Full Year 2024 Brambles Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andre Fromyhr - UBS - Analyst : My first question is about the free cash flow outlook into next year. And I appreciate the normalization adjustments that you've presented on slide 19 for FY '24. But as we look into the guidance of $750 million to $850 million next year, just wondering if you could talk through some of the moving parts there, midpoint of $800 million is roughly in line with that normalized number that you present to '24. But am I right in saying that there's still got to be some CapEx benefits from the $5 million for remaining pallets in FY '24, but at the same time you're spending more on nonpooling. Just wondering if you could talk through some of the moving parts, I guess from '24 to '25.

Question: Andre Fromyhr - UBS - Analyst : Okay. And then my other question is specifically around the sort of margin expansion. We can see in FY '24 the lower IPEP was a strong driver of that margin expansion. And you've called it out as one part of the story for FY '25, the operating leverage that you've guided for there. But maybe you could help us understand how significant a part of the margin story is IPEP going to be in FY '25? Or is IPEP now at a sustainable level if we're comparing it to sales? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call

Question: Matt Ryan - Barrenjoey Pty Ltd - Analyst : Just coming back to comments on CapEx. I think within the Shaping Our Future comments, you were talking about 16 million pallet salvaged up from 10 million a year before. So how does that sort of feed into your CapEx expectations? And I mean, do you think that, that 16 million was including anything one-off in nature? Or do you think that's a reasonable number to sort of think about moving forward?

Question: Matt Ryan - Barrenjoey Pty Ltd - Analyst : Okay. That's helpful. And you made a comment that the fourth quarter OEMs in the US were up 1%. That's obviously a decent improvement in what you've been tracking at. So can you just help us to understand what was going on in that quarter? How does that look within your guidance for next year?

Question: Matt Ryan - Barrenjoey Pty Ltd - Analyst : Got it. And can I just clarify the IPEP guidance? Just coming back to the question a minute ago. The second half was a big improvement on the first half. Are you sort of suggesting there's another improvement on the second half? Or you're just simply saying that you'll have a year-on-year improvement in '25 versus '24? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call

Question: Justin Barratt - CLSA - Analyst : Just wanted to ask, you made a comment in your presentation just around the competitive dynamic, very consistent with what you sort of highlighted in the first half. I just wanted to understand more broadly, has that competitive dynamic? Is it increasing in its intensity? Is it easing? Or is it sort of flat compared to where it was six months ago?

Question: Justin Barratt - CLSA - Analyst : Fantastic. And then the other one I just wanted to ask, I think you sort of guided more to around 13 million to 14 million pallet returns for FY '24, and you ended up only getting 12 million pallets back. Is that due to, I guess, surprises in the uplift in volumes in the fourth quarter? Or I'm just trying to understand why you got slightly less pallets back than what you're anticipating?

Question: Anthony Longo - J.P. Morgan - Analyst : Just wanted to ask a question on pricing. Again, that was extremely strong throughout the year, and ultimately you got 3% realization for new contracts struck during the year. I mean how are you sort of thinking now about cost to serve and the pricing outlook going forward given that you have really sort of spoken to commercial discipline a number of times on this call that far?

Question: Anthony Longo - J.P. Morgan - Analyst : That's great. And then just a follow-up again on the pooling CapEx to sales ratio. On the call thus far, you've really highlighted a step change a number of times thus far in terms of your cash flows and what that looks like going forward and in the context of the pallets that have come back. I mean how are you thinking about this business now going forward from a free cash flow after dividend perspective? And then even that the ROCI target that you've given for next year, I mean, that's well north of what you've generated historically on an increased investment base. I mean how are you sort of thinking about all those dynamics together going forward?

Question: Owen Birrell - RBC Capital Markets - Analyst : Sorry to, I guess, linger on this point. But second half '24 IPEP to sales looks like it fell down to roughly about 1.4%. Now that's, assuming my calculations are correct, that's well below historic levels of around sort of 2% to 3%. I just wanted to understand, is that driven principally by the reduction in absolute losses? Or is there a material shift in the uncompensated to compensated ratio of those losses? And then I guess a question, I guess, back to sort of Andre's point around how sustainable is that 1.4% into FY '25?

