Brambles Annual Report 2010

Plain-text annual report

B R A M B L E S A N N U A L R E P O R T 2 0 1 0 WWW.BRAMBLES.COM ANNUAL REPORT 2010 WE’RE BUILDING A STRONGER FOUNDATION Brambles is committed to achieving Zero Harm, which means zero injuries and zero environmental damage, and has used a PEFC, Chain of Custody accredited printer to produce this Annual Report. BRAM021 Annual Report Cover v7a FA.indd 1 10/9/10 6:39:03 PM INVESTOR INFORMATION BRAMBLES LIMITED Level 40, Gateway 1 Macquarie Place Sydney NSW 2000 Australia Telephone: 61 (0) 9256 5222 Facsimile: 61 (0) 9256 5299 Website: www.brambles.com Brambles Limited has a primary listing on the Australian Securities Exchange. The global headquarters of Brambles is in Sydney, Australia. All currency amounts in this report are in US dollars unless otherwise speciﬁed. ANNUAL GENERAL MEETING The AGM will be held at 2.00pm (AEDT) on Thursday, 18 November 2010 at: The Wesley Theatre Wesley Conference Centre 220 Pitt Street Sydney NSW 2000 A live webcast of the meeting will be broadcast on www.brambles.com DIVIDEND The Directors have declared a ﬁnal dividend of 12.5 Australian cents per share, which will be 20% franked. The dividend will be paid on Thursday, 14 October 2010. Shareholders may elect to receive dividend payments in Australian dollars or Pounds sterling, by contacting Brambles’ share registry, Link Market Services Limited. The relevant contact details are set out in Shareholder Information on page 50. BRAMBLES BUSINESS UNITS CHEP Americas 8517 South Park Circle Orlando FL 32819-9040 United States of America Telephone: 1 407 370 2437 Facsimile: 1 407 363 5354 Email: chep_americas@chep.com Website: www.chep.com CHEP EMEA Weybridge Business Park Addlestone Road, Addlestone Surrey KT15 2UP United Kingdom Telephone: 44 (0) 1932 850 085 Facsimile: 44 (0) 1932 850 144 Email: info.emea@chep.com Website: www.chep.com CHEP Asia-Paciﬁc Level 6, Building C 11 Talavera Road North Ryde NSW 2113 Australia Telephone: 61 (0) 2 9856 2437 Facsimile: 61 (0) 2 9856 2404 Email: ap.marketing@chep.com Website: www.chep.com Recall One Recall Center 180 Technology Parkway Norcross GA 30092 United States of America Telephone: 1 770 776 1000 Facsimile: 1 770 776 1001 Email: recall.communications@recall.com Website: www.recall.com WE’RE BUILDING A STRONGER FOUNDATION CONTENTS 001 _ Letter from the Chairman and the CEO 002 _ Performance summary 004 _ Operational and ﬁnancial review 012 _ Treasury and risk review 014 _ Board of Directors 016 _ Executive leadership team 018 _ Corporate governance statement 031 _ Directors’ report – remuneration report 045 _ Directors’ report – other information 050 _ Shareholder information 053 _ Financial report – ﬁnancial statements 114 _ Financial report – Directors’ declaration 115 _ Financial report – independent auditors’ report 117 _ Auditors’ independence declaration 118 _ Five year ﬁnancial performance summary 119 _ Glossary IBC _ Investor information Brambles Limited ABN 89 118 896 021 1 2 0 M A R B . y e n d y S . n o t g n i l l e W . d n a l k c u A . d e t i i m L e v i t a e r C t h g i s n I LETTER FROM THE CHAIRMAN AND THE CEO rambles’ performance for the 2010 ﬁnancial year highlighted the Group’s resilience in challenging conditions. Sales revenue was up 3% over the 2009 ﬁnancial year, while free cash ﬂow after dividends increased strongly. Our operating proﬁt was up 1% and we continue to generate a strong return on capital. It has been a year of leadership transition for Brambles. In October 2009, the Board appointed Tom Gorman as CEO after the retirement of Mike Ihlein. The Company has reorganised its leadership team to drive development of proﬁtable growth opportunities and shareholder returns in the years to come. Our two primary businesses, CHEP and Recall, provide a solid foundation on which we can build as they have strong customer bases, market positions, competitive strengths and growth prospects. Brambles’ ﬁnancial position is robust. We strengthened our funding position during the year by completing a US$750 million issue into the US 144A bond market and we have US$1.9 billion in committed undrawn credit facilities. Brambles’ net new business wins for the 2010 ﬁnancial year were US$53 million as we continued to expand our existing businesses and enter into new sectors and geographies. CHEP’s expansion in regions such as China, India, Central and Eastern Europe and Latin America was a highlight, as was the consistent growth in the Document Management Solutions service line that underpinned Recall’s strong sales revenue increase. In October 2009, we announced the Better Everyday program in CHEP USA. This program is now well underway. The program represents a signiﬁcant upgrade in quality and service in the CHEP USA business. It is generating positive feedback from customers and net new business wins since it began. The program deals with three key areas for CHEP USA: building on our previous initiatives to improve pallet quality; making it easier for customers to do business with us; and realigning our sales and marketing organisation. DIVIDEND The Board has declared a ﬁnal dividend of 12.5 Australian cents per share, 20% franked and payable on 14 October 2010 to shareholders on the Company’s register on 22 September 2010. This took the total dividend for the 2010 ﬁnancial year to 25 Australian cents per share, compared with 30 Australian cents per share for the 2009 ﬁnancial year, when there was a higher interim dividend prior to the onset of the global economic downturn. The Board has retained the Dividend Reinvestment Plan for the 2010 ﬁnal dividend. BOARD AND CORPORATE GOVERNANCE In November 2009, John Mullen joined the Board as a Non-executive Director. John brings signiﬁcant international logistics and business experience from 15 years at DHL Express, including ﬁve years as CEO. Our thanks go to David Gosnell, who retired from the Board in March 2010 after four years as a Non-executive Director to concentrate on his executive role at UK-based premium drinks company Diageo plc. The Board reviews best practice in corporate governance on an ongoing basis. Please refer to the Corporate Governance Statement on pages 18 to 30 for more details. In line with its commitment to sustainable business practices, Brambles will publish its 2010 Sustainability Report on its website before the 2010 Annual General Meeting. SAFETY Brambles’ safety performance continued to improve during the 2010 ﬁnancial year. The 12-month rolling Brambles Injury Frequency Rate (a combined measure of lost-time injuries, modiﬁed duties and medical treatments) was 21.9 per million man hours at 30 June 2010. This was an improvement of 5% from 30 June 2009. There were no fatalities in the period. The Group remains committed to its goal of Zero Harm and has developed a new three-year strategy focused on further improving our overall safety performance. OUTLOOK We have considerable opportunities to grow our business and anticipate an increase in both sales revenue and proﬁt as economic growth returns in our key markets. GRAHAM KRAEHE AO Chairman TOM GORMAN Chief Executive Ofﬁcer BRAMBLES LIMITED ANNUAL REPORT 2010 1 PERFORMANCE SUMMARY Resilient sales revenue performance across all regions amid ongoing challenging economic conditions. Strong cash ﬂow reﬂects disciplined capital controls and the underlying strength of our CHEP and Recall businesses. Robust balance sheet position and responsible ﬁnancial management. SALES REVENUE BY BUSINESS UNIT 9% 18% Net new business wins1 of US$53 million, reﬂecting strong performance of established and emerging businesses. 36% Recall US$740 CHEP Americas US$1,534M CHEP EMEA US$1,483M CHEP Asia-Pacific US$391M 37% Better Everyday program launched in CHEP USA, delivering improved service and quality standards. CHEP Asia-Paciﬁc US$391M CHEP Americas US$1,534M Recall US$740M CHEP EMEA US$1,483M Continuing operations Sales revenue Operating proﬁt Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt for the year Earnings per share (EPS) (US cents) Basic EPS from continuing operations Basic EPS Cash ﬂow and balance sheet Cash ﬂow from operations Free cash ﬂow after dividends Net debt Net debt/EBITDA (times) EBITDA/net ﬁnance costs (times) Gearing (net debt/(net debt plus equity)) Brambles Value Added (at ﬁxed exchange rates) Total dividend (Australian cents per share) 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY 2) 3% 1% 2% (1)% 1% (2)% – (3)% (1)% (5)% (3)% (6)% 4,146.8 4,018.6 724.5 443.9 4.9 448.8 31.5 31.8 882.3 344.1 1,759.3 1.5 10.7 51.9% 215.4 25.0 718.2 434.0 18.6 452.6 31.3 32.6 722.4 141.9 2,143.4 1.8 10.0 60.0% 297.4 30.0 1 Brambles deﬁnes net new business wins as the change in sales revenue in the period resulting from business won or lost in that period and the previous 12 months. Net new business is calculated on a constant currency basis. 2 Brambles calculates constant currency by translating results into US dollars at the exchange rates applicable during the prior corresponding period. 2 BRAMBLES LIMITED ANNUAL REPORT 2010 25.0C TOTAL DIVIDEND (AUSTRALIAN CENTS) $4,146.8M SALES REVENUE (US$) $882.3M CASH FLOW FROM OPERATIONS (US$) $724.5M OPERATING PROFIT (US$) 31.8C EARNINGS PER SHARE (US CENTS) 17% RETURN ON CAPITAL INVESTED SALES REVENUE 4 (US$ MILLION) Recall CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc 4,359 3,869 4,019 17% 4,147 17% 18% 3,522 16% 38% 17% 37% 36% 37% 39% OPERATING PROFIT 3, 4 (US$ MILLION) Recall CHEP Americas CHEP EMEA 777 CHEP Asia-Paciﬁc 38% 38% 36% 38% 36% 8% 8% 9% 8% 9% Recall CHEP Americas CHEP EMEA CHEP Asia-Pacific 1,067 12% 932 9% 42% 669 45% 37% 36% 10% 9% 9% 42% 39% 10% 761 14% 34% 43% 9% 16% 31% 43% 10% Recall CHEP Americas CHEP EMEA CHEP Asia-Pacific 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 CASH FLOW FROM OPERATIONS 3, 4 BASIC EARNINGS PER SHARE 4 (US$ MILLION) Recall CHEP Americas 752 CHEP EMEA CHEP Asia-Paciﬁc 11% 40% 41% 8% 867 847 10% 37% 42% 15% 756 43% 14% 35% 35% 49% 913 14% 31% (US CENTS) 45.9 28.0 21.5 31.3 31.5 45% Recall CHEP Americas CHEP EMEA 11% 7% 2% 10% CHEP Asia-Pacific 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 3 Excludes unallocated Brambles Headquarters costs. 4 Continuing operations. BRAMBLES LIMITED ANNUAL REPORT 2010 3 NEW BUSINESS WINS Brambles’ net new business wins in the 2010 ﬁnancial year were US$53 million, reﬂecting a solid win rate in CHEP EMEA and CHEP Asia-Paciﬁc and a strong contribution from Recall. The annualised value of net new business won during the period was positive in all business units, totalling US$75 million. Since the introduction of the Better Everyday program in October 2009, the annualised value of net new business wins for CHEP USA has been US$18 million. DIVIDEND The Board declared a ﬁnal dividend of 12.5 Australian cents per share, 20% franked and payable on 14 October 2010 to shareholders on the Company’s register on 22 September 2010. Including the interim dividend of 12.5 Australian cents per share, total dividends declared in the 2010 ﬁnancial year were 25.0 Australian cents per share (2009: 30.0 Australian cents per share). The Board kept the Dividend Reinvestment Plan (DRP) active during 2010. The Board has set the price at which Brambles allots shares under the DRP as the arithmetic average of the daily volume-weighted average sale price of all Brambles shares traded on the Australian Securities Exchange in the ordinary course of trading during a nominated 10 trading days, less a discount of 2.5%. OPERATIONAL AND FINANCIAL REVIEW GROUP OVERVIEW Brambles reported sales revenue of US$4,146.8 million for the ﬁnancial year ended 30 June 2010, up 3% on the prior corresponding period. Operating proﬁt before ﬁnance costs and tax was US$724.5 million, up 1%. Proﬁt after tax from continuing operations was US$443.9 million, up 2%. Cash ﬂow was strong, reﬂecting tight ﬁnancial controls and a reduction in capital expenditure. Cash ﬂow from continuing operations increased US$159.9 million to US$882.3 million. Free cash ﬂow after dividends increased US$202.2 million to US$344.1 million. The result, in particular the strong cash ﬂow performance and robust balance sheet, highlighted Brambles’ stability and resilience during a period of continued challenging economic conditions. The Group is focused on driving the next phase of growth. Growth in sales revenue in the 2010 ﬁnancial year of 3% was driven by CHEP Europe, Middle East and Africa (EMEA), CHEP Asia-Paciﬁc and Recall, which offset the impact on the Group’s ﬁnancial results of a decline in sales revenue in CHEP Americas. Brambles delivered a 6% increase in second-half sales revenue compared with the same period in the 2009 ﬁnancial year as established and developing regions generated new business, balancing subdued underlying conditions in some regions. Developing CHEP regions including China, India, Central and Eastern Europe and the Middle East delivered particularly strong growth rates. Investment in these CHEP regions is ongoing, along with other growth initiatives throughout the Group. The Better Everyday program has delivered a higher pallet quality standard to CHEP USA customers. This initiative, which began in October 2009, has positioned CHEP USA for future proﬁtable growth and enabled it to regain positive sales momentum. Recall delivered strong proﬁt growth and an improvement in return on capital. Recall beneﬁted from new sales conversion, cost efﬁciency programs undertaken in the previous ﬁnancial year and ongoing strong demand in its Document Management Solutions service line. Earnings per share of 31.8 US cents was down 2%. This was lower than the increase in proﬁt from continuing operations due to the inclusion of higher proﬁts from discontinued operations in the 2009 ﬁnancial year. 4 BRAMBLES LIMITED ANNUAL REPORT 2010 SALES AND PROFIT SUMMARY Sales revenue CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Total sales revenue Operating proﬁt CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Operating proﬁt Net ﬁnance costs Proﬁt before tax Tax expense Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt for the year 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) 1,533.6 1,482.6 390.9 3,407.1 739.7 4,146.8 235.2 324.9 77.8 637.9 123.1 (36.5) 724.5 (109.6) 614.9 (171.0) 443.9 4.9 448.8 1,556.9 1,452.6 323.4 3,332.9 685.7 4,018.6 229.0 286.5 57.9 573.4 95.9 48.9 718.2 (120.9) 597.3 (163.3) 434.0 18.6 452.6 (1)% 2% 21% 2% 8% 3% 3% 13% 34% 11% 28% 1% 9% 3% (5)% 2% (1)% (3)% 1% 3% (1)% 2% – (1)% 11% 9% 6% 19% (3)% 11% (2)% 3% (1)% (5)% (6)% (6)% Weighted average number of shares (millions) 1,411.3 1,388.3 Basic EPS1 (US cents) Basic EPS1 (Australian cents) 31.8 36.1 32.6 43.7 (2)% (17)% 1 Earnings per share includes discontinued operations. BRAMBLES LIMITED ANNUAL REPORT 2010 5 OPERATIONAL AND FINANCIAL REVIEW CONTINUED Underlying proﬁt2 Underlying proﬁt CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Underlying proﬁt Net ﬁnance costs Underlying proﬁt before tax Tax expense Underlying proﬁt after ﬁnance costs and tax Underlying EPS (US cents) ROCI Brambles Value Added (BVA) at ﬁxed exchange rates Reconciliation of Underlying proﬁt to operating proﬁt US$M Underlying proﬁt Signiﬁcant items: CHEP USA – pallet quality program CHEP USA – Walmart net transition impact Restructuring: Facilities and operations rationalisation CHEP USA accelerated scrapping of 7 million surplus pallets FX gain on capital repatriation from foreign subsidiary Other Total Signiﬁcant items Operating proﬁt 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) 237.1 329.5 78.4 645.0 124.6 (36.2) 733.4 (109.6) 623.8 (173.6) 450.2 31.9 17% 215.4 434.4 327.5 61.1 823.0 104.3 (26.7) 900.6 (120.9) 779.7 (245.4) 534.3 38.5 21% 297.4 (45)% 1% 28% (22)% 19% (36)% (19)% 9% (20)% 29% (16)% (17)% (47)% (1)% 5% (25)% 11% (9)% (22)% 11% (24)% 34% (19)% (20)% 2010 2009 BEFORE TAX AFTER TAX BEFORE TAX AFTER TAX 733.4 450.2 900.6 534.3 – – (11.4) 2.5 – – (8.9) 724.5 – – (7.8) 1.5 – – (6.3) 443.9 (77.4) (29.0) (54.3) (99.0) 77.3 – (182.4) 718.2 (47.1) (17.7) (46.0) (60.3) 77.3 (6.5) (100.3) 434.0 Signiﬁcant items In response to the challenging economic environment in 2009, Brambles implemented a number of initiatives to improve its cost structure, underpin future operating performance and meet customer requirements. The costs incurred in 2010 represent the conclusion of these initiatives. 2 The difference in growth rates between operating proﬁt and Underlying proﬁt reﬂects the impact of Signiﬁcant items recognised outside of Underlying proﬁt (US$8.9 million in the 2010 ﬁnancial year; US$182.4 million in the 2009 ﬁnancial year). 