Slide 1: Understanding CHEP
Understanding CHEP 28 January 2009
Slide 2: Agenda
Agenda Introduction Michael Roberts Pooling models Gino Sorrentino Financials Patrick Gibson Illustration Liz Doherty - Pallets and capital expenditure guide 2 Introduction Pooling models Financials Illustration Appendix
Slide 3: Company profile
Company profile Leading global provider of supply chain and information management solutions The Group’s businesses are CHEP and Recall Operates in 46 countries Over 12,000 employees Primary listing on the Australian Securities Exchange and a secondary listing on the London Stock Exchange
Slide 4: Two businesses
Two businesses • CHEP is the leader in pallet and • Recall is a leader in the management container pooling services of information throughout its life cycle • Partners with customers to develop • One stop, end to end, information pooling solutions that ensure reduced management solution product dama
Slide 5: Brambles business unit structure
Brambles business unit structure Brambles Mike Ihlein CHEP CHEP CHEP Americas EMEA Asia-Pacific Recall Kevin Shuba Tom Gorman Craig van der Laan Elton Potts USA Australia Canada Americas Europe New Zealand Latin America Europe Middle East South East Asia Catalyst and Chemical Australia/NZ Africa Chi
Slide 6: 2008 Brambles Sales Revenue – by business unit
2008 Brambles Sales Revenue – by business unit Business Sales (US$M) 17% CHEP 3,610 9% 36% Recall 748 TOTAL 4,358 38% CHEP Americas CHEP EMEA *all numbers are at actual exchange rates CHEP Asia-Pacific Recall 6 Introduction Pooling models Financials Illustration Appendix
Slide 7: 2008 Brambles Sales Revenue – by service
2008 Brambles Sales Revenue – by service *all numbers are at actual exchange rates Pallet Pooling Recall Revenue US$3,157M Revenue US$748M 72% Pallets 251M Cartons 82M Intermediate Bulk 17% Containers (IBC) & Catalyst and Chemical Containers (CCC) 3% 4% 4% Automotive Containers Revenue US$94M Reusab
Slide 8: Focus on pallets
Focus on pallets Brambles
Slide 9: White wood alternative
White wood alternative White wood - industry term for non-proprietary unpainted pallets offered by non-pooling companies Ownership is transferred to each business entity as the pallet moves through the supply chain Typically of lower quality than a pooled pallet • not repaired regularly to a s
Slide 10: Customer value proposition
Customer value proposition Consistent quality pallets and containers Availability Reduced product damage Eliminate pallet purchases, exchange and repair Reduced transportation and handling Competitive pricing Improved employee and customer safety Environmental sustainability 10 Introduction Pooling
Slide 11: Global presence by region
Global presence by region All numbers are for the year ended 30 June 2008 and at actual exchange rates CHEP EMEA Sales (US$) 1,642M Op. profit* (US$) 397M Op. profit* margin 24% CHEP Americas CFO* (US$) 296M Pallets 132M Sales (US$) 1,581M Op. profit* (US$) 453M CHEP Asia-Pacific Op. profit* margin
Slide 12: Growth opportunities
Growth opportunities Mature Growth Developing 12 Introduction Pooling models Financials Illustration Appendix
Slide 13: Blue-chip partners
Blue-chip partners 13 Introduction Pooling models Financials Illustration Appendix
Slide 14: Pallet pooling models
Pallet pooling Need to use version of ABC models model that includes the copyright notice
Slide 15: How pallet pooling works
How pallet pooling works Service Centre Manufacturer (Emitter - E) Retailer Service Centre (Distributor - D) Service Centre Manufacturer / Emitter Retailer / Distributor Service Centre 1. CHEP issues ready-for-use 2. Upon receipt of CHEP 3. At the end of the supply chain, 4. CHEP inspects and repair
Slide 16: Sophisticated supply chain flows – network optimisation
Sophisticated supply chain flows – network optimisation 16 Introduction Pooling models Financials Illustration Appendix
Slide 17: Pallet pooling models
Pallet pooling models One way trip model Physical flows Exchange model Pricing architecture Transfer hire model Revenue streams 17 Introduction Pooling models Financials Illustration Appendix
Slide 18: Pallet pooling model physical flows
Pallet pooling model physical flows One Way Trip Exchange Transfer Hire (e.g. USA) (e.g. UK) (e.g. Australia) 1 1 1 Manufacturer Manufacturer Manufacturer 2 3 2 3 CHEP CHEP Transporter CHEP Transporter 2 Plant Plant Plant 4 2 3 4 2 3 Retailer 3 Retailer Retailer 1 Pallet issued and delivered by 1 Pa
