic things throughout the world, but 200,000 were put in between the U.K. and Canada. So we’re not splitting them up between markets. That’s the total. That — they’re now just running and running. So we’re not going to put more in it at the moment because we’re focusing on serialization plus in Chile. We think that in a market where you want to get to the serialization plus, we will have to put in somewhere between, this is not a very helpful range for you, 0.1% to just over 1% probably of the pool being the Ultra. So that’s the number. The rest should be these very low cost, and it will either be something like RFID or probably more likely a QR code or even a serialization stamp, so very low cost identifies because the camera technology will see them as they go in and out of various places as opposed to the Ultra, which is giving you a reading 24/7 as it moves through the supply chain. So that’s where we are with it. So there’s not a view to do more into the U.K. It’s about accelerating what we’ve learned to go into Chile and then see whether we make bigger steps into the US with the technology.
Owen Birrell
Okay. That’s fantastic. Great result. Thanks guys.
Graham Chipchase
Thanks.
Nessa O’Sullivan
Thanks.
Operator
Thank you. Your next question comes from James Wilson from Jarden.
Jakob Cakarnis
This is Jakob Cakarnis [indiscernible] at the start of the Q&A, but that’s okay. Just wanted to clarify on the guidance. It sounds like you’re saying now that you expect most of those pallets that have been slower turning to come back in the second half. Am I right in thinking that the SKU then will be higher growth in the first half relative to the second half, all else considered?
Nessa O’Sullivan
Sorry. In terms of what we expect, we expect to start seeing that unwinding or more going back to normalization of supply chains to start in the second half, not to be in the first half. But overall, we’ve been clear also that we expect to see — that’s where we expect to see improvement in cash flow weighted to the second half of the year.
Jakob Cakarnis
All right. But will that reduce with the plant cost going up and potentially transport costs going up as well? Will that hold back the growth rate in underlying profit?
Nessa O’Sullivan
So obviously, it depends on the passion of destocking. And so, if you get them back into an area that’s been — that you’ve been — so for instance, if you get a whole load of pallets back in APAC, then you’re going to have those repair costs go up quite dramatically straight away. If you see more of a flow, then you’ll see a phased change. And it depends on the pattern around the world. If it’s a small flow back, then we may not see an impact in terms of material change in dynamics. And that’s why our guidance is on a group basis. We try and — we’ve given you some considerations by region. But because we don’t know for sure, we’ve put — this is what we estimate will happen on a group basis but very hard to tell what the pattern is going to be and therefore, the impact on costs because it’s different by market.
Jakob Cakarnis
Okay. Thanks for that Nessa. Just quickly, Graham, just on the progress on the uncompensated losses. I appreciate that there is a big pie to play for here. What’s holding back the collection or implementation/benefits from those uncompensated losses? Is it issues around implementing that in contracts? Is it issues around getting the data to take to customers, appreciate now you’ve pushed back some of that benefits from uncompensated losses now into FY ’24?
Graham Chipchase
No, I think — I mean there’s nothing from a sort of execution point of view. We’re putting in the resources. We’ve got the — we know the sort of actions we want to take. It’s more about the behavior of the retailers holding on to pallets for longer and us not being able to then deal with that because until we know that they’re definitely lost, it’s quite hard — or not coming back for longer, we can’t do anything about it. So yes, I think where we’ve — I think we’re really confident now that, that glide path we’ve shown where we’ve got the right tools in place to execute on that. So — and as I think Nessa said earlier, we built those assumptions into our FY ’23 outlook on that glide path.
Jakob Cakarnis
Thanks, guys.
Operator
Thank you Your next question comes from Scott Ryall from Rimor Equity Research. Please go ahead.
Scott Ryall
Hi there. Thank you very much. I’m going to ask two questions about the remuneration report, if that’s all right. In terms of the personal objectives, Graham, I think you scored 67% of target and Nessa was at about 85% versus President, North America at 90% and President, Europe at 100%. Could you — I’ve got the matrix in front of me in terms of what the objectives are for that. Could you tell me where yourself and Nessa fell short relative to where the North America and European outcomes were stronger, please?
Graham Chipchase
So the short answer is, no, because we don’t — we’re not giving achievement against the individual metrics. I think what I would say is — and the outcome of — on the short-term first objectives is reasonably mechanical. It’s not reasonably, it is extremely mechanical. So there’s no subjectivity in it at all. And the thing that’s skewed the outcomes a little bit this year is some of them have done really well, and some have not done well. So for example, if someone has something on customer, Net Promoter Score, as you’ve seen from our scorecard, on the transformation scorecard, we didn’t do well at all on that. And the people who will have customer metrics will be the ones who are running some of the divisions. I would have it in mine, but Nessa wouldn’t have it in hers, for example, because hers will be much more focused on things like asset productivity and the transformation objectives, which have gone — transformation has gone incredibly well.