6 BRAMBLES LIMITED ANNUAL REPORT 2010 BUSINESS UNIT OPERATIONS REVIEW CHEP AMERICAS 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) 1,533.6 1,556.9 (1)% (3)% (1)% 0pp 3% 0pp Sales revenue Operating proﬁt Operating proﬁt margin Signiﬁcant items: Pallet quality program Walmart net transition impact Restructuring – facilities and operations Accelerated pallet scrapping Underlying proﬁt Underlying proﬁt margin 229.0 15% 77.4 29.0 – 99.0 205.4 434.4 235.2 15% – – 4.4 (2.5) 1.9 237.1 15% (45)% (47)% 28% (13)pp (13)pp Cash ﬂow from operations 285.7 267.0 ROCI 14% 26% SALES CHEP Americas’ sales revenue was US$1,533.6 million, down 1% on the prior corresponding period as continued growth in CHEP Canada, CHEP Latin America and LeanLogistics partially offset a decline in sales revenue in CHEP USA. CHEP USA’s sales revenue was down 5%, reﬂecting a reduction in pricing and mix (2%) and pallet issue volumes (3%). The lower pallet issue volumes comprised a decline in organic issue volumes (2%) and the impact of lost business (1%). CHEP Canada’s sales revenue was up 12% as issue volumes rose. CHEP Latin America’s sales revenue was up 7% on volume growth throughout the region. LeanLogistics delivered a 9% increase in sales revenue as it continued to expand. CHEP Americas’ net new business in the year was negative US$9 million. However, the annualised value of business won in the 2010 ﬁnancial year was positive at US$2 million. CHEP USA won new or expanded business during the year with more than 1,000 customers as it extended its reach with small and medium-sized customers. CHEP USA won business during the year with major brands including consumer lawn and gardening products company Scott’s Miracle-Gro and fresh fruit and vegetable producer Del Monte. The annualised value of net new business in CHEP USA since the introduction of the Better Everyday program in October 2009 has been US$18 million. PROFIT CHEP Americas’ operating proﬁt was US$235.2 million, up 3% from the 2009 ﬁnancial year. Underlying proﬁt was US$237.1 million, down 45% on the prior corresponding period. The difference between operating proﬁt and Underlying proﬁt primarily reﬂects the impact of the US$205.4 million of Signiﬁcant items that CHEP Americas recognised in the 2009 ﬁnancial year from CHEP USA quality investments, Walmart transition costs and accelerated pallet scrapping. In the 2010 ﬁnancial year, CHEP Americas recognised quality investments within Underlying proﬁt, rather than as Signiﬁcant items. Quality investments in CHEP USA in 2010 totalled US$108.5 million, comprising US$37.0 million of investment under the USA pallet quality program and US$71.5 million of investment under the Better Everyday program, US$8.5 million below the October 2009 estimate. Direct costs rose in the 2010 ﬁnancial year, primarily as a result of a US$19.3 million increase in costs from storing, handling and transporting idle pallets in CHEP USA. The average number of idle pallets for the year was approximately 4 million. There were also costs associated with converting customers from new to repaired pallets. Costs associated with the irrecoverable pooling equipment provision (IPEP) were higher than trend in the ﬁrst half of the 2010 ﬁnancial year, reﬂecting the outcomes of audits completed in the period. These costs returned to trend in the second half. CHEP USA has completed the accelerated scrapping of 7 million excess pallets that Brambles announced in February 2009. This was 12 months ahead of schedule and US$2.5 million below management’s original estimate. CASH FLOW AND RETURN ON CAPITAL CHEP Americas increased its cash ﬂow from operations by US$18.7 million over the prior corresponding period to US$285.7 million. This reﬂected favourable working capital movements and lower capital expenditure, more than offsetting the lower Underlying proﬁt. CHEP USA further reduced its commitment to buying new pallets during the period. The higher quality of the repaired pool enabled more customers that had previously required new pallets to transfer their volumes to repaired pallets. CHEP USA also reduced the proportion of imported customer volumes that used new pallets. Return on capital invested was 12 percentage points lower at 14%, reﬂecting the reduction in Underlying proﬁt. QUALITY INITIATIVES The Better Everyday program to improve quality and service within CHEP USA is driving an improved performance, reﬂected in the positive win rate since the program began and an ongoing reduction in customer pallet rejections. CHEP USA is now delivering 100% of all issues at the US Plus repair speciﬁcation or higher, although demand for the higher US Premium repair speciﬁcation remains lower than originally anticipated. As a result, Brambles expects ongoing costs of the Better Everyday program from the 2013 ﬁnancial year to be US$25 million per annum. BRAMBLES LIMITED ANNUAL REPORT 2010 7 OPERATIONAL AND FINANCIAL REVIEW CONTINUED CHEP EMEA CHEP ASIA-PACIFIC 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) 1,482.6 1,452.6 324.9 22% 286.5 20% 2% 13% 2pp 1% 11% 2pp Sales revenue Operating proﬁt Operating proﬁt margin Signiﬁcant items: Restructuring – facilities and operations 4.6 329.5 22% 41.0 327.5 23% 1% (1)pp (1)% (1)pp Underlying proﬁt Underlying proﬁt margin Cash ﬂow from operations 411.7 372.7 Cash ﬂow from operations ROCI 23% 23% ROCI Sales revenue Operating proﬁt Operating proﬁt margin Signiﬁcant items: Restructuring – facilities and operations Underlying proﬁt Underlying proﬁt margin 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) 21% 34% 2pp 28% 1pp 3% 9% 1pp 5% 0pp 390.9 323.4 77.8 20% 0.6 78.4 20% 94.1 21% 57.9 18% 3.2 61.1 19% 9.8 19% SALES CHEP EMEA’s sales revenue was up 2% compared with the prior corresponding period at US$1,482.6 million. CHEP Europe’s sales revenue was in line with the prior corresponding period as net new business wins offset a decline in pallet sales revenue in the UK and Spain and a slow rate of recovery in the automotive sector. CHEP Central and Eastern Europe delivered a 24% increase in sales revenue as a result of ongoing business expansion. CHEP Middle East and Africa increased sales revenue by 28% as volumes continued to grow strongly. CHEP EMEA’s net new business wins were US$30 million. In June 2010, CHEP announced its ﬁrst major pallet supply contract in Turkey, with Unilever. CHEP has also reached agreement on commercial terms to supply Procter & Gamble in Turkey. During the 2010 ﬁnancial year, pallet business expansion included British Sugar in the UK, as well as paper product manufacturer Soﬁdel and oils distributor Bunge in Poland. The annualised value of net business CHEP EMEA won during the period was US$39 million. PROFIT CHEP EMEA’s operating proﬁt was US$324.9 million, up 13%, reﬂecting the cost impact of facilities and operations rationalisation in the 2009 ﬁnancial year. Underlying proﬁt was up 1% to US$329.5 million. Cost efﬁciencies largely offset increased investment in the quality of the European pallet pool. Costs associated with the IPEP returned to trend in the second half, having been higher than normal in the ﬁrst half. CASH FLOW AND RETURN ON CAPITAL CHEP EMEA’s cash ﬂow from operations was US$411.7 million, up US$39.0 million from the prior corresponding period, reﬂecting lower capital expenditure and strong working capital controls. Return on capital invested was in line with the 2009 ﬁnancial year at 23%. SALES CHEP Asia-Paciﬁc’s sales revenue was US$390.9 million, up 21% on the prior corresponding period, reﬂecting the strength of the Australian dollar and strong sales growth in China. Sales revenue from China was US$5.8 million higher on increased sales volumes to both the fast-moving consumer goods and automotive sectors. In CHEP Australia, there was continued expansion of the reusable plastic containers and display pallet businesses. Sales revenue from both the pallets and automotive container businesses increased in CHEP India and CHEP South East Asia. CHEP Asia-Paciﬁc’s net new business wins for the period were US$15 million, reﬂecting ongoing wins throughout the region. The annualised value of net business CHEP Asia-Paciﬁc won during the period was US$11 million. Customers with which CHEP Australia secured new or extended business in the period included Primo Small Goods and drinks manufacturer Fryers. PROFIT CHEP Asia-Paciﬁc’s operating proﬁt was US$77.8 million, up 34% compared with the prior corresponding period, reﬂecting higher sales revenue and the cost of Signiﬁcant items from facilities and operations rationalisation in the 2009 ﬁnancial year. The beneﬁt of this rationalisation in cost efﬁciencies and reduced overheads in the 2010 ﬁnancial year largely offset higher depreciation costs in Australia and China resulting from capital investment in recent growth initiatives. Underlying proﬁt was US$78.4 million, up 28%. CASH FLOW AND RETURN ON CAPITAL CHEP Asia-Paciﬁc’s cash ﬂow from operations was US$94.1 million, up US$84.3 million compared with the prior corresponding period. This reﬂected the increase in proﬁt and lower capital expenditure given the rollout of reusable plastic containers contracts in the 2009 ﬁnancial year. Return on capital invested increased 2 percentage points to 21%, reﬂecting the increased proﬁt. 8 BRAMBLES LIMITED ANNUAL REPORT 2010 RECALL ADDITIONAL FINANCIAL INFORMATION 2010 US$M 2009 US$M % CHANGE (ACTUAL EXCHANGE RATES) % CHANGE (CONSTANT CURRENCY) Capital expenditure on property, plant and equipment (accruals basis) US$M 2010 2009 CHANGE Sales revenue Operating proﬁt Operating proﬁt margin Signiﬁcant items: Restructuring – facilities and operations Underlying proﬁt Underlying proﬁt margin 739.7 123.1 17% 1.5 124.6 17% 685.7 95.9 14% 8.4 104.3 15% 8% 28% 3pp 2% 19% 2pp 19% 2pp 11% 2pp Cash ﬂow from operations 121.7 106.9 ROCI 13% 12% SALES Recall’s sales revenue was US$739.7 million, up 8% compared with the prior corresponding period. Carton volume growth was 6% in the Document Management Solutions (DMS) service line. This was partially offset by a decline in volumes in the Secure Destruction Services (SDS) service line. Sales revenue excluding SDS was up 10%. At 30 June 2010, world paper prices had returned to pre-Global Financial Crisis levels, which improved SDS recycled paper revenues in the second half of the 2010 ﬁnancial year. Recall’s net new business for the period was US$17 million, reﬂecting strong sales momentum, particularly in the DMS service line. The annualised value of Recall’s net business won in the 2010 ﬁnancial year was US$23 million. PROFIT Recall’s operating proﬁt was US$123.1 million, up 28% compared with the prior corresponding period, reﬂecting the higher sales revenue, the cost of facilities and operations rationalisation in the 2009 ﬁnancial year and the beneﬁts of this rationalisation in the 2010 ﬁnancial year. Investments in information technology and marketing were higher in the 2010 ﬁnancial year. Underlying proﬁt was US$124.6 million, up 19%. CASH FLOW AND RETURN ON CAPITAL Recall’s cash ﬂow from operations was US$121.7 million, up US$14.8 million compared with the prior corresponding period, reﬂecting the increased proﬁt. Return on capital invested increased 1 percentage point to 13%. CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ 204.5 173.2 67.0 444.7 53.8 0.3 290.8 234.4 92.7 617.9 52.4 2.1 86.3 61.2 25.7 173.2 (1.4) 1.8 Total capital expenditure 498.8 672.4 173.6 Capital expenditure was US$498.8 million, down US$173.6 million compared with the prior corresponding period. This predominantly reﬂected a reduction in pallet purchase requirements in CHEP USA and CHEP Europe, and the investment in the prior corresponding period in the Australian reusable plastic container business. Total pallet capital expenditure was US$349.7 million, compared with US$462.1 million in the prior corresponding period. Other capital expenditure related primarily to supporting growth in Recall and CHEP’s expansion into developing regions. Cash ﬂow US$M 2010 2009 CHANGE Underlying proﬁt 733.4 900.6 (167.2) Signiﬁcant items within ordinary activities – (106.4) Depreciation and amortisation 444.0 418.4 EBITDA Capital expenditure Proceeds from disposals Working capital movement Irrecoverable pooling equipment provision Provisions/other Cash ﬂow from operations Signiﬁcant items outside ordinary activities Cash ﬂow from operations (incl. Signiﬁcant items) Financing costs and tax Free cash ﬂow Dividends paid 1,177.4 1,212.6 (496.5) (683.8) 88.0 14.7 111.2 (12.5) 882.3 104.6 25.8 97.8 (34.6) 722.4 830.2 672.5 (281.6) (253.0) 548.6 419.5 (204.5) (277.6) Free cash ﬂow after dividends 344.1 141.9 (52.1) (49.9) (2.2) 106.4 25.6 (35.2) 187.3 (16.6) (11.1) 13.4 22.1 159.9 157.7 (28.6) 129.1 73.1 202.2 Cash ﬂow from operations increased US$159.9 million to US$882.3 million as lower capital expenditure more than offset the reduction in EBITDA. Free cash ﬂow was up US$129.1 million to US$548.6 million. This was more than sufﬁcient to cover dividends paid of US$204.5 million, leaving free cash ﬂow after dividends of US$344.1 million, up US$202.2 million. BRAMBLES LIMITED ANNUAL REPORT 2010 9 OPERATIONAL AND FINANCIAL REVIEW CONTINUED Lower proceeds from disposals reﬂected a reduction in compensations from customers for irrecoverable equipment. Brambles continues to manage working capital tightly. Average debtors days fell to 45 days in the year from 46 days in the prior corresponding period. Signiﬁcant items included spending on facilities and operations rationalisation throughout Brambles and accelerated pallet scrapping in CHEP USA. Brambles Value Added (BVA) In 2010, Brambles continued to focus on the use of BVA which forms the core component of short term incentive arrangements for all senior executives, including Executive Directors. US$M AT FIXED JUNE 2009 FX RATES 2010 2009 CHANGE Finance costs Net ﬁnance costs were US$109.6 million, down from US$120.9 million in the 2009 ﬁnancial year. The reduction in net ﬁnance costs reﬂected lower borrowings and lower benchmark interest rates, partially offset by higher borrowing margins and fees on debt reﬁnanced during the 2009 ﬁnancial year. Tax Brambles’ effective tax rate applying to both operating proﬁt and Underlying proﬁt for the 2010 ﬁnancial year was 27.8%. This was broadly in line with the 27.3% rate that applied to operating proﬁt and lower than the 31.5% rate that applied to Underlying proﬁt in the 2009 ﬁnancial year. The reduction in the effective tax rate on Underlying proﬁt was primarily a result of the net reversal of tax provisions following the receipt of a tax ruling and the resolution of an open tax issue, which allowed the Group to beneﬁt prior year tax losses. CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Total BVA 38.1 165.3 28.2 138.5 159.8 26.2 (100.4) 5.5 2.0 231.6 324.5 (92.9) 9.0 (25.2) (6.4) (20.7) 15.4 (4.5) 215.4 297.4 (82.0) BVA for continuing operations was US$215.4 million in the 2010 ﬁnancial year, a decrease of US$82.0 million on the 2009 ﬁnancial year at ﬁxed June 2009 exchange rates. The reduction primarily reﬂected the decline in proﬁtability in CHEP Americas. In CHEP Americas, BVA was US$38.1 million, down US$100.4 million, because of a reduction in sales, increased costs associated with pallet storage and quality initiatives and an increase in the irrecoverable pooling equipment provision expense. Average Capital Invested increased because of the impact of excess pallet holdings in CHEP USA. This increase, combined with the lower proﬁt resulted in ROCI of 14% for CHEP Americas, down from 26% in the previous corresponding period. In CHEP EMEA, BVA grew US$5.5 million to US$165.3 million. This was primarily due to a reduction in Average Capital Invested driven by a reduction in pallet holdings and tight working capital management. CHEP EMEA’s ROCI remained at 23%. CHEP Asia-Paciﬁc’s BVA increased US$2.0 million to US28.2 million, driven by the growth in new business in Australia, China and India. ROCI increased to 21%. The largest increase in BVA was in Recall where BVA increased by US$15.4 million to US$9.0 million as sales growth and the beneﬁts of restructuring drove an increase in Underlying proﬁt. Recall’s ROCI increased to 13%. 10 BRAMBLES LIMITED ANNUAL REPORT 2010 STRATEGY AND GROWTH As it moves into the 2011 ﬁnancial year, Brambles has increased its emphasis on innovation and has a number of areas of strategic focus to pursue proﬁtable growth opportunities that are expected to deliver strong returns for shareholders. These areas of focus include: – – – further expansion in all regions into new products and platforms; ongoing investment in CHEP in emerging regions; utilising CHEP’s extensive network in the USA to increase penetration with small to mid-sized customers; expansion of CHEP’s automotive business into unpenetrated regions and intercontinental ﬂows; expansion of LeanLogistics, including internationally; and continued growth in Recall’s document management business and digital capability. – – – Emerging regions have been an increasingly important contributor to CHEP’s sales revenue over recent years. The business plans to continue to increase its investment in these regions to participate in high-growth economies worldwide. CHEP USA is building upon recent initiatives that addressed some issues with its products and services to existing customers and entering a renewed growth phase. A key focus will be on small to mid-sized customers, which are underserved today. CHEP’s network scale and experience positions it strongly to address this opportunity. CHEP will continue to explore opportunities to roll out variations to its existing pallet offerings and non-pallet platforms in all its regions. This opportunity is particularly clear in those regions in which CHEP has historically been focused on one or two products only. CHEP can also leverage the global position of its existing multi- domestic businesses – particularly those in which inter-country or inter-continental ﬂows play a big part. The ﬁrst step in this effort is the establishment of a global automotive business to link the existing domestic automotive businesses that CHEP has around the world. Brambles is also expanding the global footprint of LeanLogistics, the transport management business it acquired in 2008, and further integrating LeanLogistics into the logistics functions across CHEP. Recall has successfully accelerated its growth and improved its performance over the past three years. Its compound annual sales revenue growth rate is 6% over the past six years and all regions are contributing to that growth. This is expected to continue into 2011. In particular, organic volume growth in the Document Management Solutions service line has been the underpinning driver for Recall in recent years. This service line remains a signiﬁcant opportunity for Recall as it is under-penetrated. Today, there is also a signiﬁcant complementary opportunity for Recall to work with clients to meet their digital needs – as there has been an explosion in the volume of data that needs to be managed. BRAMBLES LIMITED ANNUAL REPORT 2010 11 TREASURY AND RISK REVIEW CAPITAL STRUCTURE Brambles manages its capital structure so as to maintain a solid investment grade credit rating. At 30 June 2010, Brambles held investment grade credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s Investor Services. Bank borrowing facilities are generally structured on a multi-currency, revolving basis and currently have maturities ranging to December 2013. Borrowings under the facilities are ﬂoating-rate, unsecured obligations with covenants and undertakings typical for these types of arrangements. In determining its capital structure, Brambles considers the robustness of future cash ﬂows, potential funding requirements for growth opportunities and acquisitions, the cost of capital and ease of access to funding sources. Initiatives available to Brambles to achieve its desired capital structure include adjusting the amount of dividends paid to shareholders, returning capital to shareholders, buying-back share capital, issuing new shares, selling assets to reduce debt and varying the maturity proﬁle of borrowings. Brambles has adopted a ﬁnancial policy to target a net debt to EBITDA ratio of less than 1.75x to 1. At 30 June 2010, the ratio was 1.5x to 1. During the year ended 30 June 2010 (Year), Brambles continued to operate a Dividend Reinvestment Plan. The participation rate for each of the 2009 ﬁnal dividend and the 2010 interim dividend was 37%, which resulted in US$120 million of cash being retained within the business in the Year. TREASURY POLICIES Brambles’ treasury function is responsible for the management of certain ﬁnancial risks within Brambles. Key treasury activities include liquidity management, interest rate and foreign exchange risk management, and securing access to short and long term sources of debt ﬁnance at competitive rates. These activities are conducted on a centralised basis in accordance with Board policies and guidelines, through standard operating procedures and delegated authorities. These policies provide the framework whereby Treasury arranges and implements lines of credit from its ﬁnanciers, selects and deals in approved ﬁnancial derivatives for hedging purposes and generally executes Brambles’ ﬁnancial strategy. Brambles’ policies with respect to interest and exchange rate risk and appropriate hedging instruments are described below and further information is contained in Note 29 (pages 96 to 103) including a sensitivity analysis (page 98 and page 100) with respect to these ﬁnancial instruments. Standard ﬁnancial derivatives are used by Brambles to manage ﬁnancial exposures in the normal course of business. No derivatives are used for speculative purposes. Derivatives are transacted predominantly with relationship banks which have a reasonable understanding of Brambles’ business operations. Individual credit limits are assigned to those banks, thereby limiting exposure to credit-related losses in the event of non-performance by a counterparty. Treasury prepares formal reports each month, which are circulated to the Chief Financial Ofﬁcer and other senior ﬁnance executives. These reports include key Treasury statistical and sensitivity analysis, funding utilisation/capacity and commentary on other signiﬁcant matters. FUNDING AND LIQUIDITY Brambles funded its operations during the Year through existing equity, retained cash ﬂow and borrowings. Funding is generally sourced from relationship banks and debt capital market investors on a medium to long term basis. Operating leases are also entered into for ofﬁce and operational locations and certain plant and equipment. 