Slide 19: Pallet pricing architecture
Pallet pricing architecture Transfer One Way Exchange Hire Fee for issue of a quality ISSUE FEE assured pallet from a CHEP service centre Fee for each day that a DAILY HIRE FEE customer uses or remains responsible for a pallet Fee for use as pallet TRANSFER FEE transfers into a ret
Slide 20: One Way Trip
One Way Trip (e.g. USA) Issue fees are the prime source 1 of revenue Manufacturer Issue volume is a proxy for revenue Customer taking the issue pays CHEP 2 Plant Main revenue stream Issue Fee – for issue of a pallet 3 from a CHEP service centre Retailer 20 Introduction Pooling models Financial
Slide 21: Exchange
Exchange (e.g. UK) Movement fees are the prime 1 sources of revenue Manufacturer Number of movements and average volume of pallets in the field are proxies for revenue 2 3 Primarily manufacturers and CHEP transporters pay Transporter Plant “Managed Recovery” variation 2 3 Main revenue stream
Slide 22: Transfer Hire
Transfer Hire (e.g. Australia) Daily fees are the prime source of 1 revenue Manufacturer Average volume of pallets in the field is a proxy for revenue 2 All market participants pay 3 CHEP Transporter Plant 2 3 Main revenue stream Daily Fee – for each day a pallet 4 is used by a customer Retail
Slide 23: Total Pallet Management (TPM)
Total Pallet Management (TPM) Optimising transport activity and 1 equipment moves within the Manufacturer network ETPM Possibility to reduce empty hauls between specific Manufacturer and Retailer CHEP 2 Improved communication and Plant coordination between Customer and CHEP 3 Promotes on tim
Slide 24: Financials
GCHEP Financials Brambles
Slide 25: Pallet life cycle: accounting perspective
Pallet life cycle: accounting perspective New pallets Pallets ready Manufacturer for issue Pallets repaired Pallets Retailer assessed “Deemed Scrapped Irrecoverable”* LEGEND *Deemed irrecoverable from an accounting perspective at a specific point in time pallet flows 25 Introduction Pooling models F
Slide 26: Pallet life cycle: key drivers
Pallet life cycle: key drivers Sales growth Asset turns Transport costs Plant costs Asset management costs • recovery • depreciation • IPEP expense 26 Introduction Pooling models Financials Illustration Appendix
Slide 27: New pallets
New pallets Pallets are classified as Property, Plant and Equipment Capital value includes: • initial delivery; and • handling costs Purchase price* dependent on the price of materials • Americas (US$20) • Asia-Pacific (A$23 or US$21) • Continental Europe • UK (£8 or US$16) (€11 or US$17) • Ch
Slide 28: Pallet (wood) depreciation policy
Pallet (wood) depreciation policy 100% Useful life to residual value Straight line over 10 years to 25% of cost Effective Useful Life ~13 years Book Value 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Year 28 Introduction Pooling models Financials Illustration Appendix
Slide 29: Pallet Quality Standards (PQS)
Pallet Quality Standards (PQS) B1210A B1208A * CHEP has a policy of continuous improvement and reserves the right to change the Pallet Quality Standard without prior notification. CHEP cannot be held responsible for any misinterpretation or misapplication of the guidelines shown. 29 Introduction Poo
Slide 30: Asset Management - accounting for deemed irrecoverable pallets
Asset Management - accounting for deemed irrecoverable pallets Pallets that cannot be accounted for at a particular location at a specific point in time are deemed ‘irrecoverable’ from an accounting perspective Two types of irrecoverable pallets Compensatable Uncompensatable Via individual con
Slide 31: Irrecoverable Pooling Equipment Provision (IPEP)
Irrecoverable Pooling Equipment Provision (IPEP) Irrecoverable Pooling Equipment Provision Expense • Reflects the cost to CHEP in the period of known and estimated uncompensatable irrecoverable pallets at a particular point in time • Includes pallets that are unaccounted for due to: – A distributo
Slide 32: Management Accounts vs Statutory Accounts
Management Accounts Statutory Accounts for the year ended 30 June 2008 for the year ended 30 June 2008 US$ / % Sales revenue 100 Transport costs (19) Plant operations (26) Depreciation (11) Net gains on disposals of PPE 1 IPEP expense (3) Other operating expenses (16) Comparable operating profit 26
Slide 33: Financial Report – Note 3
