Brambles

FY17 was a difficult year for Brambles and its shareholders. Despite resilient performances in most of our businesses, operating challenges in our US pallets business weighed on our overall financial performance.

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Our strategy to focus on the core drivers of value reflects our priorities as we leverage Brambles’ strengths to support our customers and deliver attractive returns for our shareholders, over the long term.

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Making Supply Chains More Efficient, Safe and Sustainable

Who we are…

Brambles Limited is an ASX-listed supply chain logistics company with operations in over 60 countries.

What we do…

Brambles is the world-leading provider of supply chain logistics solutions based on the provision of reusable pallets, crates and containers for shared use by multiple participants throughout the supply chain.

Brambles’ longstanding asset management expertise and superior network advantage are integral to its customer solutions.

Our customers…

Brambles primarily serves customers in the fast-moving consumer goods (e.g. dry food, grocery, and health and personal care), fresh produce, beverage, retail and general manufacturing industries, counting many of the world’s best-known brands among its customers.

At 30 June 2017, the Group...

Held leading positions in…

60+

countries

Employed...

~14,000

people

Owned...

~590 million

pallets, crates and containers

Operated a network of...

850+

service centres

Our Brands and Operations...

Brambles operates primarily through the CHEP and IFCO brands and manages its businesses within the following operating segments:

The RPC (Reusable Plastic Crates) businesses in Europe, North America, South America and Asia operating under the IFCO brand

The pallet and container pooling businesses in the Americas

The pallet and container pooling businesses in EMEA and the CHEP-branded RPC business in South Africa

The pallet and container pooling businesses in Asia-Pacific and the CHEP‑branded RPC business in Australia and
New Zealand

View our Countries of Operation

Operating Model

Brambles is the world-leading provider of supply chain logistics solutions based on the provision of reusable pallets, crates and containers for shared use by multiple participants throughout the supply chain, under a circular ‘share and reuse’ model known as pooling.

With in-depth knowledge of how supply chains work, Brambles has unique expertise that leverages its network advantage to provide customers with logistics solutions that improve the efficiency, safety and sustainability of their supply chains.

Inherently Sustainable Operating Model

Brambles’ operating model follows the principles of the circular and sharing economies, which create more efficient supply chains by reducing operating costs and demand on natural resources. By promoting the reuse of assets among multiple parties in the supply chain, Brambles offers customers a more efficient and sustainable alternative to the use of disposable products or managing their own proprietary platforms.

Network Advantage and Supply Chain Expertise

Brambles’ operating model is underpinned by its superior network advantage and industry-leading supply chain expertise, which have been developed over 70 years of managing customers’ supply chains.

With leading positions in over 60 countries, Brambles’ network advantage comprises the superior scale and density of its service centre network and the strength of its customer relationships in every market in which it operates.

Sustainability Framework

Brambles’ sustainability framework organises the Group’s sustainability activities and goals under three broad programs: Better Business; Better Planet; and Better Communities.

The Group’s 2020 goals are incorporated into this framework and address the material sustainability aspects of Brambles’ value chain. These goals are also aligned to the United Nations Sustainable Development Goals (SDGs), in particular: SDG 12 Responsible Consumption and Production, which aligns with Brambles’ sustainable business model. Further details of Brambles’ sustainability framework and 2020 goals are located on Brambles’ website.

In FY17, Brambles’ Sustainability Risk Committee conducted a review of the economic, environmental and social sustainability risks to which the Group is subject. This review identified material sourcing and safety as the Group’s material sustainability risks. Details of the Group’s FY17 safety performance and material sourcing are detailed on pages 8 and 9 respectively. A full review of Brambles’ sustainability risks and performance will be included in the 2017 Sustainability Review scheduled for publication in September 2017.

Customer Value Proposition

Brambles is integral to its customers’ supply chains, optimising the flow of goods across the fast-moving consumer goods, fresh produce, beverage, retail and general manufacturing industries, globally.

With an inherently sustainable business model, superior network advantage and unique expertise, Brambles helps customers achieve operating and financial efficiencies otherwise not available through the use of disposable alternatives or proprietary platforms.

