Half Year 2025 Brambles Ltd Earnings Call Transcript

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

Question: Owen Birrell - RBC Capital Markets - Analyst : Hey good morning, guys. Yeah. Just a couple of questions with regards to the CapEx reduction. And in particular, the non-pooling CapEx reduction? You mentioned serialization plus CapEx reduction of about $40 million, reflecting the revised US and US pilots. I'm just wondering if there's something that's structural there in that, that $40 million is effectively not going to be spent anymore or whether that's a deferral. And then just similarly, with regards to the $10 million in the pause of the automated rollout, should we just be deferring that into next year?

Question: Owen Birrell - RBC Capital Markets - Analyst : Yeah, that helps. Just another couple, if I may. On slide 16, in the waterfall. You mentioned sort of $100 million of lower CapEx creditor payments. And I'm just wondering to get a bit of a feel there whether this is just purely price and volume during the period? Or has it actually been a change in the timing of your payments?

Question: Owen Birrell - RBC Capital Markets - Analyst : Thanks, and look, And just one final one for me. In terms of the -- you called out higher storage costs during the half. And expecting that to continue into the second half. I'm wondering if you can sort of quantify that headwind that you faced in the first half? And should we be expecting a similar, I guess, headwind into the second half?

Question: Owen Birrell - RBC Capital Markets - Analyst : I guess from that perspective, then as we look into next year and trying to adjust for this additional storage costs, should we be looking at the plant and transport cost ratios from second half '24 as a good guide for next year.

Question: Matt Ryan - Barrenjoey - Analyst : Thank you. I saw a number on slide 6 that sparked my attention, and that was the $40 million CapEx reduction from the serialization in the US and the UK. So just sort of keen to better understand what that number represents. And I guess, just in terms of further rollouts of serialization, whether we should sort of start to think that, that number goes up quite a bit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Matt Ryan - Barrenjoey - Analyst : Thank you. And I mean that looks to be a range of measures that you're delivering on with asset efficiency. I don't expect you're going to sort of revise your CapEx to sales ratio guidance for the medium term. But I guess I'd be curious to know sort of the scenarios that you're thinking about from what we're seeing today in the numbers. I guess, you're probably pretty confident about delivering numbers probably more at the bottom end of that range than the higher end.

Question: Matt Ryan - Barrenjoey - Analyst : Okay, that's helpful. Thank you.

Question: Peter Steyn - Macquarie - Analyst : Hi Graham, and Joaquin, thanks for the time. (inaudible) on your new business wins, you've colored in the detail around the US produce SME, whitewood granule, you mentioned that whitewood is lumber prices and whitewood is not the only basis of your competition or competitive capability. Could you give us a sense of what customers are saying to you? What is your experience in these wins gives you comfort that your development efforts will continue to bear fruit around new business, particularly given the optimism you reflect in the second half and then seemingly ongoing. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Peter Steyn - Macquarie - Analyst : Yeah. Absolutely. Just a quick extension propositionally, are you seeing any benefits or at the very least the promise of serialization or digital investment starting to play into some of your business development efforts?

Question: Peter Steyn - Macquarie - Analyst : Yeah. Perfect. Sorry, I can't help that last follow-on. You've spoken essentially about the benefits on CapEx related to taking. Are you thinking differently as well about the QRs that you are planning to install on the rest of the pool at all yet? Or that still a plan? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Peter Steyn - Macquarie - Analyst : Thanks Graham.

Question: Peter Steyn - Macquarie - Analyst : Appreciate that.

Question: Jacob Cakarnis - Jordan Australia - Analyst : Hi Graham, hi Joaquin. If I can go to slide 18, just where you're talking about the US pallets revenue in the net new business line, there's just an interesting comment saying that there is part of a contribution from prior year contract wins and current year contract wins. Can you just break down of that 2%, what's come from each, please?

