Brambles (ASX:BXB) is a top 30 company on the ASX with a market capitalisation over $20 billion. It began in Newcastle, NSW in 1875 and listed on the ASX in 1954. During the 1970s it expanded into the UK and Europe and into the USA in the 1990s. Throughout its history it has diversified into different businesses only to divest them at later dates. These have included the Cleanaway waste management business and the Recall records management business.
Today it is a global business with operations in over 60 countries mostly through the CHEP brand. They now have a narrow focus on the business of providing pallets. Pallets are 1.1m x 1.1m wooden platforms that are used to stack goods so that they can then be conveniently loaded onto trucks and transported to warehouses, stores etc. They form an integral part of the logistics supply chain for fast moving consumer goods, fresh produce, retail and general manufacturing.
The vast majority of revenue is derived outside Australia with 55% coming from the Americas, 37% coming from Europe, Middle East and Africa (EMEA) and only 8% coming from Asia-Pacific.
Brambles have a competitive advantage in that they are the dominant player in the areas that they operate. They are the only global operator providing pallet-pooling services at scale. They are able to capitalise on economies of scale due to their extensive network of depots and service centres and operating efficiencies from the large pallet pool. This enables them to operate with a low cost base.
The pallet pool refers to their business model of issuing pallets to customers, but then taking the pallets back when the customer has finished with them. Their main capital expenditure is for producing new pallets, so the more returns they receive the less capital they have to spend building new pallets which improves their cash flow.
In their main markets of the US and Europe, most revenue comes from issuing pallets to customers, as opposed to a time based fee for the period of use of the pallet. So getting the pallets back and reusing them adds to Brambles revenue. This is also part of their sustainability proposition. They place a lot of emphasis on having a circular business model. This is not only for their own credentials, but is also part of their value proposition to customers…