Question: Owen Birrell - RBC Capital Markets - Analyst : Is it more skewed to one or the other? Sorry, can I just ask, is it skewed to more one than the other? Reduction in losses is where it's skewed, but we have done a better job, obviously, in compensations as well. And then I think I'd be a little careful on your percentage in halves. It depends on timing of orders to customers, et cetera, et cetera. So the way I look at it, and we don't use this metric internally, but I know a lot of you do, which is if you look at FY '23 IPEP as a percentage of sales, it was at 4.7%. Then if you look at FY '24, we're at 2.8%. And then if you go back historically, a period when I had hair, it was at about 2%, right? So for me, what that tells us is, yes, we've made a significant improvement. But over time, we still have an opportunity for further improvement to hopefully get back to that 2% number. That's excellent. And just another question, if I may. One line in the slide pack talks about commercial solutions signed with 2 digital customer solutions. Just wondering if you can give us a bit of color around what those customer solutions are. Are they external customer solutions? And is that different from, I guess, your -- the core business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call

Question: Jakob Cakarnis - Jarden Australia Pty Ltd - Analyst : Can you just talk through the volume growth in the fourth quarter? I think your commentary at the third quarter trading update was that you expected volume growth in line with your customers. We've seen a lot of the FMCG brands report pretty decent reacceleration in volume growth maybe as some of their own pricing pressure and pass-through rolls off. Can you just talk to, firstly, the shape of that in the fourth quarter and then how we expect that to move through fiscal '25, please.

Question: Jakob Cakarnis - Jarden Australia Pty Ltd - Analyst : Awesome. Just one for Graham. Noticing in the LTI framework moving forward that there's been a large step-up in those ROCI gates. I think it's probably adjusting more symbolic with where the business is at. But can you just give us a sense, it doesn't look as though those sales CAGRs have changed much, but the ROCI gates have, I think, consistent with what you're acknowledging today is that the business is generating good free REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call cash flow, maybe sustainably good. Can you just talk us through your discussions or some of the shape just around those ROCI targets as well, please?

Question: Jakob Cakarnis - Jarden Australia Pty Ltd - Analyst : Yes. I appreciate that the press and maybe some of the financial advisers have a different opinion on this, but is there anything that we should read to your lack of appetite for inorganic growth? Is that flagging maybe to the market today that (inaudible) not of interest despite the press reports?

Question: Jakob Cakarnis - Jarden Australia Pty Ltd - Analyst : Great result.

Question: Anthony Moulder - Jefferies (Australia) Pty Ltd - Analyst : If I can get back to IPEP, probably the most questions you've had on IPEP I had on OPAP. But I just wanted to understand the very strong result in that second half at 45.9. Are you telling us that that's the new normal on a half-on-half basis because it's a very strong improvement for FY '25 that you would be looking into? Or is there a little bit of increase, certainly not going anywhere near back to that first half '24 result, but you said $46 million of IPEP effectively a new norm for -- as we think about half on half of FY '25, please?

Question: Anthony Moulder - Jefferies (Australia) Pty Ltd - Analyst : Right. I understand. So things will go up from that second half '24 level, but still down on whether -- where they totaled for FY '24.

Question: Anthony Moulder - Jefferies (Australia) Pty Ltd - Analyst : Right. Okay. And it sounds like it's skewed not so much towards the compensation levels for customers. But am I right in thinking that that's an accounting change, so you might not have received the full benefit of that compensated -- higher compensated loss levels through FY '24 and there is the potential benefit through '25?

Question: Anthony Moulder - Jefferies (Australia) Pty Ltd - Analyst : Okay. Question for Graham, if I could, appreciate you're on the Board, the business delivering to invest the capital of over 20%. How do you think about that buyback as opposed to using that capital, some of that capital for greater organic growth? I appreciate you've got 5 million pallet surplus in the US, but thinking more broadly around the world as to how do you balance that decision between buying back stock or investing harder for a 20% return.

Question: Anthony Moulder - Jefferies (Australia) Pty Ltd - Analyst : Understood. And lastly, if I could, the net new wins that you talk of in the US, you're starting to see those coming from the whitewood conversion as opposed to other poolings.