So there’s that sort of — there’s a bit of a pass-fail on some of the metrics, which is unusual because normally you’d expect a bell-shaped distribution curve, where’d more would be meets and the rest would — some would be don’t meet and some would go really well. Then the other thing is that even within some of the objectives, they’re not all equally weighted. So you’ve got another mix impact to think about where some people might have had a lot on one and less on others. And that — and if that one particular one either maxed out or failed, then it will clearly have a big impact on the outcome. So I think the important thing to say, and I would say this, wouldn’t I, as I’ve got the lowest numbers, it’s got nothing to do with our view about people’s personal performance. It has got more to do with the outcome of those very specific metrics. And I think that’s it.
Q – Scott Ryall
No, I understand that. I was trying to get to what I think you answered, which is the customer satisfaction metrics with the [indiscernible] Is that fair [Multiple Speakers]
Graham Chipchase
Yes. No, absolutely.
Scott Ryall
And productivity transformation of people, which is the other, is where — closer to target. Would that be fair? That’s what I’m trying to get.
Graham Chipchase
Yes, absolutely. Yes.
Scott Ryall
Okay. All right. And then the second one I have is on the cash flow from operations metrics. So if I look at cash flow from operations was down 50% year-on-year in both Americas and EMEA. And I know that you’ve got $180 million of catch-up CapEx — $180 million of catch-up CapEx that was deferred from ’21. If I put that just in Americas and EMEA, which I think given the size of their business, then that explains about half of it. But then I’ve got quite a big deviation between the rewards of President, Europe was 52% and below threshold — sorry, the metric was 52% and below threshold. Whereas President, North America, it was above maximum at 172% versus the target. So I’m just trying to figure out why the North America cash flow from operations result was good, and the European one was perceived as bad, where they look fairly similar just on the straight metrics to me, please.
Graham Chipchase
I mean I think that you’ve got to understand that rem targets split by region, are based on the budgets we had at the beginning of the year. And things have happened during the course of the year. A good example would be things were much, much — have been much more difficult in Europe based on unforeseen pallet inflation. We didn’t have that budgeting because we didn’t think it was going to be a big issue in Europe in ’22, whereas it turned out to be towards the back end of the year. Whereas we knew, because of what’s happened in ’21, that the US was having a really tough time with things like lumber inflation. That’s why the budget for them would have been set lower relative to Europe. So that’s how it works. But clearly, we’re not going to — we never have done and we won’t be getting into the details of what budgets are set for individual businesses throughout the beginning or throughout the year, but that’s what drives the outcome.
Nessa O’Sullivan
Get just more insight on the cash. In the appendices, we show the CapEx to sales, and we give commentary year-on-year. And you can see some of those differences in terms of the year-on-year impacts in lumber inflation that might be useful just to inform that.
Scott Ryall
Okay. But basically, you done — you forecast an extremely low cash flow from operations in CHEP North America. I understand the budgeting process and all of that. But it’s — you’d forecast for a really poor outcome in North America and the outcome has been better than that really poor outcome versus some of the unexpected impacts that have come in Europe, as you say, from Russia, Ukraine and the shortages there. And that’s, I guess, the key driver behind the cash flow in Europe not being so good.
Graham Chipchase
Directionally, but I wouldn’t use — the adjective very poor is yours, not mine. But yes, direction, I agree with it.
Scott Ryall
That’s fine. And then just with respect to that $180 million of catch-up CapEx, was — just so I understand the split between North America and Europe, what was it?
Nessa O’Sullivan
So I don’t think we split it out. But as I said, the shortage of pallets is predominantly weighted to the US. So if you’re doing the math on it, just assume that the lion’s share belongs to the US.
Scott Ryall
Okay. Good. That just helps in terms the commentary around [indiscernible]. That’s all I had. Thank you.
Operator
Thank you. Your next question comes from Sam Seow from Citi. Please go ahead.
Sam Seow
Hi. Good morning all. I appreciate the time. So just one quick housekeeping question for me. Appreciate automation probably has been slow given the supply constraints. But maybe can you just give us an update on when you think you can spend that $400-odd million on the machines? And then when we should start seeing some of that margin benefit flow through?
Nessa O’Sullivan
Yes. So look, we do plan. As you can see, we’ve just pushed it out a year in terms of being able to complete given the delays. If you sort of look directionally at the spend that we planned over the next couple of years in terms of automation, it looks about right. You probably would put a bit more in sort of ’25 and some into ’26 to get back to the total that we guided to at Investor Day is probably the best way. And look, in the interim, obviously, we’ve been doing everything we can to see if we can go faster. But that’s our best estimate as to what the plan is and — but we’re still very, very committed to it. And I think what’s pleasing is that we managed to get more capital-light supply chain efficiencies into our numbers for this year.
Sam Seow
So just same shape, just one year to the right.
Operator
Thank you. There are no further questions at this time. I’ll now hand back for closing remarks.
Graham Chipchase
Great. Well, thanks, everyone, for dialing in and for asking questions. They’ve been really good. Looking forward to, I think, seeing most of you over the next week or so. So I’m sure we’ll continue some of the conversations then, but thanks very much.
Nessa O’Sullivan
Thank you.
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