26/09/05 Macquarie Keeps Outperform On Brambles

Macquarie Research Equities keeps Outperform call on Brambles (BIL.AU) after sale of its U.S. reusable plastic container business. Macquarie estimates unit represents less than 5% of total CHEP Americas sales, or less than A$85 million, negligible EBITA contribution. Unit sale further evidence BIL focussing on CHEP pallet business. Macquarie keeps 12-month price target at A$10.01, vs BIL last at A$8.88. (BBA)

Pallet hire company touts big savings
Tuesday 20 September 2005
Two Melbourne transport industry executives, Phil Doolan and Geoff Bird, have just launched their specialty business, Precise Pallet Management, to assist Australian businesses reduce their costs and avoid the problems which accrue with the use and hire of the humble square timber pallet.

The magnitude of the problem for businesses can be quickly calculated when at any one point in time, Australian manufacturers are estimated to be using 21 million timber pallets — or equal to a timber pallet for every person in Australia.

Pallets are provided for hire by two long established companies, CHEP — part of the Brambles Group, and Loscam.

The two largest pallet hirers have an estimated 22,000 active pallet hire accounts Australia-wide, while CHEP hires 250 million pallets to manufacturers world-wide.

"Daily hire charges may only represent a handful of cents a day per pallet, so nobody pays much regard to their pallet use, until the monthly hire account is received and the scale of the monthly hire cost becomes apparent.

"Then there are charges for lost, damaged or simply unaccounted for pallets, and credits for recoveries, so for many organisations there is a significant additional labour cost in tracking down, justifying and reconciling the number of pallets on which the hire charges are based.

"From our transport industry experience we know many businesses have at least one full time employee engaged in nothing else but attempting to sort out their pallet use, reconcile their hire charges and accountability," Doolan says.

Recognising the scale of the efficient and cost effective pallet management problem and hire costs associated with them, Precise Pallet Management employs a unique software tracking and auditing program to assist in managing the problem.

"We decided to start Precise Pallet Management after our initial consulting project, which we undertook on behalf of the mid sized Melbourne based transport, distribution and storage company, the Glen Cameron Group.

"Using our skills, experience and software, we have successfully reduced the monthly usage of pallets at the Glen Cameron Group by 62 percent, achieving a significant reduction in monthly hire costs, as well as removing the in-house labour input previously consumed in tracking, checking and confirming the status of the monthly pallet hire charges.

"We believe that with our expertise and experience, Precise Pallet Management can reduce the monthly pallet hire account for manufacturing, distribution companies and transport businesses significantly," Doolan says.

While the standard square timber pallets are used universally, there are approximately 40 other different types of stillages, storage containers and similar materials handling and distribution aids, which are used widely and subject to monthly hire charges.

"We believe we can apply the same successful principles to managing these and reducing both the hire cost and associated time inputs for business as well," Doolan adds.

Brambles has again failed to quash speculation it is planning to sell its European Cleanaway waste management business for more than $1 billion.

Talk of the imminent sale of Cleanaway Europe was fuelled by Macquarie Equities sending a note to clients yesterday which estimated Brambles could get between $1.06 billion and $1.36 billion for the business.

After already assessing the possibility of Brambles selling its Cleanaway UK business last month, Macquarie analyst Paul Huxford said he was now receiving indications the whole European business was up for sale.

Mr Huxford said the sale could result in a 40c to 60c special dividend being paid to Brambles shareholders.

"The potential sale is speculative but could be a significant positive catalyst for the stock if it were to focus investors' attention for capital management initiatives and further non-core asset sales," he wrote.

Brambles declined to issue a statement to the market to confirm or deny the speculation.
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"We don't comment on market speculation," Brambles corporate affairs manager Michael Sharp said. The suggestion is that Brambles now wants to focus almost exclusively on driving its CHEP pallet business.

The only thing the company would confirm yesterday was that it is not shy of making divestments. The company announced the sale of its US reusable plastic business for an undisclosed sum. Brambles said the business had a book value of $US23 million ($29.9 million). The 60cm by 40cm plastic rectangular containers it makes are mainly used for fresh fruit and vegetables.

"The sale of the USA RPC assets allows CHEP USA to further dedicate itself to ensuring our pallet and other container customers receive the best value and service available. CHEP USA's other container businesses will continue to receive the capital necessary to grow and develop," CHEP chief operating officer Dave Mezzanotte said in a statement.

The company said it had no plans to sell its RPC businesses in Europe or Australia.

Macquarie speculated the RPC business made up around 1.2 per cent of Brambles's $8 billion in annual revenues.

The sale follows the sale of other Brambles assets including its Cleanaway liquid waste treatment, its north-eastern goldfields industrial maintenance and Port Hedland crane business in Australia. Brambles shares rose 2c to $8.88 yesterday.