End-to-End Supply Chain Solutions

Brambles plays an integral role in customers’ supply chains, working closely with all participants including manufacturers, producers, growers and retailers. With end-to-end visibility, Brambles has unique insights into what impacts the safe, efficient and sustainable operation of global supply chains.

By leveraging these insights and its unmatched expertise, Brambles offers customers comprehensive solutions that improve the performance of the supply chain and help address the challenges associated with the increasing complexity and rapid evolution of modern supply chains. Brambles’ suite of customer solutions comprises:

Platform Solutions

Brambles offers customers the widest range of supply chain platforms including: pallets (timber, plastic and display), RPCs, bins, specialised containers as well as unit-load containment and safe handling equipment.

By eliminating the need for customers to purchase and manage their own platforms, Brambles reduces the capital requirements and complexity of customers’ operations while simultaneously reducing waste from their supply chains.

Brambles conducts in-depth studies of customers’ supply chains to map the flow of goods, information and platforms in order to identify the causes of network inefficiencies and product damage.

By determining the optimal mix of platforms and processes for customers’ individual supply chains, Brambles can mitigate network inefficiencies and ensure the safe and sustainable transportation of goods through the supply chain.

Brambles’ superior network scale provides a unique capability to coordinate collaboration between multiple supply chain participants to deliver transport efficiencies. This includes matching and eliminating empty transport lanes, sharing transport and contracting transport for and from customers.

Brambles works closely with customers to develop store‑solution strategies and consumer-facing platforms that improve the efficiency of the shared supply chain by increasing sales at lower costs to the supplier, retailer and consumer.

These merchandising and fulfilment solutions, which include full size and fractional display pallets, trays and RPCs, effectively reduce the time, labour and activity required to move goods from the point of production to the point of sale.

Using its experience in managing platforms, optimising automated facilities and packaging performance testing, Brambles has developed solutions that improve the overall performance and efficiency of customers’ facilities.

These solutions include: customising customers’ platform processes; optimising how customers configure, build and protect product loads; and providing higher quality platforms and engineering counsel to improve the performance of automated facilities.

Environmental Benefits

Brambles’ supply chain solutions help customers address key sustainability issues by managing deforestation risks associated with sourcing of wood for pallets and preventing the carbon emissions and solid waste associated with the production, use and disposal of single-use platform solutions. In 2017, Brambles successfully helped customers:

Eliminate 2.5 million tonnes of CO2 and 1.4 million tonnes of waste by using pallets and RPCs

Save 1.6 million cubic metres of raw materials through the repair and reuse of pallets

Save 1.6 million trees and 4,600 megalitres of water through the share and reuse of pallets and RPCs

Eliminate 4,329 tonnes of food waste through the use of RPCs

Strategic Priorities

Brambles is committed to leveraging its global scale and industry-leading expertise as it collaborates with its customers to build the supply chains of the future.

Faced with a rapidly changing and increasingly competitive operating environment, Brambles’ five strategic priorities are integral to the delivery of superior value for customers, shareholders and employees.

Brambles’ network advantage, comprising the scale and density of its customer and service centre network and its industry-leading asset management expertise, is critical to the Group’s value proposition for both its customers and investors.

By investing in platform quality and a differentiated, value-enhancing service offering, Brambles is committed to optimising its network, growing its business and strengthening its industry-leading position.

Through a focus on Group-wide operational and organisational efficiencies, Brambles seeks to offset the impact of cost inflation and competitive price pressures.

To achieve additional efficiencies, Brambles will seek to leverage its global scale and implement global best practice in areas such as procurement, plant automation and transport optimisation.

Brambles allocates capital to maintain and grow its existing businesses, to drive innovation and to diversify its portfolio of products and services.

Going forward, Brambles will adopt a more disciplined approach to capital allocation focused on: growing businesses with proven economic returns; a more measured expansion of new businesses achieving the right balance between near- and long-term returns; investing in innovation to deliver differentiated customer solutions; and a more focused strategy in relation to mergers and acquisitions.

A key strategic objective for the Group is improving the cash generation of the business. Brambles aims to achieve this through an increased focus on improving asset utilisation, reducing equipment loss and lowering equipment damage rates.