12 BRAMBLES LIMITED ANNUAL REPORT 2010 Net debt at 30 June 2010 was US$1,759.3 million, down US$384.1 million from 30 June 2009, reﬂecting the signiﬁcant cash generated from the business and lower dividend payment. Net debt has now reduced by US$666.9 million over the last two ﬁnancial years which provides added ﬁnancial ﬂexibility for the Group. To further diversify funding sources and lengthen maturities, Brambles raised US$750 million in the United States 144A bond market in March 2010. The note issue comprised US$500 million ten year notes and US$250 million ﬁve year notes and the proceeds were used to repay bank borrowings. The average term to maturity of total credit facilities increased from 3.3 years at 30 June 2009 to 3.6 years at 30 June 2010. Key ﬁnancial ratios continue to reﬂect the strong balance sheet position and remain well within the ﬁnancial covenants included in Brambles’ major ﬁnancing agreements, with net debt to EBITDA at 1.5x (2009: 1.8x) and EBITDA interest cover at 10.7x to 1 (2009: 10x to 1). At 30 June 2010, the Group had committed credit facilities including bonds and notes totalling US$3.8 billion. Undrawn borrowing capacity totalled US$1.9 billion. The maturity proﬁle of the Group’s borrowing facilities and outstanding bonds is shown in the table below. MATURITY PROFILE OF BORROWING FACILITIES AND OUTSTANDING BONDS (US$ BILLIONS) 1.0 0.5 0 <1 yr 1–2 yrs 2–3 yrs 3–4 yrs 4–5 yrs >5 yrs Undrawn facilities Bonds/notes Bank debt INTEREST RATE RISK Brambles’ interest rate risk policy is designed to reduce volatility in funding costs through prudent selection of hedging instruments. This policy includes maintaining a mix of ﬁxed and ﬂoating-rate instruments within a target band, over a certain time horizon. In some cases, interest rate derivatives are used to achieve this result synthetically. The present policy requires the level of ﬁxed rate debt to be within 40% to 70% of total forecast debt arising over the immediate 12 month period, decreasing to 20% to 60% for debt maturities of one to two years, 10% to 50% for debt maturities of two to three years and 0% to 50% for debt maturities extending beyond three years. As at 30 June 2010, 62% of Brambles’ weighted average interest bearing debt over the next 12 months was at ﬁxed interest rates (2009: 41%). The weighted average maturity period was 4.9 years (2009: 3.6 years). The fair value of all interest rate swap instruments was US$1.8 million net gain (2009: US$18.1 million net loss). FOREIGN EXCHANGE RISK Foreign exchange exposures are managed from a perspective of protecting shareholder value. Exposures generally arise in either of two forms: – transaction exposures affecting the value of transactions translated back to the functional currency of the subsidiary; and translation exposures affecting the value of assets and liabilities of overseas subsidiaries when translated into US dollars. – Under Brambles’ foreign exchange policy, foreign exchange hedging is mainly conﬁned to hedging transaction exposures where they exceed a certain threshold, and as soon as a deﬁned exposure arises. Within Brambles, exposures may arise with external parties or, alternatively, by way of cross-border intercompany transactions. Forward foreign exchange contracts are primarily used for these purposes. Given the nature of its operations, these exposures are not signiﬁcant. Translation exposures are mitigated by matching the currency of debt with that of the asset. Except for a small amount of balance sheet hedge borrowing in euro, Brambles does not hedge currency exposures on foreign currency proﬁts and net investment balances. At the end of the Year, the fair value of foreign exchange instruments was US$2.0 million net gain (2009: US$0.5 million net gain). SIGNIFICANT RISKS AND UNCERTAINTIES The signiﬁcant risks and uncertainties facing Brambles are described below. These are “net” risks, rated as the most signiﬁcant for the Group as a whole after taking into account current mitigating actions. The strategies and processes applied for managing these risks are described in section 7 of the Corporate Governance Statement on pages 25 to 27. – Economic cycle – Brambles has operations spread across a diverse range of countries and territories. It is subject to risks related to global economic and business conditions. These may affect, among other things, proﬁtability, demand for Brambles’ services and solvency of counterparties. Business environment changes – Brambles has operations spread across a diverse range of countries and territories. It is subject to risks related to rapid and sustained changes in the business environment, which may invalidate aspects of its current business models. These changes could include fuel prices, lumber supply and the structure of customers’ supply chains. These may affect, among other things, proﬁtability and demand for Brambles’ services. Competition and retention of major customers – Brambles operates in a competitive environment. Many of the markets in which Brambles operates are served by numerous competitors and are subject to the threat of new entrants. In addition, the concentration of distributors in certain areas could lead to shifts in bargaining position and intensity of competition. The above risks could have an impact on market structure, penetration, revenue, proﬁtability, economies of scale and the value of existing assets. – – – – – – – – – – – Insufﬁcient growth – Brambles is subject to the risk of not selecting the optimal corporate strategy, business model, ﬁnancial structure or capital allocation, including the pace of expansion into emerging markets. As these are central to the value of shareholders’ investment and protection of Brambles’ assets, Brambles may be unable to capture the full value of its growth opportunities. Obsolescence of pallet platform – New technologies in pallet design or components could inﬂuence alternative supply chain solutions. This would, over time, have an impact on revenue, cost base, economies of scale and the value of CHEP’s existing assets. Innovation – Brambles is subject to the risk of not being able to optimise innovations in its services, products, processes and commercial solutions, including capturing the full value of any innovations that support its growth opportunities. This could have an impact on revenue, proﬁtability, economies of scale and the value of existing assets. Operational improvement – Brambles is subject to the risk that it may be unable to capture the full value of operational improvement opportunities. This could result in a reduced ability to control costs or a reduction in control of CHEP’s equipment pool. Equipment quality – Satisfaction of CHEP customers may ﬂuctuate with the customers’ perceived views of equipment quality which, in turn, is inﬂuenced by the effectiveness of the quality standards that CHEP employs in its equipment pool. Brambles is subject to the risk that it may not optimise these standards, thereby adversely affecting customer satisfaction with the CHEP service offering and/ or the operating and capital costs of the equipment pool. People capability – Brambles is subject to the risk of not attracting, developing and retaining high performing individuals in the optimum organisational structure, which could result in it not having sufﬁcient quality and quantity of people to meet its growth and business objectives. Market communication – Brambles is subject to risks relating to market expectations, which may lead to a loss of investor conﬁdence in the business and its management. Systems and technology – Brambles relies on the continuing operation of its information technology and communications systems, including those in CHEP’s global data centre. Failure to optimise these systems, to successfully implement new systems, or an extended systems interruption event, could impair Brambles’ ability to provide its services effectively. This could damage its reputation and, in turn, have an adverse effect on its ability to attract and retain customers. Regulatory compliance – Material changes in the regulatory and legal environments in which Brambles’ businesses operate may give rise to the risk of an adverse impact on aspects of its current business models. These may affect, among other things, licences to operate, proﬁtability and a reduced ability to control costs. Material changes in Brambles’ ability to comply with the regulatory environment, including competition laws and cross jurisdictional laws, could give rise to litigation and, in turn, affect reputation, proﬁtability and licences to operate. BRAMBLES LIMITED ANNUAL REPORT 2010 13 BOARD OF DIRECTORS 01. TONY FROGGATT NON-EXECUTIVE DIRECTOR 01 02 03 02. TOM GORMAN CHIEF EXECUTIVE OFFICER 03. GREG HAYES CHIEF FINANCIAL OFFICER 04. STEPHEN JOHNS NON-EXECUTIVE DIRECTOR 05. CAROLYN KAY NON-EXECUTIVE DIRECTOR 06. GRAHAM KRAEHE AO NON-EXECUTIVE CHAIRMAN 04 07. LUKE MAYHEW NON-EXECUTIVE DIRECTOR 08. JOHN MULLEN NON-EXECUTIVE DIRECTOR 09. BRIAN SCHWARTZ AM NON-EXECUTIVE DIRECTOR 05 06 07 08 09 14 BRAMBLES LIMITED ANNUAL REPORT 2010 01. TONY FROGGATT NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of the Nominations Committee and the Remuneration Committee Joined Brambles as a Non-executive Director in June 2006. Currently a non-executive director of AXA Asia Paciﬁc Holdings Limited and Billabong International Limited. Previously, he was Chief Executive of Scottish & Newcastle plc from May 2003 to October 2007. Tony began his career with the Gillette Company and has held a wide range of sales, marketing and general management positions in many countries with major consumer goods companies including HJ Heinz, Diageo and Seagram. He holds a Bachelor of Law degree from Queen Mary College, London and an MBA from Columbia Business School, New York. Age 62. 02. TOM GORMAN CHIEF EXECUTIVE OFFICER Chairman of the Executive Leadership Team Joined Brambles as Group President, CHEP Europe, Middle East and Africa in March 2008 and became Chief Executive Ofﬁcer in November 2009. Previously, Tom had a long career with the Ford Motor Company, and served as President, Ford Australia from March 2004 until January 2008. Before joining Ford, he worked for the Bank of Boston. Tom holds a Bachelor of Arts degree in Economics and International Relations from Tufts University and an MBA with distinction from Harvard Business School. Age 50. 03. GREG HAYES CHIEF FINANCIAL OFFICER Member of the Executive Leadership Team Joined Brambles as Chief Financial Ofﬁcer in November 2009. Previously Greg was the Chief Executive Ofﬁcer and Group Managing Director of Tenix Pty Limited, and prior to that Chief Financial Ofﬁcer and later, Interim Chief Executive Ofﬁcer of AGL. He has also held senior executive roles at Westﬁeld Holdings Limited and Southcorp Limited. Greg holds a Master of Applied Finance degree from Macquarie University and a Graduate Diploma in Accounting and Bachelor degree in Arts from Flinders University. Greg is a member of the Institute of Chartered Accountants in Australia and has attended the Advanced Management Programme at Harvard Business School. Age 52. 04. STEPHEN JOHNS NON-EXECUTIVE DIRECTOR (INDEPENDENT) Chairman of the Audit Committee and member of the Nominations Committee Joined Brambles as a Non-executive Director in August 2004. He is currently a non-executive director of Leighton Holdings Limited and the Westﬁeld Group, Chairman of Spark Infrastructure Group and a director of Sydney Symphony Limited. Previously Stephen had a long executive career with Westﬁeld where he held a number of senior positions including that of Finance Director from 1985 to 2002. He has a Bachelor of Economics degree from the University of Sydney and is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Institute of Company Directors. Age 63. 05. CAROLYN KAY NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of the Audit Committee Joined Brambles as a Non-executive Director in June 2006. She is a director of Commonwealth Bank of Australia and The Sydney Institute and an External Board Member of Allens Arthur Robinson. Carolyn has had extensive experience in international ﬁnance at Morgan Stanley in London and Melbourne, JP Morgan in New York and Melbourne and Linklaters & Paines in London. She holds Bachelor degrees in Law and Arts from the University of Melbourne and a Graduate Diploma in Management from the AGSM. Carolyn is a Fellow of the Australian Institute of Company Directors, a member of Chief Executive Women and was awarded a Centenary Medal for services to Australian society in business leadership. Age 49. 06. GRAHAM KRAEHE AO NON-EXECUTIVE CHAIRMAN (INDEPENDENT) Chairman of the Nominations Committee and member of the Remuneration Committee Rejoined the Board in December 2005, was appointed Deputy Chairman in October 2007 and Chairman in February 2008. He is currently a member of the Board of the Reserve Bank of Australia, Chairman of Bluescope Steel Limited and a director of Djerriwarrh Investments Limited. Graham was a Non-executive Director of Brambles from December 2000 until March 2004, when he retired due to commitments in his past role as Chairman of National Australia Bank Limited. He has also been the Chief Executive Ofﬁcer of Paciﬁc BBA and Southcorp Limited and a non-executive director of News Corporation. Graham has a Bachelor of Economics degree from Adelaide University. He is an Ofﬁcer of the Order of Australia. Age 67. 07. LUKE MAYHEW NON-EXECUTIVE DIRECTOR (INDEPENDENT) Chairman of the Remuneration Committee Joined Brambles as a Non-executive Director in August 2005. He is a non-executive director of WH Smith plc. In March 2010 he retired as Chairman of Pets at Home Group Limited after the business was sold to private equity. Luke was Managing Director of John Lewis, the UK’s leading department store business, from 2000 to 2004 and Director of Research and Expansion at John Lewis Partnership plc, which also includes the Waitrose supermarket operation, from 1992 to 2000. He previously held senior positions at Thomas Cook and British Airways and was Chief Executive of Shandwick’s European business. He has a Bachelor of Arts (Honours) degree from Oxford University and a Master of Economics degree from the University of London. Luke is the Chairman of the British Retail Consortium. Age 57. 08. JOHN MULLEN NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of the Remuneration Committee Joined Brambles as a Non-executive Director in November 2009. Currently a non-executive director of Telstra Corporation Limited and MAp Airports Limited. John had a distinguished career with the DHL Group from 1994 to 2009, ultimately becoming Chief Executive Ofﬁcer of DHL Express in 2006. He has served as a Director of Deutsche Post World Net, the parent company of DHL Express, and Embarq Corporation. His executive career with the TNT Group from 1984 to 1994 culminated in the role of Chief Executive Ofﬁcer of TNT Express Worldwide, which he held from 1990 to 1994. He is currently Chairman of the US National Foreign Trade Council and a member of the Advisory Council for the AGSM. Age 55. 09. BRIAN SCHWARTZ AM NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of the Audit Committee Joined Brambles as a Non-executive Director in March 2009. Currently Deputy Chairman and a non-executive director of Insurance Australia Group Limited and a non-executive director of the Westﬁeld Group. He is also Deputy Chairman of Football Federation Australia. In March 2009 he retired as CEO of Investec Bank (Australia) Limited, although he remains as a consultant to the bank. Having joined Ernst & Young in 1979, Brian became a partner in 1985. From 1998 to 2004 he was CEO of Ernst & Young Australia and a member of the Ernst & Young Global Executive Board. Brian is a Fellow of the Institute of Chartered Accountants in Australia. Age 57. BRAMBLES LIMITED ANNUAL REPORT 2010 15 EXECUTIVE LEADERSHIP TEAM 01. TOM GORMAN CHIEF EXECUTIVE OFFICER 02. GREG HAYES CHIEF FINANCIAL OFFICER 03. JIM INFINGER GROUP SENIOR VICE PRESIDENT AND CHIEF INFORMATION OFFICER 04. JASPER JUDD GROUP SENIOR VICE PRESIDENT AND HEAD OF INNOVATION 05. PETER MACKIE GROUP PRESIDENT, CHEP ASIA-PACIFIC 06. ELTON POTTS GROUP PRESIDENT AND CHIEF OPERATING OFFICER, RECALL 07. JIM RITCHIE GROUP PRESIDENT, CHEP AMERICAS 01 02 03 04 05 06 08 09 08. KEVIN SHUBA GROUP SENIOR VICE PRESIDENT AND CUSTOMER DEVELOPMENT OFFICER 07 09. NICK SMITH GROUP SENIOR VICE PRESIDENT, HUMAN RESOURCES 10. DOLPH WESTERBOS GROUP PRESIDENT, CHEP EUROPE, MIDDLE EAST AND AFRICA 10 16 BRAMBLES LIMITED ANNUAL REPORT 2010 01. TOM GORMAN CHIEF EXECUTIVE OFFICER Joined Brambles as Group President, CHEP Europe, Middle East and Africa in March 2008 and became Chief Executive Ofﬁcer in November 2009. Previously, Tom had a long career with the Ford Motor Company, and served as President, Ford Australia from March 2004 until January 2008. Before joining Ford, he worked for the Bank of Boston. Tom holds a Bachelor of Arts degree in Economics and International Relations from Tufts University and an MBA with distinction from Harvard Business School. Age 50. 02. GREG HAYES CHIEF FINANCIAL OFFICER Joined Brambles as Chief Financial Ofﬁcer in November 2009. Previously Greg was the Chief Executive Ofﬁcer and Group Managing Director of Tenix Pty Limited, and prior to that Chief Financial Ofﬁcer and later, Interim Chief Executive Ofﬁcer of AGL. He has also held senior executive roles at Westﬁeld Holdings Limited and Southcorp Limited. Greg holds a Master of Applied Finance degree from Macquarie University and a Graduate Diploma in Accounting and Bachelor degree in Arts from Flinders University. Greg is a member of the Institute of Chartered Accountants in Australia and has attended the Advanced Management Programme at Harvard Business School. Age 52. 03. JIM INFINGER GROUP SENIOR VICE PRESIDENT AND CHIEF INFORMATION OFFICER Joined Brambles in October 2009. Previously, he was Senior Vice President & Chief Information Ofﬁcer with Harman Industries and has held CIO roles for Raytheon and CompUSA. He has also worked for Siemens Nixdorf, ICL Fujitsu and Wal-Mart Stores. Jim is a member of the advisory boards of Oracle, HP, SAP, Microsoft, AT&T and Cisco. He is also a member of the Project Management Institute and the Society for Information Management. He holds a Master of Science degree in Systems Management from the Florida Institute of Technology and a Bachelor of Science degree in Computer Information Systems from the Southwest Texas State University. Age 53. 