Brambles Expands with Divestment and Increased Dividend Payout in FY25

About Brambles Limited

Brambles Limited (Brambles or the Group, ASX: BXB) is a global supply chain solutions provider that is best known for its CHEP brand, and primarily serves the fast-moving consumer goods, fresh produce, beverage, retail, and general manufacturing industries. The Group employs 13,000 people and owns approximately 350 million pallets, crates, and containers, through a network of 750 service centres, operating out of 60 countries, with its largest operations in North America and Western Europe.

A business built on the humble CHEP pallet

Brambles has built a multi-billion-dollar global, defensive business on the back of the humble wooden pallet. It’s a simple design that hasn’t changed in decades. This simple product transports literally trillions of dollars of equipment across global supply chains and generates for Brambles approximately US$6.5 billion of revenue annually.

The history of the CHEP pallet is what makes Brambles one of Australia’s greatest success stories.

W E Brambles & Sons, after becoming a publicly listed company in 1954, began providing transport services to BHP from Newcastle and Port Kembla. In 1958 Brambles bought CHEP from the Australian Government and moved its head office to Sydney.

CHEP was originally developed by the Australian government to provide efficient handling of defence supplies during World War II. The government needed to coordinate the supply chain during the Second World War to efficiently shift millions of tonnes of munitions, food, and other military goods necessary to sustain Australia’s overseas war effort.

After the war, Australian military bases were left with millions of blue coloured pallets that were previously used to transport these supplies.

The Australian Government saw the practical benefit of using the wooden pallets as an efficient method to ship supplies around the country. The Australian Government referred to this initiative as the Commonwealth Handling Equipment Pool (CHEP).

CHEP was ultimately privatised and bought by the company today known as Brambles in 1958. Today, CHEP is Brambles’ underlying core business. Its pallets continue to be painted in the colour blue. This ensures that they are distinguishable from ordinary “white wood pallets”, so they can be collected and added back into the Brambles rental pool.

CHEP generates revenue by manufacturing and renting out its pallets using a “pooling model”. This model enables customers to use Brambles’ pallets to transport goods through the supply chain before either returning the pallets to Brambles or transferring them to another participant for reuse. Under this system, pallet pooling enables other businesses to use Brambles’ pallets to maintain supply chain and warehousing efficiency.

Divestment of CHEP India

Brambles has completed the divestment of its CHEP India business to LEAP India Private Limited, a leading returnable packaging services provider, for an enterprise value of US$85 million. Brambles entered the Indian market more than a decade ago, however, management has determined that creating meaningful value from further investment in CHEP India, requires a long-term timeframe.

Brambles consider the optimal use of capital deployed in this investment is to reduce outstanding debt, and this reflects Brambles’ disciplined approach to capital allocation. Brambles expects to recognise a profit on sale of approximately US$25 million, and cash proceeds from the transaction of approximately US$75 million.

Higher dividend payout ratio from FY25

The Group’s capital allocation framework seeks to maximise shareholder value and optimise its capital structure through an active and disciplined approach to allocating capital. Under this framework, Brambles has stated its intention to prioritise reinvestment in the business to fund organic growth. Management consider that given the Group’s leading market position in all regions, acquisitive growth opportunities are expected to be limited. This implies that shareholders are unlikely to be diluted by an equity raising anytime soon, enabling the Board to consider lifting the dividend payout ratio range to 50-70 percent of Underlying Profit after finance costs and tax. This follows a dividend payout ratio of 60 percent in FY24 which was at the top end of the previous payout range of 45-60 percent.

The proposed higher dividend payout ratio is accompanied by the launch of an on‐market share buy-back of up to US$500 million in FY25, subject to market conditions, reinvestment requirements and the operating performance of the business. This share buy-back commenced in September 2024.

Looking ahead

Brambles manages the world’s largest pool of standardised reusable pallets, crates, and containers, making it the global leader in the provision of efficient and sustainable supply chains. This supply chain efficiency generates cost savings and reliability for customers that is shared with Brambles in the form of higher pallet hire prices. This higher pricing has been achieved in recent years despite ongoing weak macroeconomic conditions.

Future earnings will be impacted by the volume of international trade and economic growth.

Brambles maintains a strong balance sheet and has set a medium-term net debt to EBITDA target of between 1.5 to 2 times. The Board consider this is a prudent and optimal level of leverage for the business which also supports the Group’s investment grade credit rating.

This strong market position in supply chain logistics, proven pricing power in times of moderate economic growth, and a prudent balance sheet with an investment grade credit rating, should support consistent shareholder value accretion in the medium term.