Financial Report – Note 20 for the year ended 30 June 2008 33 Introduction Pooling models Financials Illustration Appendix
Slide 34: Pallets and Capex Guide
Pallets and Capex Guide Brambles
Slide 35: Capital Expenditure – cash to book – FY08
Capital Expenditure – cash to book – FY08 US$M actual exchange rates 18 55 86 90 869 851 710 620 h t s all E g e r ts as en o n c P& ol in th lle C em iti R e d, /O Pa 08 ov dd n Po FY A L a e rs lM 08 n a ai cr u FY t c on A C Book Capex 35 Introduction Pooling models Financials Illustration Append
Slide 36: Growth in pallet numbers
Growth in pallet numbers 300 +9M 251 250 237 +5M 242 230 +7M 16 18 16 16 Pallets (millions) 200 126 132 127 128 150 100 50 87 93 100 101 0 FY05 FY06 FY07 FY08 CHEP Americas CHEP EMEA CHEP Asia-Pacific 36 Introduction Pooling models Financials Illustration Appendix
Slide 37: Reconciling pallet numbers for capex
Reconciling pallet numbers for capex Pallet Growth FY07: 242M pallets FY08: 251M pallets Growth: 9M pallets or 3.7% of the pool Pallet volume growth just under 4% Capex Analysis Number of Pallets FY08 Capex at approximately US$18 per pallet US $620M 34 M Growth Capex US $(162)M (9)M Replac
Slide 38: Guide to estimating pallet expenditure
Guide to estimating pallet expenditure Example of capex Assume average pallet price FY08 US$M for example: US$18 Assume growth rate for example: 3.7% of the pool or 9M pallets ~US$162M Assume replacement rate for example: 10% of the pool or 25M pallets ~US$450M Therefore capex required US$61
Slide 39: Book capex / depreciation – FY08
Book capex / depreciation – FY08 Pallets are ~83% of the net carrying amount of plant and equipment Capex and Depreciation Underlying Ratio Pallet Capex Pallet Depreciation + IPEP + NBV of Compensatable Pallets Example: US$620M US$301M + US$91M + (US$80M × 83%) 39 Introduction Pooling models Finan
Slide 40: Book capex / (Depreciation + IPEP + NBV) for pallets
Book capex / (Depreciation + IPEP + NBV) for pallets 1.4 1.3 1.2 1.2 Capex / DIN (times) 0.3 Growth 1.0 0.2 1.0 0.3 0.8 0.6 1.0 Replacement 1.0 0.4 0.7 0.2 0.0 FY06 FY07 FY08 40 Introduction Pooling models Financials Illustration Appendix
Slide 41: Control ratio and asset management
Control ratio and asset management Internally used to measure asset management in the one way trip pooling model (Pallet Returns + Recoveries) / Total Issues A lower control ratio drives higher replacement capex (assuming that the pool is stable) Limitations to use • does not take into accou
Slide 42: Control Ratio
Control Ratio CHEP USA CHEP Europe 100% 96% 98% 94% 96% 92% 94% 92% 90% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY02 FY03 FY04 FY05 FY06 FY07 FY08 42 Introduction Pooling models Financials Illustration Appendix
Slide 43: Control Ratio - seasonality example
Control Ratio - seasonality example 110% 105% 100% 95% 90% 85% 80% Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Monthly Control Ratio 43
Slide 44: Pallet audit process
Pallet audit process In addition to monitoring plant operations using KPIs, CHEP regularly conducts physical audits to validate pallet quantities at customer locations Adjustments to pallet holdings are made once audits are reconciled and finalised. This can take some months 44 Introduction Pool
Slide 45: Other important KPIs
Other important KPIs Transportation Cost Ratio Plant Cost Ratio 45 Introduction Pooling models Financials Illustration Appendix
Slide 46: CHEP USA - plant operation trends
CHEP USA - plant operation trends Plant cost ratio (Plant costs / Sales) 35% 30% 25% 20% FY02 FY03 FY04 FY05 FY06 FY07 FY08 46 Introduction Pooling models Financials Illustration Appendix
Slide 47: CHEP USA - transportation trends
CHEP USA - transportation trends Gross Transportation cost ratio (Transportation costs / Sales) 35% 30% 25% 20% FY02 FY03 FY04 FY05 FY06 FY07 FY08 47 Introduction Pooling models Financials Illustration Appendix
Slide 48: Summary
Summary Introduction Pooling models Financials Illustration - Pallets and capital expenditure guide 48 Introduction Pooling models Financials Illustration Appendix
Slide 49: Note to presentation
Note to presentation CHEP maintains ownership of all its pallets and other pooling equipment even when such assets may physically be in the hands of manufacturers, retailers, pallet recyclers or others. Notwithstanding the accounting treatment and perspective, which requires certain provisions to be
Slide 50: Disclaimer statement
