brambles 1
TRANSCRIPT
Agenda
About Brambles Ltd.
Key Accounting Policies and Standards
Questions
Management Flexibility & Accounting Policies
Accounting Policy & Management Incentive
Quality of Disclosure
Press releases and Conclusion
Potential Questionable Numbers & Distortions
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2
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8
5
6
3
4
About Brambles
CHEP & IFCO are world’s leading provider of pallet, RPC‘s and container pooling solutions. RECALL provides information management solutions to businesses.It employs more than 17,000 people in 54 countries and had sales revenue of US$4.7 billion as of financial year ended 30 June 2011. Brambles headquarter is based in Australia.
Brambles Strategy & Products
Diversification
InnovationBrambles Core
Growth StrategyGeographical Expansion
Key Performance Indicators & Competitors
Key Performance Indicators (FY 2011)
Brambles (BXB)
Downer EDI (DOW)
Mineral Resources (MIN)
NRW Holdings (NWH)
Transfield Services (TSE)
Market Cap 10.915B 1.523B 2.176B 1.046B 1.192B
Sales Revenue 4.74B 6.96B 675.66M 745.34M 2.82B
Operating Expense 3.98B 6.70B 454.30M 686.60M 2.73B
Total Assets 7.40B 3.89B 1.26B 545.01M 2.17B
Total Debt 2.93B 732.79M 102.04M 123.57M 515.73M
Debt to Asset 23.75% 18.74% 10.02% 22.67% 23.31%
Net Profit Margin 8.05% 2.35% 20.07% 5.53% 2.17%
Key Accounting Policies
Key Accounting Policies Summary and Analysis
Revenue Recognition Sales Revenue account for 97% of the total income reported.
The point at which revenue is recognised and the timing of revenue recognition will be critical to increase or decrease in revenue for a particular reporting period.
Property Plant & Equipment PP&E accounted for 55% of total assets.
Significant amount of estimation assumption and judgement involved in recognising & measuring assets.
Goodwill Goodwill forms 22% of the total assets and is recognised on acquisition of subsidiary or joint venture.
Recoverable amount of goodwill is determined based on value in use calculation undertaken at the CGU level and calculated using discounted cash flow method covering 10 year period with appropriate terminal value at the end of that period.
Borrowings Borrowings represented 59% of the total liabilities in 2011.
The borrowings are combinations of committed facilities and loan notes with varying terms secured from banks and capital markets in multi-currency global banking facilities.
Recognition and measurement of Borrowings and related costs will have a significant impact on the net asset position and their key key financial ratios to meet their covenants.
Applicable Accounting standards are in report with detailed explanations on their selection
Accounting Policy& Management Incentive
Strategies employed by management in respect of key accounting policies are geared towards supporting the success of their long term strategy of growth through expansion and managing funding
Key Accounting Policy Summary & Analysis
Presentation Currency Financial statements of individual entities are presented in their respective functional
currency.
Presentation Currency for the consolidated and parent entities statements is USD.
Management of Borrowings Geared towards reducing risk profile and maintaining key financial ratios
Targets a net Debt to EBITDA ratio of 1.75 times
Strong financial position and reduction in risk profile are significant to the funding of the
management’s growth strategy
Financial Risk Management Capital Management Risk - Strategy employed by the management in relation to
management of its capital structure is geared towards maintaining its credit rating.
Interest Rate Risk - Policy is designed to reduce volatility in funding costs
Foreign Exchange Risk - Policy is designed to counter the volatility of the exchange rate
within and across the various market it operates in
Accounting Strategy & Management Incentive
Incentive KPI & Performance Conditions Measure
Short Term Incentive (STI)- cash award
BVA (Brambles Value Add) Focuses on efficient use of capital within Brambles
Cash Flow (from Operations) measures strong focus on the generation of cash for the Group
PAT (Profit After Tax) - for the CEO & CFO
Focuses on efficient use of capital within Brambles
Non-financial KPIs include personal strategic objectives in areas such as safety, business growth, customer satisfaction and retention, and people and talent management.
Long Term Incentive (LTI) TSR (Total Share holder Return) relative to S&P/ASX100 indexed over three years performance period.
Half of the LTI is measured by TSR which is the return the company has provided for its share holders, reflecting share price movement and reinvestment of dividend over a period.
Equity Awards Vesting only occurs three years from the date of the award.