Question: Jacob Cakarnis - Jordan Australia - Analyst : So to rephrase that, Joaquin, is the wins in the half, the 2% that's reported or it's less than that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Jacob Cakarnis - Jordan Australia - Analyst : Thank you. And then slide 22, you've just spoken about an expectation for margins in the Americas to contract in the second half. Do we think that the balance there is the IPEP normalization offset some of the operating leverage benefits that you might have from volume growth, restoring and net new customer wins? And then I guess on that, as IPEP does normalize, do we get to a more steady state of margin accretion in that market, please?

Question: Jacob Cakarnis - Jordan Australia - Analyst : Thanks.

Question: Justin Barratt - CLSA - Analyst : Hi guys, thanks for your time. Today. I was just curious about your increase in your free cash flow guidance. When I think about, I guess, a 1% reduction in your pulling CapEx sales ratio and then it looks like about a $70 million benefit from a reduction in non-pooling CapEx. It seems like it might be a little bit more than $100 million. So I wanted to just understand if I've got my math wrong there or if there's anything that may have sort of worked a little bit against you as it relates to your previous expectations on that in the half.

Question: Justin Barratt - CLSA - Analyst : Yeah. Okay. No worries at all. And then just -- I mean, I appreciate you think you're going to get to an optimized level of pallet stock by the end of this financial year. I think you said that you had about $5 million surplus pallets at the end of FY24. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call So I just wanted to see how are you progressing against that? How many pallets do you sort of have in excess at the end of the first half?

Question: Justin Barratt - CLSA - Analyst : No worries, thanks.

Question: Anthony Moulder - Jefferies - Analyst : Good morning, all. If I can stand on asset efficiency, I think obviously, part the pallet purchases for this half down $1 million, if I can pair that obviously to first half '24. But you've talked in this presentation about pallet recoveries of $12 million. How do we think about that? Is that effectively you recovering those pallets quicker than you would have normally and that's driving down the dwell of the pool?

Question: Anthony Moulder - Jefferies - Analyst : And so you're getting CapEx savings as a consequence of that faster asset turn effectively?

Question: Anthony Moulder - Jefferies - Analyst : Okay. So because if I look at that $1 million down, it doesn't scream as if you've delivered a massive amount in pure CapEx sense. So do you think that the poll is where it is and the asset efficiency just comes from that higher asset churn going forward as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Anthony Moulder - Jefferies - Analyst : Yeah. Okay. But you've also got -- Justin was trying to get to a surplus number of pallets in the US, why not deplete those faster than purchased $9 million through the Americas and first half ' 25 please?

Question: Anthony Moulder - Jefferies - Analyst : Yeah, (inaudible) North America, is it through the US.

Question: Anthony Moulder - Jefferies - Analyst : Yeah. The stronger net new wins through the US and particularly called out projects we're aware of a large customer you've taken off Paco. Why focus on Paco's customers, I appreciate you're focusing on trying to grow would into the wood space, but why hasn't the greater focus to deliver conversion of customers of white as opposed to Paco customers knowing that they're going to come back and use those surplus pallets to take one of your customers?

Question: Anthony Moulder - Jefferies - Analyst : Yeah. I don't think it was the majority of you were winning firstly, and I'm just surprised that there wasn't a greater focus to really grow into that white pallets space. I appreciate you are doing that, but just even, closer to full growth coming from whitewood as opposed to what the pool is. If I can comment on -- or ask a question on overheads. Reduction in overheads through EMEA was almost half of the growth in EBIT. Just how do you think overhead profiles from here given that drop that you saw in the first half '25, please?

Question: Anthony Moulder - Jefferies - Analyst : Very good. And so it's on an over on a group basis, but some movement in overheads across the regions then.

Question: Anthony Moulder - Jefferies - Analyst : So the profile relative to second half '24 then?

Question: Anthony Moulder - Jefferies - Analyst : Very good, thank you.

Question: Andre Fromyhr - UBS - Analyst : Hello, thank you. My first question is about serialization plus. Would my understanding a bit more about the lower capital cost you've learned on the US and the UK. So firstly, does that improve your expected returns on a scaled rollout of that project? And does it give you any more clarity as to what the total capital task would be if you were to roll out realization Plus in the US, for example?