Understanding customers’ evolving needs and providing differentiated value-enhancing solutions is core to the sustainability of Brambles’ business model and competitive advantage.

Faced with a changing retail landscape, including the expansion of e-commerce and omni-channel retail formats, Brambles is investing in new platform solutions that enable its customers to increase sales, gain greater market insights and improve operational efficiencies.

Brambles is also increasing its investment in its BXB Digital business, which is working to apply technology to collect and transform data into services that track goods, optimise operations and improve supply chain efficiency.

Successfully attracting and retaining high calibre people is integral to Brambles’ ongoing success.

Brambles’ key priorities for its employees are safety, engagement and capability. The Group is committed to fostering a culture of agility and innovation where employees can grow their skills and capabilities through comprehensive, world-class development programs.

Investor Value Proposition

Brambles generates value through a virtuous circle that leverages its network advantage of scale, density and expertise to achieve superior operational efficiencies.

These efficiencies in turn generate cash flow that can either be returned to shareholders or reinvested in the business to fund growth, innovation and development of its people.

Long-term Value Creation and Superior Shareholder Returns

Brambles shares the efficiencies generated by its scale, density and expertise with its customers, providing a compelling value proposition compared to alternatives. By providing customers with supply chain solutions in over 60 countries, Brambles offers shareholders exposure to geographically diversified earning streams primarily from the global consumer staples sectors.

The supply chains served by Brambles also provide a broad range of growth opportunities including: increasing penetration of core equipment-pooling products and services in existing markets; diversifying the range of products and services; entering new and adjacent parts of existing supply chains; and exploring the digitisation of supply chains.

Within this context, Brambles is committed to striking the right balance between growing its business and delivering superior shareholder returns over the long term. By focusing on its core drivers of value, Brambles expects to deliver through the cycle:

Sustainable growth and returns well in excess of the cost of capital

  • Sales revenue growth2 in the mid-single digits;
  • Underlying Profit growth2 in excess of sales revenue growth; and
  • Return on Capital Invested in the mid-teens.

Cash generation to fund growth, innovation and shareholder returns

  • Free Cash Flow sufficient to fully fund capital expenditure and dividends

Dividend Policy and Payment

Brambles has a progressive dividend policy. Under this policy, the Group seeks to maintain or increase dividend per share each year, in Australian cents, subject to its financial performance and cash requirements.

The Board has declared a final dividend for 2017 of 14.5 Australian cents per share, in line with the previous interim and final dividend. The 2017 final dividend will be 30% franked and is payable on 12 October 2017 to shareholders on the Brambles register at 5.00pm on 14 September 2017. The ex‑dividend date is 13 September 2017.

Total dividends for the Year were 29.0 Australian cents per share, in line with the prior year. Brambles paid the 2017 interim dividend of 14.5 Australian cents per share on 13 April 2017.

Dividend Reinvestment Plan

Brambles’ Board maintained the Dividend Reinvestment Plan (DRP) for the 2017 financial year. Shares issued under the DRP do not attract a discount. Any dilutive impact on earnings per share of DRP-issued shares will be neutralised through the transfer of existing shares to participating shareholders via on‑market purchases rather than issuing new shares to them.

ESG Recognition

Third-party Environmental, Social and Governance (ESG) investor research consistently recognises Brambles’ strong governance processes and the long-term sustainability of its business model and strategies. In 2017, Brambles was placed amongst the leading companies in the global industrial services sector by the following ESG research firms:

Key Performance Drivers and Metrics

Brambles monitors its performance and value creation through a number of non-financial and financial metrics. These include:

Key Drivers

  • General increases in sales volumes in line with economic/industry trends;
  • The rate at which the Group expands its operations (often described as ‘net new business wins’); and
  • Movements in pricing and changes in product/customer mix.

5-Year Performance – Continuing Operations

Sales revenue of US$5,104.3 million in FY17, reflected a five-year compound annual growth rate of 7%, at fixed 30 June 2016 FX rates. This growth reflects the expansion of the global CHEP pallets and IFCO RPC businesses through the ongoing conversion of new customers to pooled solutions, new market entry and expansion of the core product offering.