Other half of the LTI is measured against the achievement of profitable growth objectives. This is designed to incentivize both long term growth and BVA. In the event of termination or resignation unvested awards are forfeited.
Quality of Disclosure
The company has a principle of 'making timely and balanced disclosure', and it means that Brambles exercises continuous disclosure policy.
Pitfalls in Disclosure Statement
Key Accounting Element Lack of Disclosure
Goodwill Valuation methods ? Discount Rates ?
Intangible Assets List of intangible assets ? Valuation methods ?
Remuneration Policy Justify remuneration packages for top management ? Lack of information on allocations share options ?
Questionable accounting numbers
On analysing Brambles financial statement, we have not found any compelling questionable accounting numbers which stood out as discrepancy.
However we have identified couple of accounting items which requires further questioning and analysis as the annual report fails to provide sufficient information on how and on what basis the items were estimated and calculated.
Valuations of Goodwill & Intangible Assets
Valuations of Provisions
Correcting Distortions
Discount RatesBrambles have used the pre-tax weighted average cost of capital (WACC) & include a premium for market risks appropriate to each country in which the CGU operates. WACC ranged between 10.1% to 25.0% (Page 93)
Goodwill (asset) Discount Rate - Goodwill in millions
AR 2011 10.10% 25%
Difference (Column 2-
3)Difference
(Column 2-4)
Goodwill acquired through takeover of CHEP 159.7 143.57 119.78 16.13 39.92
Goodwill acquired through takeover of IFCO 985.2 885.69 738.9 99.51 246.3
Goodwill acquired through takeover of Recall 549.4 493.91 412.05 55.49 137.35
Total goodwill for Brambles 1694.3 1523.17 1270.73 171.13 423.57
Press Releases
No Business News Article Headline Source1 Strategy
Brambles to diversify in US
Australian Financial Review
2 Strategy
Brambles small-target to life US Sales
Bloomberg
3 Strategy
Brambles talks up US
Australian Financial Review
4 Acquisition
Brambles buys Swiss based airline container Unitpool
Asiapulse News
5 Acquisition
Brambles to buy IFCO for $1.28 bnAustralian Financial Review
6 Acquisition
Brambles continues growth strategy, acquires CAPS
Asiapulse News
7 Performance
Brambles keen to spread wings
Sydney Morning Herald
8 Performance
Brambles reports 1st half profits of $219.6 Million
Bloomberg
9 Performance
First half profits rises by 6 on China, India sales
Bloomberg
Conclusion
By and large Brambles strictly adheres to accounting standards in valuations, estimation and reporting of key items on it financial statements. This is further endorsed by independent auditor every year to ensure company complies with relevant laws, regulations and standards.
However parts of the reports lack in-depth detail to explain some of business valuations and performance. Furthermore we would advise future and current investors to pay attention to valuations of goodwill, intangible assets and PPE (property, plant and equipment) as there significant portion of the company’s balance sheet.
Overall Brambles has done very well in 2011 by focusing on three key areas of delivering on its near-term objectives, making ongoing investments and implementing long-term growth strategy.
References
Brambles Limited, Annual Report 2011, 2010, viewed multiple times, http://www.brambles.com/BXB/content/investors_welcome.htmlBrambles Limited, Investor Presentation 2011, viewed multiple times, http://www.bramblesreview.com/2011/Deegan, C, 2011. Australian Financial Accounting. 5th ed. Australia: McGraw Hill.Evans, R, 2011. Brambles reports first half profit of $219.6 million. Bloomberg, 14 February 2011. pp 33.Gale, C, 2010. Aust pallet supplier acquires US based container firm. AsiaPulse News, 08 February 2011. pp 3.Gale, C, 2010. Australia's Brambles buys Swiss airline container provider. AsiaPulse News, 24 September 2010. pp 14.Lee, T, 2010. Brambles small-target strategy to lift US sales. The Australian, 20 August 2010. pp 23.Wen, P, 2010. Brambles keen to spread wings. The Sydney Morning Herald, 19 November 2010. pp 4.Wiggins, J, 2010. Brambles talks up US. Australian Financial Review, 15 September 2010. pp 49.Wiggins, J, 2010. Brambles to buy IFCO for $1.28bn. Australian Financial Review, 16 November 2010. pp 18.Wiggins, J, 2010. Brambles to diversify in US. Australian Financial Review, 20 August 2010. pp 41.Wilson, I , 2011. Brambles first half profits rises 6% on China, Inida. Bloomberg, 15 February 2011. pp 27.