Disclaimer statement The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about and observe such restrict
Slide 51: Understanding CHEP
Understanding CHEP 28 January 2009
Slide 52: Appendix
Appendix
Slide 53: Impact on financial statements
Impact on financial statements Income Statement Balance Sheet Cash Flow statement Property, Plant and Purchases of Property, Asset purchase - Equipment / Trade Plant & Equipment payables Fees Sales revenue Trade receivables Receipts from customers Operating expenses. Direct costs – Plant No direct l
Slide 54: Regions where pallet models are used in principle
Regions where pallet models are used in principle One Way Trip Exchange Transfer Hire 1 1 1 Manufacturer Manufacturer Manufacturer 2 3 2 3 CHEP CHEP Transporter CHEP Transporter 2 Plant Plant Plant 4 2 3 4 2 3 Retailer 3 Retailer Retailer USA UK Australia Continental Europe New Zealand C
Slide 55: Product base – not just pallets
Product base – not just pallets Intermediate Reusable Plastic Automotive Pallets Bulk Containers Containers Containers 55 Introduction Pooling models Financials Illustration Appendix
Slide 56: CHEP’s asset base
CHEP’s asset base Pooling Equipment Book Value @ 30 June 2008 = US$3.1BN Auto Other RPC 4% 1% 3% Pallets 92% 56 Introduction Pooling models Financials Illustration Appendix
Slide 57: FY08 currency mix
FY08 currency mix FY08 Currency mix at Actual FX rates US$M, AIFRS Total USD EUR GBP AUD Other Continuing operations 4,358.6 1,417.0 1,160.3 494.6 510.8 775.9 sales revenue Continuing operations comparable operating 1,046.9 331.4 249.1 125.7 115.4 225.3 profit Net Debt 1 2,426.2 1,542.8 40.7 74.8 57
Slide 58: Brambles Executive Leadership Team
Brambles Executive Leadership Team Mike Ihlein Mike Ihlein Chief Executive Officer Joined Brambles in 2004 Kevin Shuba Group President, CHEP Americas Joined Brambles in Liz Doherty 1996 Chief LizFinancial Doherty Officer Chief Financial officer Joined Brambles in Tom Gorman 2007 Group President, CHE
Slide 59: Control Ratio scenario 1: No growth / constant asset turns
Control Ratio scenario 1 No growth / constant asset turns Control Ratio constant and capex required for replacement of pallets deemed irrecoverable No growth/Constant cycle time Year 0 Year 1 Year 2 Unaccounted for pallets (% of 3% 3% 3% issues) Issue volume growth 0% 0% Pallets Year 1 Year 2 Asse
Slide 60: Control Ratio scenario 2: Asset turns improvement
Control Ratio scenario 2 Asset turns improvement Control Ratio increases and capex reduces. Capex still required for replacement of pallets deemed irrecoverable Cycle time improvement Year 0 Year 1 Year 2 Unaccounted for pallets (% of 3% 3% 3% issues) Issue volume growth 0% 0% Pallets Year 1 Year
Slide 61: Control Ratio scenario 3: Growth
Control Ratio scenario 3 Growth Control Ratio decreases because of growth - capex still required for replacement of pallets deemed irrecoverable and higher than before due to growth Growth Year 0 Year 1 Year 2 Unaccounted for pallets (% of 3% 3% 3% issues) Issue volume growth 3% 6% Pallets Year 1
Slide 62: Control Ratio scenario 4: Growth & asset turns improvement
Control Ratio scenario 4 Growth & asset turns improvement Control Ratio broadly constant but capex required Growth & Cycle time improvement Year 0 Year 1 Year 2 Unaccounted for pallets (% of 3% 3% 3% issues) Issue volume growth 3% 6% Pallets Year 1 Year 2 Asset turns 3.0 3.2 3.4 Opening stock 33.3
Slide 63: ABC glossary
ABC glossary A = stock awaiting inspection B = stock awaiting repairing C = stock repaired D = distributor e.g. manufacturer E = emitter e.g. retailer F = factory – pallet manufacturer r = all ‘returned’ flows s = all ‘sent’ flows t = pallet transfers u = all flows going out from
Slide 64: Glossary of terms & measures
Glossary of terms & measures Except where noted, common terms and measures used in this document are based upon the following definitions: Actual rates Based upon conversion of local currency into US dollars using the average of the difference between buy and sell rates applicable at each month end.
Slide 65: Glossary of terms & measures
Glossary of terms & measures Except where noted, common terms and measures used in this document are based upon the following definitions: Comparable Profit before finance costs, tax and special items. Includes PAT of associates. operating profit Constant currency Translation of both current period