04. JASPER JUDD GROUP SENIOR VICE PRESIDENT AND HEAD OF INNOVATION Joined Brambles in 2002. Prior to his appointment as Group Senior Vice President and Head of Innovation in March 2010, he served as Group Senior Vice President, Strategic Development for two years. Other previous roles were Acting Chief Financial Ofﬁcer, Brambles; Group Financial Controller; Interim Senior Vice President and Chief Financial Ofﬁcer, CHEP Europe; and General Manager, Finance and Administration. Before joining Brambles, he was Chief Financial Ofﬁcer of Brainspark and held senior ﬁnancial positions at a number of other companies including Booker. Jasper is a member of the Institute of Chartered Accountants in England and Wales and graduated from Cambridge University with a Master of Arts. Age 49. 05. PETER MACKIE GROUP PRESIDENT, CHEP ASIA-PACIFIC Became Group President, CHEP Asia-Paciﬁc in May 2010, having been acting Group President, CHEP Europe, Middle East and Africa from November 2009 to April 2010. Previously, Peter held the positions of President, CHEP Europe and Senior Vice President, Customer Service for CHEP in Europe, where he focussed on delivering an improved customer experience and growing the European pooling network. Peter has also held the positions of Vice President, Strategy, CHEP Europe and Managing Director, CHEP UK and Ireland. Before joining CHEP in 2001, Peter held senior roles with Boots and The BOC Group. Peter is a qualiﬁed chartered engineer and has an MBA from London Business School. Age 44. 06. ELTON POTTS GROUP PRESIDENT AND CHIEF OPERATING OFFICER, RECALL Became President and Chief Operating Ofﬁcer of Recall in April 2007, having been appointed Chief Operating Ofﬁcer of Recall in December 2006. He joined Brambles in 2002 as Vice President, Controller for CHEP USA, becoming Vice President, Asset Management for CHEP USA in the same year and Senior Vice President, Asset Management for CHEP USA in 2003. Before joining Brambles, Elton held various operations and ﬁnance roles with Owens-Corning and Newell Rubbermaid. He holds a Bachelor degree in Financial Management from Clemson University and an MBA from Capital University. Age 46. 07. JIM RITCHIE GROUP PRESIDENT, CHEP AMERICAS Joined CHEP in June 2009 as President, CHEP USA, before taking on the role of Group President, CHEP Americas in January 2010. Jim has more than 25 years’ experience in the logistics industry. Prior to joining CHEP, he was President & Chief Executive Ofﬁcer of YRC Logistics, building that company from inception to $1.4 billion in revenue and 5,750 employees worldwide. He previously held executive positions at Ryder Integrated Logistics, leading that company’s Consumer Products & Retail group. Jim received his Bachelor degree in Architecture & Industrial Design from California State University. Age 50. 08. KEVIN SHUBA GROUP SENIOR VICE PRESIDENT AND CUSTOMER DEVELOPMENT OFFICER Has worked with CHEP since 1996, serving as President, CHEP USA from November 2006 until his appointment as Group President, CHEP Americas in February 2008. Kevin was appointed Group Senior Vice President and Customer Development Ofﬁcer in January 2010. His previous roles at CHEP include Senior Vice President, New Business Development and Senior Vice President, Sales and Business Development. Before CHEP, he worked for insurance company Mason-McBride from 1994 to 1996 and Baxter Healthcare Corporation from 1987 to 1994. Kevin attended the United States Military Academy at West Point, graduating in 1981 with a Bachelor of Science degree in Engineering. He served in various command and staff positions in the United States Army from 1981 to 1986. Age 51. 09. NICK SMITH GROUP SENIOR VICE PRESIDENT, HUMAN RESOURCES Joined Brambles in November 2007. Previously, he was Group Human Resources Director for Inchcape, the international automotive retail group. Prior to this Nick spent a number of years in the telecommunications industry, ﬁrstly with British Telecom and then with Cable & Wireless. During this period, Nick spent three years working for Cable & Wireless Optus in Australia, where he was Human Resources Director. He has also worked for KPMG and Macquarie Bank. Nick is a qualiﬁed management accountant, has a Bachelor of Science (Economics) degree in International Politics and an MBA. Age 49. 10. DOLPH WESTERBOS GROUP PRESIDENT, CHEP EUROPE MIDDLE EAST AND AFRICA Joined Brambles in April 2010 as Group President, CHEP Europe, Middle East and Africa (EMEA). Prior to joining Brambles, he held a number of executive positions at Dell, most recently as Vice President, Solutions & Services, EMEA. This role included responsibility for Dell’s services, software and data centre business, managing sales revenue of US$2.5 billion across more than 50 countries. Before joining Dell, Dolph was President, EMEA and Senior Vice President, Asia, for ModusLink, a global provider of supply chain, IT and business process outsourcing services to technology companies. Dolph worked 12 years for ModusLink, holding senior management positions in operations, sales and marketing, strategy, IT and e-business. He has worked and lived in the USA, Asia and Europe. He has a Masters degree in Management from the Graduate School of Business at Stanford University. Age 46. BRAMBLES LIMITED ANNUAL REPORT 2010 17 CORPORATE GOVERNANCE STATEMENT INTRODUCTION Brambles is a global provider of pallet and container pooling and information management services and operates in over 45 countries. It is therefore subject to an extensive range of legal, regulatory and governance requirements. Brambles is committed to observing the requirements applicable to publicly listed companies in Australia. The Board is conscious that best practice in the area of corporate governance is continuously evolving, and will therefore continue to anticipate and respond to further corporate governance developments, such as the amendments to the ASX Corporate Governance Council Corporate Governance Principles and Recommendations (CGPR) on diversity, board selection processes, brieﬁngs and remuneration that will be effective, for Brambles, from 1 July 2011. This Corporate Governance Statement outlines the key components of Brambles’ governance framework in place during the year ended 30 June 2010 (Year), by reference to the CGPR. During the Year, the Board believes Brambles met or exceeded all the requirements of the CGPR. A checklist summarising Brambles’ compliance with the CGPR is included at the end of this Statement. Various documents referred to in this Statement have been posted in the “Corporate Governance” section of the Brambles website at www.brambles.com. The checklist includes more detailed guidance on the location of all the governance- related documents available at www.brambles.com. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1.1 Role of the Board and executive management 1.1.1 ROLE OF THE BOARD AND EXECUTIVE MANAGEMENT The Board has overall responsibility for overseeing the effective management and control of the Group on behalf of Brambles’ shareholders, and supervising executive management’s conduct of the Group’s affairs within a control and authority framework which is designed to enable risk to be prudently and effectively assessed and monitored. The Board has adopted a schedule of matters reserved to it for decision, a copy of which can be found at www.brambles.com, and further details of which are in section 1.1.2. The roles of the Chairman and executive management, led by the Chief Executive Ofﬁcer, are separated and clearly deﬁned: – the Chairman, Graham Kraehe, is responsible for leadership of the Board, setting the Board’s agenda, conducting Board meetings, facilitating effective communication with shareholders and the conduct of shareholder meetings; and executive management, led by the Chief Executive Ofﬁcer, Tom Gorman, has been delegated responsibility for the management of Brambles within the control and authority framework referred to above. The levels of authority for management are periodically reviewed by the Board and are documented. The Chief Executive Ofﬁcer is assisted by the Executive Leadership Team. – The Non-executive Directors constructively challenge the development of strategy. They review the performance of management in meeting agreed objectives and monitor the reporting of performance. They have a prime role in appointing and where necessary, recommending the removal of, Executive Directors, and in their succession planning. 18 BRAMBLES LIMITED ANNUAL REPORT 2010 The structure of the Board ensures that no individual or group of individuals dominates the Board’s decision-making process. The Brambles Executive Leadership Team assists in implementing Brambles’ strategic direction, and ensuring its resources are well managed. The Team has a range of responsibilities, which include: – – reviewing business and corporate strategies; formulating major policies in areas such as succession planning and talent management, human and capital resources management, information technology, risk management, communications and post-investment project reviews; leading initiatives which may from time to time vary but include: > > > leading the implementation of change processes. Zero Harm; development of strategy; and innovation; and – – Biographical details for the members of the Executive Leadership Team are shown on page 17. 1.1.2 RESPONSIBILITIES OF THE BOARD The Board is responsible for setting the Group’s overall strategic objectives, facilitating the provision of appropriate ﬁnancial and human resources to meet these objectives and reviewing executive management’s performance. The schedule of matters reserved to the Board for decision includes, among other matters: – the establishment of the Group’s overall strategic direction and strategic plans for the major business units; the approval of budgets, ﬁnancial objectives and policies, and signiﬁcant capital expenditure; the approval of Brambles’ ﬁnancial statements and published reports; the establishment and annual review of the effectiveness of Brambles’ systems of internal control and risk management processes; and the appointment of key senior executives. – – – – The Board has delegated some of its responsibilities to the Audit, Nominations and Remuneration committees. The charters of the Board committees also require certain matters to be approved by the Board including, among other matters, the executive remuneration policy and the appointment of the external auditors. The Board is also supported by the Executive Leadership Team and the Group Risk Committee, which are management committees. Details of these Board and executive management committees are set out in sections 1.1.1, 2.4, 4.1, 7.2.3 and 8.1 and the committee charters can be found at www.brambles.com. 1.1.3 ALLOCATION OF INDIVIDUAL RESPONSIBILITIES Formal letters of appointment, which are contracts for service but not contracts of employment, have been put in place for all Non-executive Directors. The letters set out the key terms and conditions of their engagement, including time commitments, corporate expectations and, if appropriate, any special duties or assignments. A template letter of appointment for a Non-executive Director is available at www.brambles.com. Senior executives have employment contracts setting out their term of ofﬁce, rights and responsibilities and entitlements on termination, and job descriptions setting out their duties. 1.2 Performance evaluation of senior executives Brambles has a well established performance management and development planning process, which is used throughout the Group. The process involves objective setting consistent with Brambles’ remuneration policy and targets, for cash and equity-based incentive plans set by the Remuneration Committee. Personal development planning, half year reviews and full year appraisals feed into a performance rating, leading to the assessment of annual bonuses. Senior executives (including Executive Directors and the Executive Leadership Team) all participate in this process, which is overseen by the Remuneration Committee. Performance evaluations for senior executives, including Executive Directors and the Executive Leadership Team, were carried out during the Year in accordance with this process. 1.2.1 INDUCTION OF SENIOR EXECUTIVES Business units have procedures for the induction of senior executives, to assist them in participating fully and actively in management decision-making at the earliest opportunity after commencing their new roles. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE At the date of the Directors’ Report, the Board consists of nine members, with two Executive Directors (the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer) and seven Non-executive Directors. The biographies for each of the current Directors, shown on page 15, indicate the breadth of their business, ﬁnancial and international experience. This gives the Directors the range of skills, knowledge and experience essential to govern Brambles, including an understanding of the health, safety, environmental and community related issues which it faces. The Board considers that its current composition reﬂects an appropriate balance of Executive and Non-executive Directors. The table below sets out the names of the Directors in ofﬁce at the date of the Directors’ Report, the year of their most recent election by shareholders, their status as Executive or Non-executive Directors, whether the Board considers that they are independent Directors, whether they will retire and seek re-election at the 2010 Annual General Meeting (AGM), and when they are next due for re-election. 2.1 Independent Directors 2.1.1 INDEPENDENT DECISION-MAKING The Board recognises the importance of independent judgement and constructive debate on all issues under consideration. With the approval of the Chairman, Directors may take independent professional advice at Brambles’ expense in the furtherance of discharging their duties and responsibilities. None of the Directors availed themselves of this right during the Year. The Chairman holds meetings with the Non-executive Directors from time to time, including meetings at scheduled sessions, without the presence of the Executive Directors or other executives. The Non- executive Directors meet without the Chairman present on such occasions as may be considered appropriate. 2.1.2 INDEPENDENT DIRECTORS The Board has considered the independence of each of the Directors in ofﬁce as at the date of the Directors’ Report and concluded that all Non-executive Directors are independent. Therefore the Board has a majority of independent directors. In reaching this conclusion, the Board had regard to the relationships set out in Box 2.1 of the CGPR and noted that one of these relationships exists. Carolyn Kay is a director of the Commonwealth Bank of Australia (CBA), which is a substantial shareholder of Brambles. The Board noted that the most recent substantial shareholder notice issued by CBA provided that, except for 525,330 shares (being 0.04% of Brambles’ issued share capital at the date of this Statement), CBA’s relevant interests in Brambles shares are exercised either as a superannuation trustee; a life company holding statutory funds; a responsible entity or manager of a managed investment scheme; under an investment mandate; by external managers unrelated to the CBA group; or subject to client direction. The Board does not consider that Carolyn Kay’s relationship with CBA gives rise to any actual or perceived loss of independence on her part because of the manner in which CBA’s relevant interests in Brambles shares are held. In considering the matters in Box 2.1 of the CGPR, the Board considered that a customer was material if it accounted for more than 2% of Brambles’ consolidated gross revenue and that a supplier was material if Brambles accounted for more than 2% of the supplier’s consolidated gross revenue. NAME YEAR APPOINTED 1 YEAR LAST ELECTED EXECUTIVE OR NON-EXECUTIVE INDEPENDENT SEEKING ELECTION/ RETIRING AND SEEKING RE-ELECTION IN 2010 NEXT DUE FOR RE-ELECTION A G Froggatt T J Gorman G J Hayes S P Johns S C H Kay G J Kraehe AO C L Mayhew J P Mullen B M Schwartz AM 2006 2009 2009 2004 2006 20052 2005 2009 2009 2008 Non-executive - - 2009 2009 2009 2007 2009 2009 Executive Executive Non-executive Non-executive Non-executive Non-executive Non-executive Non-executive Yes No No Yes Yes Yes Yes Yes Yes No Yes Yes No No No Yes No No 2011 2010 2010 2012 2012 2012 2010 2012 2012 1 For the purposes of this table, the year appointed is the year the relevant Director was ﬁrst elected to the Boards of Brambles or BIL and BIP, as the case may be. 2 Graham Kraehe also served as a director from 2000 to 2004, then re-joined the Board in 2005. BRAMBLES LIMITED ANNUAL REPORT 2010 19 CORPORATE GOVERNANCE STATEMENT CONTINUED 2.1.3 REGULAR ASSESSMENTS Directors are required to complete a declaration of interest form prior to their appointment. This form is tabled at the Board meeting to consider the appointment of the relevant Director. If their circumstances change or they acquire any ofﬁce, property or interest which may conﬂict with their ofﬁce as a Director of Brambles or the interests of Brambles, Directors are required to disclose its character and extent in writing at the next Board meeting. The Board also makes an annual assessment of the independence of each Non-executive Director. If the Board concludes that a Director has lost their status as an independent director, that conclusion will be advised to the market in a timely manner. Directors are generally not entitled to attend any part of a Board meeting, or to vote on any matter, in which they have a material personal interest unless the other Directors unanimously decide otherwise. In appropriate cases, Directors may be required to absent themselves from a meeting of the Board while such a matter is being considered. 2.2 Independent Chairman The Board has concluded that the Chairman is independent and that his other positions do not prevent him from devoting sufﬁcient time to perform the role effectively. As the Chairman is independent, the Board does not consider it necessary to appoint a lead independent director. The Chairman is responsible for facilitating the effective contribution of Non-executive Directors, who are to receive accurate, timely and clear information so that they may effectively discharge their duties and responsibilities. The Chairman is also responsible for fostering constructive relations between Executive and Non-executive Directors. 2.3 Roles of Chairman and Chief Executive Ofﬁcer The roles of Chairman and Chief Executive Ofﬁcer are exercised by two different individuals and are clearly documented, as discussed in section 1.1.1 of this Statement. The Chairman does not have a history of employment with Brambles. 