Key Drivers

  • Transport, logistics and asset management costs (including external factors such as fuel and freight prices, as well as labour costs);
  • Plant operating costs in relation to management of service centre networks and the inspection, cleaning and repair of assets (including labour costs and raw materials costs);
  • Other operational expenses (primarily overheads such as selling, general and administrative expenses); and
  • Depreciation, as well as provisioning for irrecoverable pooling equipment.

5-Year Performance – Continuing Operations

Underlying Profit of US$957.5 million in FY17, reflected a five-year compound annual growth rate of 6%, at fixed 30 June 2016 FX rates. The profit performance in the period reflected sales revenue growth, the delivery of efficiencies primarily in the pallets businesses, and the impact on FY17 Underlying Profit of challenges in the US pallets business, losses in the HFG joint venture and increased investment in BXB Digital. Key drivers of profit improvement in the period included: the Global Supply Chain program to reduce operating costs by US$100 million from FY12 to FY15, primarily through plant network optimisation; and reductions in indirect costs worldwide as part of the One Better program.

Brambles’ Zero Harm Charter states that everyone has the right to be safe at work and to return home as healthy as they started the day

5-Year Performance

Brambles measures its safety performance through BIFR, which measures workrelated injuries, fatalities, lost time, modified duties and incidents requiring medical treatment per million hours worked.

Brambles met its target of year-on-year improvement in the BIFR rate in FY17, recording a BIFR of 6.6, an improvement from 9.7 in FY16. This result reflects continuous improvement in the safety culture of Brambles. Brambles’ Zero Harm Charter and safety targets align with SDG 3 Good Health and Wellbeing.

Key Drivers

  • Profitability;
  • Capital expenditure; and
  • Movements in working capital.

5-Year Performance – Continuing Operations

The five years to FY17 was a period of solid profit growth, facilitated largely by significant investments in capital expenditure to support growth. In addition, improved asset control practices contributed to reduced replacement capital expenditure relative to sales growth. In FY16, capital expenditure increased to support growth in the Pallets operations and there was a one-time change to payment processes that increased working capital. In FY17, Cash Flow from Operations largerly reflected improved working capital movements which offset increases in capital expenditure (cash basis).

Key Drivers

  • Capital expenditure on pooling equipment, which is primarily dependent on the rate of sales growth. Brambles’ main capital cost exposures are raw materials, primarily wood and plastic resin;
  • Asset control factors, i.e. the amount of pooling equipment not recoverable or repairable each year (and therefore requiring replacement); and
  • Frequency with which customers return or exchange pooling equipment.

5-Year Performance – Continuing Operations

The trend in Brambles’ key return on capital metrics ROCI and BVA over the five-year period ended 30 June 2017 reflected the Group’s expansion through both organic growth and acquisitions. Return on Capital Invested declined from 18.8% in FY13 to 17.0% in FY17. The decline in FY17 reflected lower Underlying Profit and a significant increase in Average Capital Invested in line with higher equipment balances to support growth and the recognition of the Group’s investment in the HFG oil and gas containers joint venture following its formation in FY17. Prior year comparatives recognise Brambles’ Oil and Gas containers businesses in discontinued operations and are therefore not captured in this chart.

The trend in BVA – a measure of economic profit over and above the cost of capital invested to create that profit – was driven by the same factors as ROCI.

Ongoing secure supply of materials for the production and repair of pooling equipment, in particular wood used for pallets, is critical to Brambles.

5-Year Performance

Brambles aims to procure 100% of its wood supply from certified sources by 2020. In FY17, 99.1% of Brambles’ wood supply was from certified sources, representing a 2.1 percentage point improvement on FY16 levels.

Brambles also aspires to achieve 100% chain-of-custody certification for its global wood supply. This objective seeks to preserve and enhance the Group’s key resource dependency and is directly linked to SDG 15 Sustainable Use of the World’s Forests and SDG 13 Climate Action. In line with this goal, the percentage of wood with chain-of-custody certification increased to 57% in FY17 from 48% in FY16.

