Brambles' fresh pallet Thursday, March 8, 2007 This global player has stacked up solid results but there are pangs about the departure of the man at the top of the pile. By Philip Rennie. Though international pallet pool operator Brambles' share price fell by 83¢ to $13.24 after the company announced its earnings for the half-year to December 31, 2006, much of the lost ground was regained within a few days. Investors decided that it was a strong result and the outlook is sound. There were two reasons for the market's initial reaction. First, though profit rose by 46%, analysts had hoped for a bit more. Secondly, and more significantly, chief executive David Turner announced that he will retire on June 30, 2007.
Investors had expected that Turner, 62, would stay longer. Though he was never meant to be CEO, the market is disappointed to see a successful performer depart. He has overseen Brambles' recovery from the dark days of 2002-03, when profit downgrades and millions of lost pallets made the formerly top-ranked industrial company the butt of jokes.
When the joint venture partners in Chep pallets and other major businesses were combined into a dual listed company (DLC) in 2001, the Australian interests were represented by Don Argus remaining as chairman. Sir C.K. Chow came across from UK partner GKN to become CEO, bringing Turner with him as chief financial officer.
The market expected that Chow, knighted for services to British industry, would take Brambles to new heights. Having left successful careers at GKN, Chow and Turner obviously thought so, too. Instead, Chow faced the sudden discovery of glaring weaknesses in operating management and systems. He resigned in late 2003 and Turner was appointed to fill the gap.
Brambles under Turner decided to offload businesses other than Chep and Recall records management. Those other businesses, including waste management operator Cleanaway, have been sold.
The timing was propitious. Demand for assets meant that the prices fetched were well above book value, strengthening Brambles' balance sheet and opening the way for a share buy-back and potentially other capital management moves.
In December 2006, Brambles also dismantled the DLC, which had been a drag on the share price. Now, Brambles' primary listing is on the ASX, with only a secondary listing on London Stock Exchange.
Little wonder, with so much achieved in a few years, the market was not pleased to hear that Turner is leaving. Underlining his achievement, he provided sound forward guidance with the December half-year result. Chep is looking at strong profit growth in the second-half, especially in Chep Americas, with Chep Europe also showing continued growth.
Chep Rest of the World is performing well. Turner says that operations continue to expand in Latin America, and business has begun in the Gulf states and Turkey. There are now 30 people in Chep's China venture, which will begin operations shortly.
Recall continues to grow and profit margins are expected to improve in the second half, especially in North America.
Summing-up, Turner said he expects good progress in the second-half. Strong cash flow was a feature of the December half-year. Brambles' debt is now low, with gearing a modest 27.7%. That indicates there is room for acquisitions, capital management or both. Unless Brambles spends a fair bit of money, private equity predators might be attracted by the gearing potential, though Turner says there have been no approaches so far.
Brambles is in good shape for its new CEO. One rumoured candidate is the present CFO, Mike Ihlein. Having had conspicuous success from promoting one CFO, chairman Argus might decide that Brambles is the kind of business where it pays to have a number-cruncher at the top.
BXB Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)