2.4 Nominations Committee 2.4.1 PURPOSE OF THE NOMINATIONS COMMITTEE The objective of the Nominations Committee is to support and advise the Board in fulﬁlling its responsibilities to shareholders in ensuring that the Board is comprised of individuals who are best able to discharge the responsibilities of Directors. 2.4.2 CHARTER A copy of the Nominations Committee’s Charter giving full details of its duties and responsibilities can be found at www.brambles.com. The Nominations Committee’s Charter also sets out its composition, structure, membership requirements and the procedures for inviting non-members to attend meetings. The Committee is authorised to seek any information it requires from any Group employee or from any other source, including obtaining outside legal or other independent professional advice. 20 BRAMBLES LIMITED ANNUAL REPORT 2010 2.4.3 COMPOSITION OF THE NOMINATIONS COMMITTEE The Nominations Committee is comprised entirely of Non-executive Directors, all of whom the Board considers to be independent. The members of the Nominations Committee are Graham Kraehe (Committee Chairman), Stephen Johns and Tony Froggatt. Details of Nominations Committee meetings held during the Year and attendance at those meetings, are set out in the Directors’ Report – Other Information on page 46. 2.4.4 RESPONSIBILITIES The Nominations Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: – assessing periodically the skills required to discharge competently the Board’s duties, having regard to the strategic direction of the Group, and assessing the skills currently represented on the Board to determine whether those current skills meet the required skills identiﬁed; reviewing the structure, size and composition (including the balance of skills, knowledge and experience) of the Board and the effectiveness of the Board as a whole, and keeping under review the leadership needs of Brambles, both executive and non-executive, with a view to ensuring the continued ability of Brambles to compete effectively in the marketplace; preparing a description of the role and capabilities required for any Board appointment, identifying suitable candidates to ﬁll Board vacancies as and when they arise and nominating candidates for the approval of the Board; ensuring that, in determining the process for the identiﬁcation of suitable candidates for appointment: > a search is undertaken by an appropriately qualiﬁed independent third party acting on a brief prepared by the Committee which identiﬁes the skills sought; the search is international, extending to those countries in which candidates with the necessary skills would ordinarily be expected to be found; and candidates are considered from a wide range of backgrounds; > ensuring that, on appointment, Non-executive Directors receive a formal letter of appointment, setting out the time commitment and responsibilities envisaged in the appointment; on any re-appointment of a Non-executive Director on the conclusion of their speciﬁed term of ofﬁce, undertaking a process of review of the retiring Non-executive Director’s performance during the period from their appointment or most recent re-appointment, as the case may be, to the Board; reviewing annually the time commitment required of Non-executive Directors and carrying out performance evaluations to assess whether the Non-executive Directors are devoting enough time to fulﬁlling their duties; and giving full consideration to appropriate succession planning, satisfying itself that processes and plans are in place in relation to both Board (particularly for the key roles of Chairman and Chief Executive Ofﬁcer) and other senior executive appointments. > – – – – – – – 2.4.5 SELECTION AND APPOINTMENT PROCESS AND RE-ELECTION OF DIRECTORS The Board is conscious of the need to ensure that proper processes are in place to deal with succession issues at Board level. This requires the Board to assess periodically the skills and expertise necessary to meet Brambles’ demands. The Nominations Committee assists the Board in this process, which ordinarily involves the identiﬁcation of the need for a new appointee and suitable candidates, the preparation of a brief including a description of the role and capabilities required and the engagement of independent recruitment organisations. During the 2009 year, the Board recognised the need for a non-executive director with substantial international business experience and knowledge of the transport and logistics industries. As a result, John Mullen was appointed as a Non-executive Director in November 2009. During the second half of the Year, the Board, with the assistance of the Nominations Committee, conducted a review of its skills set (including its geographic experience). The Board will continue to seek to appoint new members in future years having regard to that review and to succeed existing Directors as they retire, ensuring an appropriate balance of skills and experience is maintained. A Non-executive Director’s formal letter of appointment (see section 1.1.3) sets out, among other things, the time commitment required and speciﬁes that the Director should consult with the Chairman before accepting any additional commitments which may impact on their role. Any Non-executive Directors who are standing for election or re- election at the next AGM are asked to consider their other signiﬁcant commitments and speciﬁcally acknowledge to Brambles that they will have sufﬁcient time to meet what is expected of them as Directors of Brambles. Details of the number of Board and committee meetings held during the Year, and attendance at those meetings by each of the Directors and committee members, are set out in the Directors’ Report – Other Information on page 46. Directors are appointed for an unspeciﬁed term, but are subject to election by shareholders at the ﬁrst general meeting after their initial appointment by the Board. No Director may serve for more than three years without being re-elected by shareholders. Re-appointment is not automatic. The Board reviews whether retiring Directors should stand for re-election, having regard to their performance and the contribution of their individual skills and experience to the desired overall composition of the Board. The Non-executive Directors’ formal letters of appointment conﬁrm that the Non-executive Directors have no right to compensation on the termination of their appointment for any reason, other than for unpaid fees and expenses for the period actually served. 2.5 Process for evaluating the performance of the Board, its committees and Directors The Board and its committees carry out both internal and external evaluations, with the form of evaluation being determined each year. For the Year, the Board undertook an internal evaluation of its performance as a whole and the performance of each of its committees as well as an evaluation of the performance of Luke Mayhew, the only Non-executive Director who is standing for re-election at the 2010 AGM. The evaluations involved the completion of a questionnaire by each of the Directors and executive management on matters relevant to the performance of the Board, its committees and Luke Mayhew. The Board and committee reviews were subsequently presented to, and reviewed by, the Board and each committee respectively. The Chairman reviewed the results of Luke Mayhew’s performance evaluation with him. 2.5.1 INDUCTION AND EDUCATION Newly appointed Directors receive appropriate induction and training, speciﬁcally tailored to their needs. Appointees are provided with an information pack including governance policies and business information, taken to visit operating sites, hold meetings with major shareholders and receive presentations on Brambles’ businesses and functions by its business unit leaders and functional heads. On an ongoing basis, Directors participate in various seminars and conferences held by industry and professional bodies. In addition, Board meetings regularly include sessions on recent developments in governance and corporate matters, operational site visits and meetings with major customers. 2.5.2 ACCESS TO INFORMATION The Board receives accurate, timely and clear information so that it may effectively discharge its duties and responsibilities. Where necessary, Directors seek clariﬁcation or request the provision of further information to assist with their decision-making processes. The Board committee charters document the committees’ unrestricted rights to seek information from any Group employee or from any other source. Presentations to the Board are frequently made by senior executives. 2.5.3 THE BOARD AND THE COMPANY SECRETARY The Board is assisted by the Company Secretary who, under the direction of the Chairman, is responsible for facilitating good information ﬂows within the Board and its committees and between senior executives and Non-executive Directors, as well as the induction of new Directors and the ongoing professional development of all Directors. The Company Secretary is responsible for monitoring compliance with the Board’s procedures and for advising the Board, through the Chairman, on all governance matters. All Directors have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. The Company Secretary is Robert Gerrard. His qualiﬁcations and experience are set out on page 45. 2.6 DIVERSITY During the Year Brambles reviewed its diversity policy in the context of the 2010 amendments to the CGPR. An updated diversity policy will be launched in the ﬁrst half of the 2011 year. Brambles is developing measurable gender objectives in line with the guidance provided in the CGPR. PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 Establish a code of conduct Brambles has a Code of Conduct, which provides an ethical and legal framework for all employees in the conduct of Brambles’ business. BRAMBLES LIMITED ANNUAL REPORT 2010 21 CORPORATE GOVERNANCE STATEMENT CONTINUED Brambles’ Code of Conduct includes the following schedules: – – – – – – – – – – Corporate Social Responsibility Policy; Speaking Up Policy; Continuous Disclosure and Communications Policy; Group Guidelines for Serious Incident Reporting; Environmental Policy; Competition Compliance Policy; Health and Safety Policy; Securities Trading Policy; Risk Management; and Guidelines for Document Management. The policies listed above set out the reporting responsibilities of speciﬁed individuals, or in some cases, all employees. The Audit Committee is responsible for monitoring compliance with the Speaking Up Policy and at each meeting receives a report on investigations into any matters raised under that policy. The Board also receives a copy of that report. A copy of the Code of Conduct is at www.brambles.com. 3.1.1 PURPOSE OF THE CODE OF CONDUCT The Code of Conduct deﬁnes how Brambles relates to its shareholders, employees, customers, suppliers and the community. It includes Brambles’ general principles on business integrity. All employees are expected to conduct business in accordance with the laws and regulations of the countries in which the business is located, and in a manner so as to enhance the reputation of Brambles. 3.1.2 APPLICATION OF THE CODE OF CONDUCT The Code of Conduct has been translated into 17 languages, so that it can be used to form part of employees’ terms and conditions of employment. Non-executive Directors are required to agree to comply with the Code of Conduct and to acknowledge that their performance assessments will include an element on conformity with the Code. The Code of Conduct is not intended to be all-encompassing. There are areas in which Brambles expects its businesses to develop detailed policies in accordance with local requirements. The Code of Conduct provides a set of guiding principles that may be supplemented with additional local policies. It provides a common behavioural framework. Brambles implements the Code of Conduct through a variety of induction and training programs. During the Year, ongoing training took place with the aim of enhancing employees’ compliance with certain of the policies under the Code. The Code of Conduct requires Brambles’ contractors to adhere to Brambles’ health and safety, environmental and serious incident reporting standards and requires consultants or professional advisers who are engaged to undertake work for the Group to comply with the Continuous Disclosure and Communications Policy. 3.2 Securities trading policy Details of Brambles Limited securities held by Directors are set out on pages 39, 40 and 42. The Board has put in place a Securities Trading Policy covering dealings in securities by: – – – – Directors; senior executives; all individuals located in Brambles’ Headquarters; any other person who is notiﬁed that they are subject to the policy from time to time; and their related persons, – (collectively Designated Persons). 22 BRAMBLES LIMITED ANNUAL REPORT 2010 The policy is designed to ensure that shareholders, customers and the international business community have conﬁdence that Brambles’ Directors and senior executives are expected to comply with the law and best practice in corporate governance, and handle conﬁdential information lawfully and with integrity. It can be found at www.brambles.com. Under the Securities Trading Policy, Designated Persons are required to obtain approval before dealing in Brambles Limited’s securities, and are prohibited from such dealing at certain times, other than in exceptional circumstances, and then only where the Designated Person declares that he or she does not possess any price sensitive, non-public information. Any dealings in Brambles Limited securities by a Director or a member of the Executive Leadership Team must be reported to Brambles within two business days of effecting such dealings. The ASX is notiﬁed of Directors’ transactions within applicable time limits. The Securities Trading Policy applies to Brambles’ equity-based awards under the incentive plans described in the Remuneration Report. The policy prohibits Designated Persons from acquiring ﬁnancial products or entering into arrangements which have the effect of limiting exposure to the risk of price movements of Brambles securities. The Securities Trading Policy also prohibits Designated Persons from using their securities in Brambles Limited as security for a margin loan. Brambles takes compliance with the Securities Trading Policy seriously. A breach of the policy by any employee will be regarded as a breach of their conditions of employment and may result in termination. PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING 4.1 Establish an Audit Committee Brambles conﬁrms that, in accordance with ASX Listing Rule 12.7, it has had an Audit Committee throughout the Year. 4.1.1 PURPOSE OF THE AUDIT COMMITTEE The objective and purpose of the Audit Committee is to assist the Board in fulﬁlling its corporate governance and oversight responsibilities by: – monitoring and reviewing: > > > > the integrity of ﬁnancial statements; internal ﬁnancial controls; the objectivity and effectiveness of the internal auditors; and the independence, objectivity and effectiveness of the external auditors; – – – making recommendations to the Board in relation to the appointment or removal of the external auditors, the approval of their remuneration and the terms of their engagement, including the rotation of external audit engagement partners; assessing whether the Committee is satisﬁed that the independence of the external auditors has been maintained, having regard to any non-audit related services; reviewing and monitoring the policy on the engagement of the external auditors to supply non-audit services (set out in the Charter of Audit Independence, a copy of which can be found at www.brambles.com), taking into account relevant legal and ethical guidance regarding the provision of non-audit services by the external auditors; and – reporting to the Board, identifying any matters relating to the above in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. a year without executive management being present. A copy of the Audit Committee’s Charter, which is reviewed annually, can be found at www.brambles.com. 4.2 Structure of the Audit Committee 4.2.1 COMPOSITION OF THE AUDIT COMMITTEE The Audit Committee has three members and is chaired by Stephen Johns, an independent Director. 4.2.2 IMPORTANCE OF INDEPENDENCE The Audit Committee is comprised entirely of Non-executive Directors, all of whom the Board considers to be independent. 4.2.3 TECHNICAL EXPERTISE The Board considers that each of the members of the Audit Committee has recent and relevant ﬁnancial and accounting experience and an understanding of accounting and ﬁnancial issues relevant to the industries in which Brambles operates. The members of the Audit Committee, including details of their relevant qualiﬁcations, are as follows: – Stephen Johns had a long executive career with Westﬁeld where he held a number of senior positions including that of Finance Director from 1985 to 2002. He is currently a non-executive director of Leighton Holdings Limited and the Westﬁeld Group and Chairman of Spark Infrastructure Group. He holds a Bachelor of Economics degree from the University of Sydney and is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Institute of Company Directors. Carolyn Kay is a director of CBA and an External Board Member of Allens Arthur Robinson. She has had extensive experience in international ﬁnance at Morgan Stanley in London and Melbourne, JP Morgan in New York and Melbourne and Linklaters & Paines in London. Carolyn holds Bachelor degrees in Law and Arts from the University of Melbourne and a Graduate Diploma in Management from the AGSM. She is a Fellow of the Australian Institute of Company Directors. Brian Schwartz is the Deputy Chairman and a non-executive director of Insurance Australia Group Limited and a non-executive director of the Westﬁeld Group. He had a long career at Ernst & Young, holding a number of senior positions including that of CEO Ernst & Young Australia from 1998 to 2004. He is a Fellow of the Institute of Chartered Accountants in Australia. – – Stephen Johns, Carolyn Kay and Brian Schwartz were members of the Committee throughout the Year; David Gosnell, a former independent Non-executive Director of Brambles, was a member of the Committee during the Year until his retirement from the Board on 31 March 2010. He is the Managing Director of Global Supply and Procurement for Diageo plc and holds a Bachelor of Science degree in Electrical and Electronic Engineering from Middlesex University, England. 