Question: Andre Fromyhr - UBS - Analyst : Sure. Can you update us on when -- what that time line looks like? At what point would we expect to sort of go, no go decision on those two markets?

Question: Andre Fromyhr - UBS - Analyst : Sure. Maybe just a final question around that is what role serialization plus could be playing in the medium-term free cash flow guidance that you gave at the Investor Day of greater than $750 per annum. If we look at this year in the midpoint of the new guidance range, being around $900 million, but less a CapEx holiday benefit, let's say, $100 million, that's my number, not yours. Is that suggesting that are you reconfirming that the $750 million is something that you will deliver, which is lower than that map that I just talked through to this year. that the $750 million is achievable even if you proceed with a scaled rollout of serialization plus. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 11:30PM, BXB.AX - Half Year 2025 Brambles Ltd Earnings Call

Question: Andre Fromyhr - UBS - Analyst : Okay, thank you.

Question: Sam Seow - Citi - Analyst : Morning guys, thanks for the time. Just a quick question on second half margin. I guess with the reversal of IPEP, just wondering at a group level, are you expecting second half negative operating leverage? Or should we assume kind of EMEA and APAC can offset that US drag?

Question: Sam Seow - Citi - Analyst : Okay. That's good. And then just maybe on that kind of US margin construction. Just trying to understand what that exit rate means for FY26. I know you're not going to provide guidance, but is there any obvious reasons you can point to why margins in the US or even other regions might not contract in first half '26 as well?

Question: Sam Seow - Citi - Analyst : Helpful, thanks guys, appreciate it.

Question: Scott Ryall - Rima Equity Research - Analyst : Oh, hi there, thank you very much. Graham, you talked about the pause you put on the investment in automated end-to-end pallets repairs in the US market. I'm wondering if you could just share a little bit more about that what percentage be done so far. And in theory, and I know this is probably what you're testing, but this is the sort of investment that should help reduce damage rates in the medium to long term. Is that still how you're thinking about it? Obviously, it's more efficient to repair the damage. But in terms of the future as well, the idea is that should reduce damage rates.

Question: Scott Ryall - Rima Equity Research - Analyst : (inaudible) what proportion did you get done (inaudible)

Question: Scott Ryall - Rima Equity Research - Analyst : All right. Perfect. And then (inaudible) really good the business (inaudible) how many estimated and the metrics that you've provided operationally and financially money headed in the right direction. I'm just wondering, as you speak to customers now, what's the feedback they give you on how -- well, do they give you feedback on how you are helping their business. And if they do, can you let us know what's the feedback given I'd say, maybe five years ago, the feedback was somewhat adversarial and I take because it's prove that kind of normalized times. So I'm just wondering if you can comment on your timing charge, how you think the discussion has changed with customers, please?

Question: Scott Ryall - Rima Equity Research - Analyst : Great, thank you, that's all I have.

Question: Cameron McDonald - E&P - Analyst : Good morning. Just on the scorecard, if I can. You have said you've met the interim target on the uncompensated pallet losses down by 30% to (inaudible) the end of FY25. Have you updated that at the Investor Day to be 40% to 50% by '26, I believe. So where about -- how much over the 30% actually are you at this point?

Question: Cameron McDonald - E&P - Analyst : So -- sorry, so are you at 30% or you're over 30%? Look, we don't disclose that, but you'd say at the moment, we are delivering on that 30% commitment. So we've hit it at the half, if that makes it a bit clearer, sorry. But obviously, we then have to hold it for the second half, which we're confident we'll get yeah.

Question: Cameron McDonald - E&P - Analyst : Got it. Thank you. And then just into -- I realize it's small, but an 8% reduction in Asia Pac containers, can we just get some clarity around what happened there, please?

Question: Cameron McDonald - E&P - Analyst : Yeah. But isn't -- I mean, are those -- what containers -- I mean, it's a reasonably big move. So I'm just trying to understand, albeit a small number. I understand that demand impact that would have dropped that volume?

Question: Cameron McDonald - E&P - Analyst : Okay. Yeah, no, I appreciate that, but it sort of just stuck out, that was all. Okay, thank you.