Brambles

Investors have begun bailing out of Brambles Ltd after it announced a major US customer, Wal-Mart, was reviewing its pallet arrangements with the logistics firm.  Brambles shares had slumped 14.56 per cent to $A8.57 ($NZ10.28) amid uncertainty over the financial impact of the announcement.

Brambles said Wal-Mart was changing its handling of pallets, including its arrangements with Brambles' pallet and container business CHEP, and other pallet pooling companies.  But the Australian logistics company did not give details of whether the decision would have any financial impact.

CHEP is owned by Brambles and currently manages the picking up and sorting of pallets, used to move goods, at many Wal-Mart facilities in the US.  Shaw Stockbroking analyst Brent Mitchell said it was difficult to quantify the revenue and profit at risk through CHEP's Wal-Mart contracts.  "That information is not available, so it's a bit hard to put figures on it," Mr Mitchell said.  He speculated that Wal-Mart contributed no more than 5 per cent to CHEP's US profit.  "It doesn't appear that all the businesses are at risk. You'd have to expect the Wal-Mart business to be at the low end in terms of the margin range."

Nevertheless, investors were responding to the uncertainty of how the announcement might affect Brambles outlook.  "The uncertainty that it has created has caused that reaction," Mr Mitchell said.

Brambles said Wal-Mart had indicated it may contract directly with third party pallet management service providers to retrieve and sort pallets at its own facilities in the US, or provide the services itself.  The company said it was working with Wal-Mart to identify ways in which CHEP could continue to supply low-cost services to Wal-Mart and its supply chain.  "Brambles and CHEP strongly value the relationship with Wal-Mart and will continue to work with Wal-Mart to develop the optimal supply chain solution for this important customer," it said in a statement.

Brambles was bullish in its outlook at its first half results in February, with plans to expand CHEP into India.  The company booked a first half net profit from continuing operations of $US296.7 million, which was up 10 per cent, or 3 per cent in constant currency terms.

CHEP sales increased 12 per cent to $US1.75 billion in the half year, led higher by CHEP Americas, where sales rose 11 per cent on strong demand for grocery products.

rambles Ltd expects strong profit growth for fiscal 2008 on the back of solid sales growth from CHEP, its pallets and containers business and Recall, its document and information management division.

"Overall, Brambles expects to deliver another year of strong profit in 2008," Brambles chairman Don Argus told shareholders at the company's annual general meeting in Brisbane on Friday. The board is confident of the positive outlook for our business, notwithstanding ongoing volatility in global capital markets, because of the strength of CHEP's business model and the breadth and quality of our customer base."

Brambles' bullish outlook saw its shares surge 51 cents, or 4.29 per cent, to $12.40 as the broader market fell.

In the four months to the end of October, Brambles said the sales and profit performance of CHEP and Recall were ahead of the comparative period in the prior year, with all regions performing to expectations. Both CHEP and Recall were expected to deliver solid sales growth and strong profit growth for the full year.

Argus said in the four months to the end of October, CHEP had achieved like-for-like sales growth of six per cent, led by CHEP Americas where sales rose nine per cent. CHEP Europe sales lifted two per cent, and CHEP Rest of World sales rose eight per cent. Recall delivered sales growth of nine per cent.

Brambles reported a net profit for 2006/07 of $US613.4 million ($A766.5 million), down from the $US647.1 million ($A808.6 million) in the prior year. But on a like-for-like basis, accounting for the effect of businesses sold during the year, comparable operating profit was up 21 per cent to $US932.8 million ($A1.17 billion).

Brambles chief executive Michael Ihlein told shareholders Brambles was in an excellent position to accelerate profitable growth. "We are continuing to win new business in both new and existing markets," Ihlein said.

In the past few months, Brambles had signed deals with some notable customers, including Pepsi in Canada, personal care products maker Body Blue, Italian tissue paper manufacturer Sofidel, UK meat supplier Anglo Beef, and Australian supermarket firm Woolworths.

Brambles had exciting growth opportunities, including in new segments in existing geographies, such as the US beverages market where Brambles had a penetration of less than 20 per cent. "We are also intensifying our focus on other opportunities in the US, such as home improvement, food service and office supplies," Ihlein said.

Brambles was also looking towards the growing economies of central and eastern Europe. Brambles' newly established CHEP business in China was making pleasing progress. The company was also looking at acquisition opportunities in businesses offering related supply chain solutions.

Argus told shareholders that neither transport infrastructure company Asciano Group nor logistics firm Toll Holdings Ltd had made a takeover proposal for Brambles. In August, Brambles notified the market that it had become aware that Asciano and Toll had taken small stakes in Brambles, fuelling speculation that one of the two could make a takeover bid. Since then, there had been three meetings with representatives of Toll and one meeting with representatives of Asciano. "Each of the discussions we have held with them has been general in nature, and no offer of any nature has been received from either Toll or Asciano," Argus said.

Brambles had heard nothing from Toll since September 28.

Brambles had met with Asciano on November 9, and after the meeting, Asciano notified the market that it had no current intention of making a takeover bid for Brambles. Asciano has said it would retain its 4.09 per cent shareholding in Brambles.

Argus said no suggestion had been made by Toll or Asciano which had not been considered in Brambles' own strategic review, and the board did not believe it would be in shareholders' interests to add lower-growth, lower-margin assets to the company's portfolio.