4.3 Audit Committee Charter 4.3.1 CHARTER The Audit Committee has a Charter which includes its duties and responsibilities, composition, structure, membership requirements, authority, access rights and sets out a procedure for inviting non- members to attend its meetings. The Charter requires the Audit Committee to meet with internal and external auditors at least once 4.3.2 RESPONSIBILITIES The Audit Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: – – – – reviewing, and challenging where necessary, the actions and judgment of management in relation to full year and half year ﬁnancial reports and other announcements relating to those reports prepared for release to the ASX, regulators and the public, before making appropriate recommendations to the Board; reviewing the audit plans of the internal auditors, including the scope and materiality level of their audits; monitoring compliance with, and the effectiveness of, the audit plans of the internal auditors; reviewing reports from the internal auditors on their audit ﬁndings, management responses and action plans in relation to those ﬁndings, and reports from the internal auditors on the implementation of those action plans; and facilitating an open avenue of communication between the internal auditors, the external auditors and the Board; reviewing the audit plans of the external auditors, including the nature, scope, materiality level and procedures of their audits; monitoring compliance with, and the quality and effectiveness of, the audit plans of the external auditors; and reviewing reports from the external auditors in relation to their major audit ﬁndings, management responses and action plans in relation to those ﬁndings, and reports from the external auditors on the implementation of those action plans; and reviewing and recommending to the Board the fees payable to the external auditors, monitoring compliance with the Charter of Audit Independence and pre-approving the performance by the external auditors of any non-audit related work and any proposed fees to be paid to the external auditors for that work, for which its approval is required by the Charter of Audit Independence. The Charter divides non-audit work into three categories: work which must be approved by the Chief Financial Ofﬁcer (if fees will fall below speciﬁed limits); work which must be approved by the Audit Committee; and work which is prohibited. Prior consultation with, and approval of the Chief Financial Ofﬁcer or Audit Committee, as prescribed by the Charter, is required whenever management recommends that the external auditors undertake non-audit work. Internal accounting, valuation services, actuarial services and internal audit services must not be performed by the external auditors. The Audit Committee is also responsible for monitoring the Brambles Speaking Up Policy, that it is communicated properly and complied with throughout Brambles, and for monitoring that appropriate protection against victimisation and dismissal is given to Brambles employees who make certain disclosures in the public interest. 4.3.3 MEETINGS Details of the number of Audit Committee meetings held during the Year, and attendance at those meetings, are set out in the Directors’ Report – Other Information on page 46. Minutes of meetings are included in the papers for subsequent Board meetings. BRAMBLES LIMITED ANNUAL REPORT 2010 23 CORPORATE GOVERNANCE STATEMENT CONTINUED 4.3.4 REPORTING The Chairman of the Audit Committee reports to the Board on the Committee’s proceedings and on all matters relevant to the Committee’s duties and responsibilities. 4.4 EXTERNAL AUDITOR PricewaterhouseCoopers has been engaged by the Board to act as external auditors to Brambles since the 2002 ﬁnancial year. Under the terms of engagement, the Australian audit engagement partner will rotate every ﬁve years. The Audit Committee is responsible for making recommendations on the selection, appointment, evaluation and removal of external auditors, setting fees and ensuring that the external auditors’ engagement partners are rotated at appropriate intervals. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE 5.1 Establish a continuous disclosure policy Brambles is committed to the promotion of investor conﬁdence by taking steps within its power to ensure that trading in its securities occurs in an efﬁcient and informed market. Brambles recognises the importance of effective communication as a key part of building shareholder value and that, to prosper and achieve growth, it must, among other matters, earn the trust of shareholders, employees, customers, suppliers and communities, by being open in its communications and consistently delivering on its commitments. The Board has adopted a Continuous Disclosure and Communications Policy to: – reinforce Brambles’ commitment to the continuous disclosure obligations imposed by law and to describe the processes implemented by it to ensure compliance; outline Brambles’ corporate governance standards and related processes and ensure that timely and accurate information about Brambles is provided equally to all shareholders and market participants; and outline Brambles’ commitment to communicating effectively with shareholders and encouraging shareholder participation in shareholder meetings. – – The Continuous Disclosure and Communications Policy takes into account the matters listed in Box 5.1 of the CGPR. A copy can be found at www.brambles.com. To achieve the above objectives and satisfy regulatory requirements, the Board provides information to shareholders and the market in several ways: – signiﬁcant announcements are released directly to the market via the ASX. Copies of these announcements are immediately placed on www.brambles.com. Brambles conducts investor and analyst brieﬁngs as a part of its investor relations programme. No new materials or price sensitive information is provided at those brieﬁngs unless it has been previously or is simultaneously released to the market. Presentation materials are placed on Brambles’ website. www.brambles.com contains further information about Brambles and its activities, including copies of recent interim and annual reports and recordings of the most recent presentations to analysts. – – 24 BRAMBLES LIMITED ANNUAL REPORT 2010 5.1.1 COMMENTARY ON FINANCIAL RESULTS The Audit Committee Charter requires the Committee to review the clarity of ﬁnancial reports. A review of operations and activities for the Year is included on pages 4 to 11. Presentations of the full and half year results are made to the investment community immediately after they are released to the market. Live webcasts of these presentations are transmitted via, and presentation materials are placed on, the Brambles website. 5.1.2 ELIMINATING SURPRISE ON TERMINATION ENTITLEMENTS Details of the termination entitlements of Brambles’ Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and other Key Management Personnel are disclosed on pages 36 and 37 of the Directors’ Report – Remuneration Report. PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS Shareholders play an important role in the governance of Brambles by electing the Board, whose task it is to govern on their behalf. The Chairman regularly meets major investors to understand their issues and concerns and discuss particular matters relating to Brambles’ governance and strategy. The Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and other senior executives meet major investors to understand their issues and concerns and discuss company performance and strategy. No new material or price sensitive information is provided at such meetings. Other Non- executive Directors may attend meetings with major investors and will attend them if requested. The Chairman reports to the Board on the matters discussed at meetings with major investors and copies of relevant correspondence are included in the Board papers. Executive management provide information on shareholder activity and trading to the Board, along with shareholder feedback and copies of analysts’ reports. As a new shareholder communications initiative, a newsletter on the half year results and executive management changes was produced and sent to shareholders in April 2010. 6.1 Establish a communications policy As disclosed in section 5.1, the Board has adopted a Continuous Disclosure and Communications Policy, which outlines Brambles’ commitment to communicating effectively with shareholders and encouraging shareholder participation in shareholder meetings. A copy can be found at www.brambles.com. 6.1.1 ELECTRONIC COMMUNICATION Brambles takes all of the measures to make effective use of electronic communication that are outlined in Box 6.1 of the CGPR. Brambles posts a copy of all announcements made to the ASX on www.brambles.com. On release, signiﬁcant announcements are highlighted in the “Latest News” area on the home page of the website. Presentations to investors, analysts or media during brieﬁngs and copies of speeches and presentations made by the Chairman and Chief Executive Ofﬁcer at general meetings are released as regulatory announcements and posted on www.brambles.com after release. Brieﬁngs and general meetings are also webcast live, via www.brambles.com. All of the ASX regulatory releases and notices of meetings that Brambles Limited has published since it was listed in December 2006 are available on www.brambles.com, as are several years’ history of such documents relating to BIL, prior to Uniﬁcation. Shareholders are asked to elect whether they would like to receive shareholder communications in printed form or provide an email address and be sent an electronic notiﬁcation when a communication is available on www.brambles.com, instead of a hard copy. Shareholders who do not respond are sent a printed notiﬁcation of availability of the annual report and hard copies of all other communications. Shareholders may electronically appoint proxies and lodge proxy instructions for items of business to be considered at general meetings, or have the option of lodging direct votes. Each business unit has a risk and control committee, which conducts an in-depth review of the business unit’s risk proﬁle. These proﬁles underpin the Group-level risk proﬁle. The business unit risk proﬁles and accompanying mitigation plans were evaluated by Group Presidents, senior management at Brambles Headquarters, the Group Risk Committee and the Board. Legal obligations and the reasonable expectations of stakeholders, such as shareholders, customers, employees, subcontractors, suppliers and the community in general were taken into account when preparing and updating mitigation plans. During the Year, a comprehensive review of the internal control and risk management system was carried out. This resulted in the adoption of a new risk management framework which took effect on 1 July 2010. Details of the new framework are set out in section 7.2.1. 6.1.2 MEETINGS AGMs provide an opportunity for the Board to communicate with investors, through presentations on Brambles’ businesses and current trading. Shareholders are encouraged to attend AGMs and to participate and use the opportunity to ask questions on any matter. To make better use of the limited time available, shareholders are invited to register questions and issues of concern prior to AGMs. This can be done either by completing the relevant form accompanying the notices convening the meetings or by emailing Brambles at shareholderquestions@brambles.com. Answers to frequently asked questions are given during presentations to AGMs. Shareholders may also ask questions at AGMs without having registered their questions in this manner. 6.1.3 COMMUNICATION WITH BENEFICIAL OWNERS Beneﬁcial owners of shares, investors or members of the public are encouraged to register for free email alerts, so that they may stay up to date on major news announcements made by Brambles. There is a link to the Email Alerts registration area of the website on the home page of www.brambles.com. Users of the Email Alerts service may customise the types of announcements that they receive. 6.1.4 WEBSITE Brambles encourages shareholders to make full use of www.brambles.com and to provide an email address to the share registry so that they may be sent email notiﬁcations when shareholder communications are available. Brambles believes shareholders beneﬁt from electronic communication as they receive information promptly and have the convenience and security of electronic delivery. Electronic communication is also environmentally friendly and generates cost savings. PRINCIPLE 7: RECOGNISE AND MANAGE RISK 7.1 Establish policies for the oversight and management of material business risks 7.1.1 RISK MANAGEMENT POLICIES The Board is responsible for the establishment, and reviewing the effectiveness of the Group’s system of internal control and risk management. During the Year, the Board was supported in this role by management, in particular by the Group Risk Committee, the Audit Committee (in relation to ﬁnancial reporting risks) and the Group’s internal audit function. The Group Risk Committee’s responsibilities are described in section 7.2.3 of this Statement. The Audit Committee’s responsibilities are described in section 4.3.2 of this Statement. 7.2 Reporting on effective management of material business risks 7.2.1 RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM Management is responsible for the development, implementation and management of systems that: – identify, assess and manage risks in an effective and efﬁcient manner; enable decisions to be based on a comprehensive view of the reward-to-risk balance; provide greater certainty of the delivery of objectives; and satisfy the Group’s corporate governance requirements. – – – These systems are designed to limit the risk of failure to achieve business objectives. It must be recognised, however, that internal control and risk management systems can provide only reasonable, and not absolute, assurance against the risk of material loss. Key elements of Brambles’ internal control systems include: – a Code of Conduct that sets out an ethical and legal framework for all employees in the conduct of Brambles’ business; ﬁnancial systems to provide timely, relevant and reliable information to management and to the Board; appropriate formalised delegations and limits of authority consistent with Brambles’ objectives; biannual management declarations at country, regional and global levels conﬁrming, among other matters, the adequacy of internal control procedures, the effectiveness of risk management systems and compliance with the Code of Conduct and all regulatory and statutory requirements; an internal audit function, described in section 7.2.2 of this Statement; a risk management function; a risk and control committee for each of its business units; and other sources of independent assurance, such as environmental audits, occupational health and safety audits and reports from the external auditors. – – – – – – – During the Year, the biannual management declarations process was reviewed. The questionnaires sent to management were simpliﬁed with the aim of improving the quality of responses and focusing on ﬁnancial controls. A web-based system was developed to enable the questionnaires to be completed more easily and to facilitate rigorous tracking across periods. BRAMBLES LIMITED ANNUAL REPORT 2010 25 CORPORATE GOVERNANCE STATEMENT CONTINUED The key elements of Brambles’ business risk management systems during the Year are set out below: Risk control – risks to the achievement of business objectives were identiﬁed through a process of examination between the Group Risk Committee, Brambles’ risk management team, the business unit Group Presidents, business unit risk and control committees and functional process owners. Key business risks were also identiﬁed and analysed during regular management reporting and discussions. The identiﬁed risks were assessed in terms of their underlying causes, business consequences, external variables, current internal control effectiveness, likelihood of occurrence, overall risk priority and risk mitigation status. The resulting net risk and control proﬁles were presented to the Board, together with a risk improvement program designed to increase the effectiveness of controls and manage the overall level of risk. This process formed part of the Board’s annual review of the effectiveness of the systems of internal control. Risk monitoring – there was regular reporting of key risk events, such as safety incidents, litigation and serious incidents (as deﬁned in the Code of Conduct). In addition to regular monitoring by the Group Risk Committee and Brambles’ risk management team, risks and controls were reassessed by business unit risk and control committees on at least a biannual basis. The outcome of those assessments and details of progress in implementing risk improvement programs were signed off by Group Presidents and reported to the Group Vice President, Risk and Audit. In addition, a report on the effectiveness of the management of business risks was provided to the Group Risk Committee and the Board. The effectiveness of speciﬁc business risk controls and risk improvement programs were also periodically reviewed by internal audit as part of the FY10 internal audit program, and the results reported to the Audit Committee. During the Year, the Board reviewed the effectiveness of the internal control and risk management systems and will continue to do so on an ongoing basis by: – considering and approving the budget and forward plan of each business; reviewing detailed monthly reports on business performance and trends; setting limits on delegated authority; receiving regular reports on Brambles’ treasury activities, and reviewing treasury guidelines, limits and controls; conducting the review of Brambles’ risk proﬁles, as described in section 7.1.1 of this Statement; receiving twice-yearly reports from the Group Risk Committee (and, from 1 July 2010, from the Executive Leadership Team) on the effectiveness of internal control and risk management systems for Brambles’ material business risks, being the report required by Recommendation 7.2 of the CGPR; receiving twice-yearly written assurances from the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, as described in section 7.3 of this Statement; and receiving reports from the Audit Committee, which has a responsibility to assist the Board in reviewing internal ﬁnancial controls. – – – – – – – 26 BRAMBLES LIMITED ANNUAL REPORT 2010 New Risk Management Framework During the Year, management continued to take actions to improve the risk management and internal control system. In particular, a comprehensive review of that system was carried out. This resulted in the adoption of a new risk management framework which took effect on 1 July 2010. The objectives of the new risk management framework are as follows: – to incorporate effective risk management as part of Brambles’ strategic planning process; to require business operating plans to address the effective management of key risks; to develop internal audits plans to concentrate efforts on providing assurance on the viability and value of risk mitigation/management processes; to embed a stronger risk management culture; to improve allocation of capital to reﬂect business risks; to seek competitive advantage through increased certainty of achieving agreed organisational and business objectives; and to continue to fulﬁl governance requirements for risk management. – – – – – – To strengthen the relationship between risk management and strategic and operational planning, from 1 July 2010, the Chief Executive Ofﬁcer, through the Executive Leadership Team (see section 1.1), has principal responsibility for risk management. A Brambles Headquarters risk and control committee has also been established. It is chaired by the Chief Financial Ofﬁcer and its members include key functional heads. The Executive Leadership Team will be supported by the Group Vice President, Risk and Audit and all risk and control committees now report to it. The changes to the risk management structure introduced by the new framework replace the risk management and reporting role of the Group Risk Committee. 