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The scramble for Brambles

Thursday, 23 Aug 2007 ( #324 ) - SYDNEY, New South Wales, Australia
Local News Story
CHEP issues, collects, repairs and reissues more than 280 million pallets and containers worldwide.
Analysts have hosed down rumours of a Brambles takeover. That’s amid speculation that the Australian-based logistics group, whose businesses include pallet maker CHEP and data management company Recall, is being stalked by Toll and Asciano.

CHEP issues, collects, repairs and reissues more than 280 million pallets and containers worldwide to assist manufacturers, distributors and retailers to transport their products safely and efficiently.

Recall manages the secure storage, retrieval and destruction of physical and digital information for nearly 80,000 global customers.

Brambles, which operates in 45 countries around the world, has been sending ‘please explain’ letters demanding to know the intention behind the share purchases.  Toll has been identified as owning 5.1 million Brambles shares while Asciano has increased its shareholding to 53.6 million Brambles shares or 3,79% of Brambles’ issued capital.

While Toll Holdings has declined to provide Brambles with any assurances as to its future intentions, it has stated that it is not working together with Asciano.
In a media report today, Toll Holdings admits that Brambles is most attractive and represents a great opportunity for Toll to benefit from working closely with it, particularly in the Asian region.
But analysts have deemed it ‘unlikely’ that a takeover bid for Brambles is imminent. Instead, it seems the company is simply a very good buy as indicated by the excellent financial results it posted yesterday.  Moreover, Brambles’ market penetration of US and European markets provides just the kind of footprint that Asciano would covet, so some kind of joint venture proposal may be in the pipeline.

According to a report by Goldman Sachs JB Were analyst Paul Ryan, while Asciano has minimal operational overlap, it shares similar characteristics with CHEP to its port/rail assets: strong market position, organic revenue growth, and capital intensity. Toll has a greater level of synergies in Australasia with Brambles such as warehousing, transport cost optimisation, and integrated supply chain offer.

At the announcement of its full year results yesterday, CEO of Brambles, Mike Ihlein, said that Brambles had delivered another year of excellent results, with operations generating a 36% increase in profit after tax and a 48% lift in earnings per share, before special items. "This performance reflects solid growth in sales, further operational efficiencies and strong cash flow."

Sales for continuing operations totalled US$3.9 billion, an increase of 6%. Sales growth continued in both CHEP (up 5%) and Recall (up 11%). Comparable operating profit for continuing operations was US$932.8 million, an increase of 17%. The major driver of this increase was the strong lift in CHEP’s earnings.

Earnings before interest, tax, amortisation and depreciation for continuing operations were up 11% at US$1,331.1 million, which underpinned the strong cash generation.
Profit before tax and special items for continuing operations was US$872.9 million, an increase of 28%.

Special items of US$677.9 million after tax included net profits of US$832.9 million from the sale of divested businesses and US$146.7 million of restructuring and unification costs in the continuing operations.

At the presentation, Brambles outlined its opportunities to accelerate profitable growth with plans by CHEP to increase market penetration in existing customer segments, expand into adjacent segments and extend its geographic footprint. Recall will continue to focus on increasing density within existing markets and delivering enhanced operational efficiencies.

Key to the accelerated growth plans is the new organisational structure of Brambles which was announced to analysts on 2 August. CHEP operations will be managed as three Groups: CHEP Americas (USA, Canada, Latin America); CHEP EMEA (Europe, Middle East, Africa); and CHEP Asia-Pacific (Australia, NZ, SE Asia, China).
Each new Group will be managed by a group president who will report to the Brambles CEO. Current CHEP COO Dave Mezzanotte will assist in transition and leave Brambles by June 2008.
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