Question: Samuel Seow - Citi - Analyst : I just wanted to ask on EMEA there. It looks like they had almost an 800 basis point sequential improvement there in volumes kind of fourth quarter on third quarter. I just wanted to check, one, is that correct? And two, just maybe help us understand the drivers is that the underlying markets, that strong net new wins? Or was there an impact in the PCP from the (inaudible)? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call

Question: Samuel Seow - Citi - Analyst : Okay. So the market is that strong. There was no kind of adjustment in the PCP at all?

Question: Samuel Seow - Citi - Analyst : Got it. Got it. And then Americas, the pricing peers have materially increased as well in the fourth quarter. I just want to get some color there, help us understand the key drivers on that inflection. And if you call out, I guess, anything to suggest that isn't the right exit rate into FY '25.

Question: Samuel Seow - Citi - Analyst : Congrats on the results though.

Question: Cameron McDonald - E&P Financial Group - Analyst : So to start with the capital management framework, Graham, if I can. And then so if we think about what you've said so far with the pro forma gearing at 1.35, I think you've said inclusive of that buyback. And then the guidance that you've given already does look like you'll continue to dig into FY '25. How do we think about the ongoing likelihood of capital management as leverage continues to fall?

Question: Cameron McDonald - E&P Financial Group - Analyst : Yes. And then just in terms of the outlook, you've got 400 and 500 basis points worth of margin expansion embedded in the outlook. How do we -- so traditionally, that's sort of been closer to 2% to 3%, as we roll forward into FY '26, would you -- should we be expecting that, that leverage comes back down into that normal range?

Question: Cameron McDonald - E&P Financial Group - Analyst : Yes. Okay. Because I mean, clearly, you did previously have sort of goalposts out there from the last Investor Day as well.

Question: Cameron McDonald - E&P Financial Group - Analyst : Okay. And then sort of last question just on the outlook. You are guiding to some volume growth, but you're expecting it to be second-half weighted. What gives you the confidence that, that second half is coming -- going to come through relative to your caution around the first half?

Question: Cameron McDonald - E&P Financial Group - Analyst : No, I get the destocking thing, but -- so how long does a normal, on average, does it take to contract someone from whitewood to pooled? And because what I'm trying to get to is this -- are these conversations that you are going to convert in the second half, are these conversations that are currently underway? Or are these conversations that are yet to commence?

Question: Cameron McDonald - E&P Financial Group - Analyst : Just as an extension of that, working -- while I've got the floor, how many salespeople do you actually employ?

Question: Scott Ryall - Rimor Equity Research - Analyst : I have a question. First one is hopefully relatively easy. In terms of -- obviously you've had to purchase fewer pallets this year for the reasons that you've well discussed. I'm wondering, do you expect still to get many pallets back over the course of the next 12 months? And in terms of the pallets that you're -- that you are purchasing and building virgin pallets, are you having any issues around availability, please?

Question: Scott Ryall - Rimor Equity Research - Analyst : That is all right. I do it all the time. Are you expecting -- you had 12 million or so pallets come back this year. Are you expecting many to come back over the next 12 months? Or is that kind of done now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 21, 2024 / 12:00AM, BXB.AX - Full Year 2024 Brambles Ltd Earnings Call

Question: Scott Ryall - Rimor Equity Research - Analyst : Yes. No, no, I get that. But in terms of the ones you do have to purchase, I mean, there's been some talk about lumber mills struggling financially and things like that. You're not having any problem with capacity of lumber mills to deliver what you do need, which is admittedly less than what you have needed?

Question: Scott Ryall - Rimor Equity Research - Analyst : Okay. Good. And then the second question, this is probably for you, Graham. I mean, you have over the last few years, even though there's more to go, as you say, the step change in asset efficiency, cash flow, et cetera, has been extraordinary, if I can put it that way. But what do you think is a customer noticing that's different from CHEP at the minute? And maybe over the next two or three years, what are you hoping the customers notice? I get you talked a little bit about scratching the surface on digital solutions, but I'm more meaning just in terms of the core offering that CHEP gives to your customer base? What are you hoping that they noticed already? And what do you think they'll notice over the next 2 or 3 years?

Question: Ian Myles - Macquarie Group - Analyst : Just on the Shaping Our Future transformation costs and CapEx, how you sort of see those being sustained or are they going to actually all the way get the permanent sort of costs given technology tends to only have a life of circa 3 to 4 years?