7.2.2 INTERNAL AUDIT FUNCTION The internal audit function is independent of the external auditor. Brambles’ internal audit function carries out risk-based audits under an annual plan approved by the Audit Committee. The internal audit team makes an independent appraisal of the adequacy and effectiveness of Brambles’ risk management and internal control system, to provide assurance to the Audit Committee and the Board. The head of internal audit has direct access to the Chairman of the Audit Committee. Both the Audit Committee and the internal audit team have unrestricted access to management and the right to seek information and explanations. 7.2.3 GROUP RISK COMMITTEE The Group Risk Committee was a management committee. During the Year, it assisted the Board in fulﬁlling its responsibilities to review Brambles’ policies on risk oversight and management and to satisfy itself that management has developed and implemented a sound system of risk management and internal control. The Committee members were Greg Hayes (Chief Financial Ofﬁcer and Committee Chairman), senior executives from each business unit and from Brambles’ accounting, risk and internal audit, legal and secretarial functions. A copy of the Group Risk Committee’s Charter can be found at www.brambles.com. With the adoption of the new risk management framework, from 1 July 2010, the Group Risk Committee’s risk management and reporting role has been assumed by the Executive Leadership Team, supported by the Group Vice President, Risk and Audit. Further details are in section 7.2.1. 7.3 Chief Executive Ofﬁcer and Chief Financial Ofﬁcer declaration The Board receives written assurances from the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer that the declaration provided under section 295A of the Corporations Act 2001 (Cth)(Act) is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to ﬁnancial reporting risks. The Board receives these assurances in advance of approving both the annual and interim ﬁnancial statements. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY 8.1 Establish a remuneration committee 8.1.1 PURPOSE OF THE REMUNERATION COMMITTEE The objective and purpose of the Remuneration Committee is to assist the Board in establishing remuneration policies and practices which: – enable Brambles to attract and retain executives and Directors who will create value for shareholders; fairly and responsibly reward executives having regard to the performance of Brambles, the performance of the executive and the general remuneration environment; and comply with the provisions of the ASX Listing Rules and the Act. – – 8.1.2 CHARTER The Remuneration Committee has a Charter which includes its duties and responsibilities, composition, structure, membership requirements, authority, access rights and sets out a procedure for inviting non-members to attend its meetings. A copy of the Remuneration Committee’s Charter, which is reviewed annually, can be found at www.brambles.com. 8.1.3 COMPOSITION OF REMUNERATION COMMITTEE The Remuneration Committee is comprised entirely of Non-executive Directors, all of whom are independent. The four members of the Remuneration Committee are Luke Mayhew (Committee Chairman), Tony Froggatt, Graham Kraehe and John Mullen. The Remuneration Committee meets at least three times a year. Details of the number of Remuneration Committee meetings held during the Year and attendance at those meetings, are set out in the Directors’ Report – Other Information on page 46. 8.1.4 RESPONSIBILITIES OF THE REMUNERATION COMMITTEE The Remuneration Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: – determining and agreeing with the Board the broad policy for the remuneration of the Chairman of the Board, the Chief Executive Ofﬁcer and other members of the senior executive team, and reviewing the ongoing appropriateness and relevance of the executive remuneration policy; – – – – – – determining the remuneration for the Executive Directors and the Company Secretary, reviewing the proposed remuneration for the senior executive team, ensuring that contractual terms on termination, and any payments made, are fair to the individual and Brambles, that failure is not rewarded and that the duty to mitigate loss is fully recognised, and, in determining such packages and arrangements, giving due regard to all relevant regulations and associated guidance; insofar as they impact on the Executive Directors and the senior executive team, approving the design of, and determining targets for, all cash-based executive incentive plans, and approving the total proposed payments from all such plans; keeping all equity-based plans under review in the light of legislative, regulatory and market developments, determining each year whether awards will be made under such plans and whether there are exceptional circumstances which allow awards at other times, approving total proposed awards under each plan, and approving awards to Executive Directors and reviewing awards made to the senior executive team; annually reviewing and taking account of the remuneration trends across Brambles in its main markets, and advising on any major changes in employee beneﬁt structures throughout Brambles; reviewing the funding and performance of Brambles’ retirement plans and reporting to the Board; and selecting, appointing and setting the terms of reference for external remuneration consultants who advise the Committee in respect of the remuneration of the Executive Directors. 8.1.5 REMUNERATION POLICY Details of Brambles’ remuneration policy can be found in the Directors’ Report – Remuneration Report on pages 31, 32, 33 and 41. The remuneration of the Chairman of Brambles is determined by the Remuneration Committee. The remuneration of the other Non- executive Directors is determined by the Executive Directors, with the Non-executive Directors taking no part in the discussion or decision relating to their remuneration. In setting remuneration, advice is sought from external remuneration consultants. During the Year, the Committee monitored the Productivity Commission’s recommendations on executive remuneration and the Government’s response to those recommendations. The Committee anticipates that Brambles will be well placed to comply with the expected legislative changes in FY11. 8.2 Comparison of remuneration structures There is a clear distinction between the structure of Non-executive Directors’ remuneration and that of the Executive Directors and executive management. Brambles has taken account of the guidelines for executive remuneration packages in Box 8.1 of the CGPR and the guidelines for non-executive director remuneration in Box 8.2 of the CGPR. Further details can be found in the Directors’ Report – Remuneration Report on pages 31, 32, 33 and 41. BRAMBLES LIMITED ANNUAL REPORT 2010 27 CORPORATE GOVERNANCE STATEMENT CONTINUED The following checklist summarises Brambles’ compliance with the CGPR and contains cross references to the sections of this Statement and to the exact location of information disclosed at www.brambles.com. PRINCIPLE/RECOMMENDATION REFERENCE PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Recommendation 1.1 Role of the board and management Recommendation 1.2 Performance evaluation of senior executives Corporate Governance Statement: 1.1 Corporate Governance Statement: 1.2 Recommendation 1.3 Companies should provide the following information in the corporate governance statement: – an explanation of any departures from Recommendations 1.1, 1.2 or 1.3 Not applicable – whether a performance evaluation for senior executives has taken place in the reporting period and whether it was in accordance with the process disclosed Corporate Governance Statement: 1.2 A statement of matters reserved for the board, or the board charter or the statement of areas of delegated authority to senior executives should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section www.brambles.com See “Corporate Governance”, “Board of Directors”, “Role of the Board”. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Recommendation 2.1 Independent directors Recommendation 2.2 Independent chairman Recommendation 2.3 Roles of chairman and chief executive ofﬁcer Recommendation 2.4 Nomination committee Corporate Governance Statement: 2.1 Corporate Governance Statement: 2.2 Corporate Governance Statement: 2.3 Corporate Governance Statement: 2.4 Recommendation 2.5 Process for evaluating the performance of the board, its committees and directors Corporate Governance Statement: 2.5 Recommendation 2.6 Companies should provide the following information in the corporate governance statement: Corporate Governance Statement: – – – the skills, experience and expertise relevant to the position of director held by each director in ofﬁce at the date of the annual report the names of the directors considered by the board to constitute independent directors and the company’s materiality thresholds the existence of any of the relationships listed in Box 2.1 and an explanation of why the board considers a director to be independent, notwithstanding the existence of those relationships – a statement as to whether there is a procedure agreed by the board for directors to take independent professional advice at the expense of the company – the period of ofﬁce held by each director in ofﬁce at the date of the annual report 2 2.1.2 2.1.2 2.1.1 2 – – the names of members of the nomination committee and their attendance at meetings of the committee, or where a company does not have a nomination committee, how the functions of a nomination committee are carried out 2.4.3 and Directors’ Report – Other Information, page 46. whether a performance evaluation for the board, its committees and directors has taken place in the reporting period and whether it was in accordance with the process disclosed 2.5 – an explanation of any departures from Recommendations 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6 Not applicable The following material should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section: – a description of the procedure for the selection and appointment of new directors and the re-election of incumbent directors – – the charter of the nomination committee or a summary of the role, rights, responsibilities and membership requirements for that committee the board’s policy for the nomination and appointment of directors www.brambles.com See “Corporate Governance”, “Board of Directors”, “Board Succession Planning and Renewal”. www.brambles.com See “Corporate Governance”, “Committees of the Board”, “Nominations Committee”. 28 BRAMBLES LIMITED ANNUAL REPORT 2010 PRINCIPLE/RECOMMENDATION REFERENCE PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING Recommendation 3.1 Establish a code of conduct Recommendation 3.2 Securities trading policy Recommendation 3.3 Companies should provide the following information in the corporate governance statement: Corporate Governance Statement: 3.1 Corporate Governance Statement: 3.2 – an explanation of any departures from Recommendations 3.1, 3.2 or 3.3 Not applicable The following material should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section: – – any applicable code of conduct or a summary the trading policy or a summary PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING Recommendation 4.1 Establish an audit committee Recommendation 4.2 Structure of the audit committee Recommendation 4.3 Audit committee charter Recommendation 4.4 Companies should provide the following information in the corporate governance statement: www.brambles.com See “Corporate Governance”, “Other”, “Brambles Code of Conduct” (which incorporates the Securities Trading Policy as Schedule 8). Corporate Governance Statement: 4.1 Corporate Governance Statement: 4.2 Corporate Governance Statement: 4.3 – – the names and qualiﬁcations of those appointed to the audit committee and their attendance at meetings of the committee, or, where a company does not have an audit committee, how the functions of an audit committee are carried out the number of meetings of the audit committee Corporate Governance Statement: 4.3 and Directors’ Report – Other Information, page 46. – an explanation of any departures from Recommendations 4.1, 4.2, 4.3 or 4.4 Not applicable The following material should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section: – – the audit committee charter information on procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners www.brambles.com See “Corporate Governance”, “Committees of the Board”, “Audit Committee”. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Recommendation 5.1 Establish a continuous disclosure policy Corporate Governance Statement: 5.1 Recommendation 5.2 Companies should provide the following information in the corporate governance statement: – an explanation of any departures from Recommendations 5.1 or 5.2 Not applicable The policies or a summary of those policies designed to guide compliance with Listing Rule disclosure requirements should be made publicly available, ideally by posting them to the company’s website in a clearly marked corporate governance section www.brambles.com See “Corporate Governance”, “Other”, “Brambles Code of Conduct” (which incorporates the Continuous Disclosure and Communications Policy as Schedule 3). PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS Recommendation 6.1 Establish a communications policy Corporate Governance Statement: 6.1 Recommendation 6.2 Companies should provide the following information in the corporate governance statement: – an explanation of any departures from Recommendations 6.1 or 6.2 Not applicable The company should describe how it will communicate with its shareholders publicly, ideally by posting this information on the company’s website in a clearly marked corporate governance section www.brambles.com See “Corporate Governance”, “Other”, “Brambles Code of Conduct” (which incorporates the Continuous Disclosure and Communications Policy as Schedule 3). BRAMBLES LIMITED ANNUAL REPORT 2010 29 CORPORATE GOVERNANCE STATEMENT CONTINUED PRINCIPLE/RECOMMENDATION REFERENCE PRINCIPLE 7: RECOGNISE AND MANAGE RISK Recommendation 7.1 Establish policies for the oversight and management of material business risks Corporate Governance Statement: 7.1 Recommendation 7.2 Reporting on effective management of material business risks Recommendation 7.3 Chief Executive Ofﬁcer and Chief Financial Ofﬁcer declaration Corporate Governance Statement: 7.2 Corporate Governance Statement: 7.3 Recommendation 7.4 Companies should provide the following information in the corporate governance statement: – an explanation of any departures from Recommendations 7.1, 7.2, 7.3 or 7.4 Not applicable – – whether the board has received the report from management under Recommendation 7.2 Corporate Governance Statement: 7.2 whether the board has received assurance from the chief executive ofﬁcer (or equivalent) and the chief ﬁnancial ofﬁcer (or equivalent) under Recommendation 7.3 Corporate Governance Statement: 7.3 The following material should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section: – a summary of the company’s policies on risk oversight and management of material business risks PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY Recommendation 8.1 Establish a remuneration committee Recommendation 8.2 Comparison of remuneration structure Recommendation 8.3 Companies should provide the following information in the corporate governance statement: www.brambles.com See “Corporate Governance”, “Risk Management”. Corporate Governance Statement: 8.1 Corporate Governance Statements: 8.1.2 and Directors’ Report – Remuneration Report pages 31, 32, 33 and 41. – the names of the members of the remuneration committee and their attendance at meetings of the committee, or where a company does not have a remuneration committee, how the functions of a remuneration committee are carried out Corporate Governance Statement: 8.1.3 and Directors’ Report – Other Information, page 46. – the existence and terms of any schemes for retirement beneﬁts, other than superannuation, for non-executive directors Not applicable – an explanation of any departures from Recommendations 8.1, 8.2 or 8.3 Not applicable The following material should be made publicly available, ideally by posting it to the company’s website in a clearly marked corporate governance section: – the charter of the remuneration committee or a summary of the role, rights, responsibilities and membership requirements for that committee – a summary of the company’s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under any equity-based remuneration schemes www.brambles.com See “Corporate Governance”, “Committees of the Board”, “Remuneration Committee”. www.brambles.com See “Corporate Governance”, “Other”, “Brambles Code of Conduct” (which incorporates the Securities Trading Policy as Schedule 8). 