Strategic and Operating Risks

Brambles’ risk management framework, as described in the Corporate Governance Statement on Brambles’ website, incorporates effective risk management into its strategic planning processes and requires business operating plans to effectively manage key risks. The key risks to Brambles’ ability to achieve its financial and strategic objectives and respective mitigating actions are:

Risk Implication Mitigating actions
Macro-economic conditions Macro-economic conditions, or economic conditions affecting the supply chain or industries in which Brambles’ customers operate, may affect demand for Brambles’ services and/or its financial performance
  • Continued focus on driving growth through investment in expanded customer value proposition, and targeted diversification in opportunities with attractive long-term characteristics
Industry trends in the retail, grocery and consumer goods supply chains Industry trends (e.g. fragmentation of the retail supply chain, growth of e-commerce, demand for different pooling equipment materials or designs) could affect demand for Brambles’ current service offerings, the value of its existing assets, and/or its financial performance Ongoing programs to:
  • Drive customer intimacy throughout the supply chain and uncover opportunities to leverage the Group’s unique global scale and value proposition; and
  • Create new products and service lines to meet customers’ requirements
Maintaining the quality of pooled equipment in line with customer needs A failure to maintain adequate quality standards may result in reduced customer satisfaction, additional costs and affect the Group’s financial performance
  • Strict adherence to equipment quality standards, including continuous monitoring of critical-to-quality metrics to assess and ensure quality of products issued to customers
Maintaining control of pooling equipment The loss of pooled equipment is inherent in Brambles’ business model. Failure to maintain appropriate asset control and recovery processes may result in additional costs and affect the Group’s financial performance
  • Dedicated asset control teams across all business units and creation of a comprehensive system of processes to increase the timely collection of assets
  • Regular schedule of customer equipment inventory audits to assess key asset recovery metrics and identify potential control issues
Competitors Brambles operates in competitive markets. Increasing intensity of competitor activity could affect Brambles’ market penetration and financial performance
  • Leverage Brambles’ unique global scale, network advantage and sustainable business model to deliver customer value and strengthen relationships
  • Rejuvenated innovation program and establishment of BXB Digital to explore the role of technology in Brambles’ business and customer offering
Retailer acceptance of pooled solutions Retailers are integral to Brambles’ operating model. A reduction or loss of retailer support for pooled solutions in their supply chains could result in a loss of customers and/or market penetration and adversely impact Brambles’ financial performance
  • Dedicated teams with executive-level responsibility for strengthening retailer relationships, identifying retailerspecific product requirements and ensuring retailers understand Brambles’ value proposition
  • Improving the value proposition for retailers through the implementation of joint business plans
Innovation The successful innovation of products and services is an important component of Brambles’ ability to meet its financial and strategic objectives
  • Formation of BXB Digital to engage in innovation of products and services in the digital space
  • Rejuvenated innovation program focused on existing products and services
Failure of information systems and technology (IT) and cyber security Brambles relies on its IT systems to operate its business. A disruption to those systems due to their failure, or the unauthorised access to or use of them, could adversely impact Brambles’ ability to serve its customers or compromise customer or employee data, resulting in reputational damage and/or financial loss
  • Adoption and testing of: disaster recovery plans to ensure IT systems can be recovered; and business continuity plans to ensure the business can operate in the event of interruptions or failure of its IT systems
  • Implementing technologies and processes to ensure systems are protected, unauthorised or inappropriate activities are detected and responded to promptly
Regulatory compliance Brambles operates in a large number of countries with widely differing legal regimes, legislative requirements and compliance cultures. A failure to comply with regulatory obligations and local laws could adversely affect Brambles’ operational and financial performance and its reputation
  • Code of Conduct which provides a framework for detailed policies addressing regulatory compliance
  • Adoption of Group-wide online compliance training programs to supplement face-to-face training
  • Dedicated Compliance Manager responsible for monitoring the implementation and ongoing application of compliance management systems
Attraction and retention of talent A failure to attract, develop and retain high performing individuals could adversely impact Brambles’ ability to implement and manage its strategic objectives
  • Detailed talent management and succession planning processes to identify high potential employees and prepare successors for senior executive positions
  • Formal mentoring programs offered to all employees
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