30 BRAMBLES LIMITED ANNUAL REPORT 2010 DIRECTORS’ REPORT – REMUNERATION REPORT Last year, in recognition of the tough market conditions, Brambles’ ﬁnancial performance and the need to tightly control costs, the Company took the following actions: – – executive salaries were frozen for ﬁnancial year 2010; salaries below the Executive Leadership Team were also frozen, with small increases at lower levels being limited to any exceptional performers who were paid below market level; and short term bonuses, if awarded at all, were extremely modest and signiﬁcantly lower than in previous years. – In the past year Brambles has continued to have a strong focus on cost control and bonus and share awards for 2010 under Brambles’ Short Term Incentive plan have reﬂected the Company’s performance. All outstanding Long Term Incentive awards will require improved performance to vest. The year did see signiﬁcant changes to Brambles’ executive leadership, including the appointment of a new Chief Executive Ofﬁcer, Tom Gorman, the former Group President, CHEP EMEA and a new Chief Financial Ofﬁcer, Greg Hayes. All new executive appointments were considered by the Remuneration Committee and we are comfortable that the remuneration is reasonable, appropriate and in line with similar roles elsewhere. After four years of no change, the Chairman initiated a review of Non-executive Director fees to ensure they properly reﬂected local market rates and the appropriate relativity between his fees and those of other Non-executive Directors. Increases in Non-executive Directors’ fees will be largely offset by a reduction in the Chairman’s fees. In 2011 we will revisit Brambles’ remuneration policy to ensure that there continues to be a close alignment between executive reward and the delivery of key business objectives, and that there are effective incentives and rewards for the delivery of strong sustainable returns for shareholders. Meanwhile I believe that this Remuneration Report demonstrates that the current incentive arrangements, which were approved by shareholders in 2008, have proved to be ﬁt for purpose in a difﬁcult economic environment as well as being in line with recent government regulation. Finally we have further simpliﬁed the Remuneration Report. It remains challenging to do that and to also ensure all formal disclosures are properly included. I believe this is another step in the right direction. During the year a number of senior executives left the business. These were managed under the provisions of the relevant employment contracts. LUKE MAYHEW Non-executive Director and Chairman of the Remuneration Committee CONTENTS 1. Background 2. Remuneration Committee 3. Remuneration policy and structure 4. Performance of Brambles 5. Executive Directors and Disclosable Executives 6. Non-executive Directors’ disclosures 7. Appendices 1. BACKGROUND This Remuneration Report includes information on Brambles’ Executive Directors, Non-executive Directors, and other Group executives whose details are required to be disclosed (Disclosable Executives). Disclosable Executives include those persons having authority and responsibility for planning, directing and controlling the activities of the Group, and who, for some or all of the year ending 30 June 2010 (Year), have been a member of the Executive Leadership Team (ELT) of Brambles (Key Management Personnel). This report includes all disclosures required by the Corporations Act 2001 (Cth)(Act), regulations made under that Act, and Australian Accounting Standard AASB 124: Related Party Disclosures. The disclosures required by section 300A of the Act have been audited. Disclosures required by the Act cover both Brambles Limited (Company) and the Group. 2. REMUNERATION COMMITTEE The Remuneration Committee (Committee) operates under delegated authority from Brambles’ Board. The Committee’s responsibilities include recommending overall remuneration policy to the Board, approving the remuneration arrangements for the Executive Directors, the ELT and the Company Secretary and reviewing the remuneration policy and individual arrangements for other executives. More detail on the Remuneration Plan and the Committee’s membership, Charter, activities and advisers, can be found on the Brambles website at www.brambles.com under “Corporate Governance”, “Committees of the Board”, “Remuneration Committee”. 3. REMUNERATION POLICY AND STRUCTURE The Board has adopted a remuneration policy for the Group which is consistent with its business objectives and designed to attract and retain high calibre executives, align executive rewards with the creation of shareholder value, and motivate executives to achieve challenging performance levels. When setting and reviewing remuneration levels for the Executive Directors and other members of the ELT, the Committee considers the experience, responsibilities and performance of the individual and takes into account market data relevant to the individual’s role and location, as well as Brambles’ size, geographic spread and complexity. The Group’s remuneration policy is to pay at the median level of remuneration for target capability and performance and to provide upper quartile rewards for outstanding capability and performance. BRAMBLES LIMITED ANNUAL REPORT 2010 31 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED The structure of Brambles’ current incentive arrangements was approved by shareholders at the 2008 Annual General Meeting. These plans received a 96% vote in favour and amended the previous long term incentive plans approved by shareholders in 2006. The Board made a minor amendment to the 2006 Share Plan rules in 2009. This change stipulates that executives who leave the Company under certain circumstances, such as retirement or redundancy, would not receive accelerated vesting of their STI Share Awards and would instead need to wait until the completion of the three-year performance period to receive any awards. Remuneration is divided into those components which are not directly linked to target capability and company performance (that is, they are “Fixed”), and those components which are variable and are directly linked to Brambles’ ﬁnancial performance and the delivery of personal and safety objectives (that is, they are “At Risk”). 3.1 Fixed remuneration Fixed remuneration generally consists of base salary and beneﬁts. However, as is common elsewhere, the Chief Executive Ofﬁcer, who is based in Australia, is provided with an annual Total Fixed Remuneration (TFR) amount and has ﬂexibility as to the precise mixture of cash and beneﬁts he receives within that amount. This may include motor vehicles, club membership, and disability and life insurance. Executives who are not covered by TFR may receive similar beneﬁts in addition to their base salary. As a global group, Brambles operates an international mobility policy which can include the provision of housing, payment of relocation costs and other location adjustment expenses where appropriate. Vesting date ↓ (3rd anniversary of equity award date) Equity award date↓ (Normally made late August) The manner in which the awards operate is summarised in the following diagram: STI CASH AWARD Size determined by performance against Key Performance Indicators (see section 4.1 for details) for the Year. STI SHARE AWARD Size normally derived from size of STI cash award. Awards vest subject to continued employment at 3rd anniversary of grant. = LTI SHARE AWARD Size calculated as % of salary/TFR. TSR – Out performance of median ranked company. Full vesting for out performance of 25%. Sales revenue CAGR with BVA hurdle. ↑ Start of Financial Year 1 End of ↑ Financial Year 3 PERFORMANCE PERIOD The market value at the date of grant of all equity awards made to any person in any ﬁnancial year should not normally (and did not during the Year) exceed two times their TFR or equivalent. The STI and LTI share awards have a maximum life of six years from grant date. 3.2 At Risk remuneration In addition to those elements of remuneration which are Fixed, a signiﬁcant element of executives’ total potential reward is required to be At Risk. This means that an individual’s maximum potential remuneration may be achieved only in circumstances where they have met challenging objectives in terms of Brambles’ overall ﬁnancial performance and sustainable returns for all shareholders. The proportion of executives’ remuneration packages at risk is illustrated in section 3.3. Brambles’ Securities Trading Policy applies to awards granted under the incentive arrangements described above. That policy prohibits designated persons from acquiring ﬁnancial products or entering into arrangements which have the effect of limiting exposure to the risk of price movements of Brambles securities. It is a condition of senior executives’ employment contracts that they are required to comply with all Brambles policies (including the Securities Trading Policy). Management declarations are obtained twice yearly and include a statement that all policies have been complied with. At Risk remuneration is provided to Brambles’ executives through short term incentive (STI) and long term incentive (LTI) arrangements. All the incentive plans under which awards to Executive Directors and the Disclosable Executives are still to vest or be exercised are summarised in sections 7.2 and 7.3. Brambles’ At Risk remuneration includes three different types of award, an STI cash award, STI share award and an LTI share award. Total Shareholder Return (TSR) measures the returns that a company has provided for its shareholders, reﬂecting share price movements and reinvestment of dividends over a speciﬁed period. Deﬁnitions of BVA, TSR, and Compound Annual Growth Rate (CAGR) and the methods by which they are calculated are included in the Glossary on pages 119 to 120. More detailed information on Brambles’ current incentive arrangements is set out in section 4, and in the relevant plan rules, which can be found on the Brambles website. 3.3 Remuneration packages – Fixed vs. At Risk Brambles’ executive remuneration mix is heavily tied to performance. At Risk remuneration is performance based and is made up of short term and long term incentives. It represents approximately 65-70% of the executive’s remuneration package (based on target performance for STI and using the fair market value for share awards). The following bar graph illustrates the remuneration mix. It shows the potential remuneration mix if an executive hits all targets and the mix based on actual payments, including STI cash awards made in respect to the Year, and STI and LTI share awards that vested during the Year. Share awards that vested during the Year were granted as at 29 August 2007. As shown in the following graph, the actual remuneration of executives is between 41% and 68% less than the potential, due to low STI payments and LTI share awards not vesting during the Year. 32 BRAMBLES LIMITED ANNUAL REPORT 2010 100% 80% 37% 60% I N O T A R E N U M E R REMUNERATION MIX SHOWING POTENTIAL AT TARGET AND ACTUAL 37% 34% 34% 37% 37% 37% 37% 34% 37% Fixed STI LTI 30% 0% 34% 33% 40% 15% 0% 9% 0% 8% 0% 33% 25% 34% 0% 34% 0% 34% 18% 18% 0% 28% 34% 0% 13% 33% 0% 19% 34% 0% 3% 20% 0% 33% 33% 29% 29% 33% 33% 33% 33% 29% 29% 29% 29% 29% 29% 29% 29% 33% 33% 29% 29% l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P T J GORMAN1 G J HAYES1 J L INFINGER1 J R A JUDD1 P S MACKIE1 E E POTTS J D RITCHIE1 K J SHUBA1 N P SMITH R J WESTERBOS1 EXECUTIVES Details of the percentages of the STI cash award expected to be paid to Disclosable Executives and the percentages of STI cash award forfeited in respect to performance during the Year, are shown below. REMUNERATION MIX SHOWING POTENTIAL AT TARGET AND ACTUAL Actual STI cash paid and forfeited in 2010 100% 4.1 STI Key Performance Indicators As outlined in section 3.2, executives have the opportunity to receive an annual STI cash and share award based on performance against KPIs (the share element vests three years after the award). Fixed STI LTI 1 The potential remuneration shown is for the entire 12 month period, but these executives did not hold their current position for the whole Year. 34% 34% The STI ﬁnancial KPIs chosen for the Year (in addition to personal strategic and safety objectives) were Brambles Value Added (BVA) and 34% 37% Cash Flow from Operations (Cash Flow), plus (for the CEO and the CFO) Proﬁt After Tax (PAT). For CHEP and Recall Group Presidents, 33% 34% KPIs included Brambles BVA and their respective business unit (CHEP or Recall) BVA and Cash Flow. 0% 8% 33% 13% 33% 19% 25% 0% 0% 0% 29% 29% 33% 33% 33% 33% 33% A focus on BVA helps ensure the efﬁcient use of capital within 33% Brambles. PAT captures interest and tax charges which are not directly incorporated in BVA. The reintroduction of Cash Flow in 2010 was to ensure a heightened focus on the generation of cash for the Company. This measure will continue to be used as an STI KPI in 2011. J L INFINGER1 J R A JUDD N P SMITH K J SHUBA l a i t n e t o P l a i t n e t o P l a i t n e t o P l a i t n e t o P l a u t c A l a u t c A l a u t c A l a u t c A The key levels of performance possible against each of the ﬁnancial KPIs relevant to the STI awards for the Year were: Threshold (the minimum necessary to qualify for the awards); Target (where the performance targets have been met); and Maximum (where the targets have been signiﬁcantly exceeded, and the related rewards have reached their upper limit). The actual levels of performance achieved for the Year against the ﬁnancial KPIs are summarised in the following table. NAME 80% 37% 37% I 60% N O T A Executive Directors R E 30% N U T J Gorman 40% M E R 15% 0% 34% G J Hayes 20% 33% 33% Current Key Management Personnel 29% 29% 0% ACTUAL STI CASH AS A % OF MAXIMUM STI CASH 37% FOR YEAR ENDED 30 JUNE 2010 37% % OF MAXIMUM STI CASH FORFEITED 37% 37% FOR YEAR ENDED 30 JUNE 2010 0% 28% 34% 0% 9% 34% 34% 0% 34% 0% 65% 57% 0% 3% 35% 18% 43% 18% 29% 29% 29% 29% 29% 29% 29% 29% l a i t n e t o P l a u t c A l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a u t c A l a i t n e t o P l a i t n e t o P T J GORMAN1 G J HAYES1 J D RITCHIE1 R J WESTERBOS1 P S MACKIE1 P S Mackie 63% l a u t c A 56% 57% l a u t c A l a i t n e t o P E E POTTS 37% EXECUTIVES 42% J L Inﬁnger J R A Judd E E Potts 44% 43% 58% J D Ritchie K J Shuba N P Smith R J Westerbos 41% 39% 44% 67% 59% 61% 56% 33% 4. PERFORMANCE OF BRAMBLES Brambles’ remuneration policy is directly linked to its performance, both in terms of ﬁnancial performance and the creation of shareholder wealth. This link is achieved in the following ways: – – by placing a signiﬁcant portion of executives’ remuneration At Risk; by selecting appropriate Key Performance Indicators (KPIs) for annual STI cash awards and performance conditions for equity awards; and by requiring those KPIs or conditions to be met in order for the At Risk component of remuneration to be awarded or to vest. – The relationship between Brambles’ remuneration policy and its performance over the Year and the previous four ﬁnancial years is set out in section 4.2.1. The table in section 4.2.1 shows the level of vesting of awards triggered by performance over those periods. 1 The potential remuneration shown is for the entire 12 month period, but these executives did not hold their current position for the whole Year. BRAMBLES LIMITED ANNUAL REPORT 2010 33 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED Performance against KPIs in 2010 KPIs LEVEL OF PERFORMANCE ACHIEVED DURING THE YEAR2 Brambles BVA Brambles PAT Brambles Cash Flow CHEP Americas BVA Between Threshold and Target Between Target and Maximum Achieved Target Below Threshold CHEP Americas Cash Flow Achieved Target CHEP EMEA BVA Between Target and Maximum CHEP EMEA Cash Flow Achieved Target CHEP Asia-Paciﬁc BVA Between Target and Maximum CHEP Asia-Paciﬁc Cash Flow Achieved Target Recall BVA Between Target and Maximum Recall Cash Flow Achieved Target In addition to ﬁnancial measures, which comprise 60-70% of each member of the ELT’s STI, 30-40% of each STI is based on the achievement of personal non-ﬁnancial measures such as the delivery of objectives relating to business strategy, growth, customer, people and talent management and safety. For example, the Group President CHEP Americas’ personal objectives included KPIs associated with the delivery of the Better Everyday program. Brambles regards the safety of its people as a major priority and the ELT has Group-wide oversight of the Zero Harm Charter. This means that all ELT members will lose any STI entitlement under their safety objective if a fatality occurs anywhere in the Brambles Group. The table in section 3.3 illustrates the impact of the above results on the level of STI cash award payable and forfeited during the Year. 4.2 Equity award vesting conditions As outlined in section 3.2, Disclosable Executives also have the opportunity to receive equity awards in the form of LTI share awards. Vesting only occurs three years from the date of award and depends on Brambles’ TSR performance relative to the S&P/ASX100 Index over a three year performance period (Performance Period), as well as, in the most recent awards, Brambles’ performance against sales revenue growth and BVA hurdles, as described in the following tables. A relative TSR performance condition helps ensure that value is only delivered to participants if the investment return actually received by Brambles’ shareholders is sufﬁciently high relative to the return they could have received by investing in a portfolio of alternative stocks over the same period of time. Details of the equity awards granted to Disclosable Executives and the performance hurdles which apply to each of the awards are set out in section 7.2. The table in section 4.2.1 illustrates the relationship between Brambles’ remuneration policy and performance, showing the level of vesting of equity awards triggered by performance over various periods to 30 June 2009 and to 30 June 2010. 4.2.1 PERFORMANCE AWARDS UNDER THE 2004 AND 2006 PERFORMANCE SHARE PLANS Awards under the above Performance Share Plans are subject to performance hurdles based on relative TSR. The following table details, for awards made during the ﬁnancial years indicated, the performance against the applicable hurdle. Level of vesting of LTI and Enhanced STI share awards based on TSR performance AWARDS MADE DURING FINANCIAL YEAR PERFORMANCE CONDITION START OF PERFORMANCE PERIOD RANKING PERFORMANCE (OUT OF 100) VESTING TRIGGERED (% OF ORIGINAL AWARD) VESTING TRIGGERED (% OF ORIGINAL AWARD) PERIOD TO 30 JUNE 2009 PERIOD TO 30 JUNE 2010 20073 20083 Relative TSR4 21 February 2007 Relative TSR4 1 July 2007 814 684 N/A N/A The following table provides similar details for awards which have yet to be tested. 0% Enhanced STI Awards 0% LTI Awards 0% Enhanced STI Awards 0% LTI Awards AWARDS MADE DURING FINANCIAL YEAR PERFORMANCE CONDITION START OF PERFORMANCE PERIOD RANKING PERFORMANCE (OUT OF 100) VESTING IF CURRENT PERFORMANCE IS MAINTAINED UNTIL EARLIEST TESTING DATE (% OF ORIGINAL AWARD) PERIOD TO 30 JUNE 2010 20095 20105 Relative TSR4 1 July 2008 Relative TSR4 1 July 2009 544 604 0% LTI Awards 0% LTI Awards 2 Financial targets set for the forthcoming ﬁnancial year under Brambles’ incentive plans will not constitute proﬁt forecasts and the Board is conscious that their publication may therefore be misleading. Accordingly Brambles does not publish in advance the coming year’s ﬁnancial targets for incentive purposes. Brambles’ BVA performance for the Year is however, set out on page 10. 3 These performance share rights were granted under the 2006 Share Plan prior to its amendment in November 2008. Rights under this Plan vest on the third anniversary of their grant date subject to meeting a relative TSR performance condition. If the performance condition is not met the rights will lapse. 4 The average ranking of the Company’s TSR against the S&P/ASX 100 Index. 5 These performance share rights were granted under the 2006 Share Plan. Rights under this Plan vest on the third anniversary of their grant date. 50% of the award will vest subject to meeting a relative TSR performance condition. The balance of the award will vest subject to sales revenue growth and BVA performance. The vesting matrix for this component of the 2010 award is detailed at section 4.2.2. 34 BRAMBLES LIMITED ANNUAL REPORT 2010 4.2.2 LTI AWARD VESTING CONDITIONS In November 2008, shareholders approved changes to the 2006 Share Plan, to introduce two sets of performance hurdles, each with equal weighting. Half of the LTI share award continues to be measured on relative TSR, now based on the extent to which the Brambles TSR over the Performance Period exceeds the TSR of the median ranked company in the S&P/ASX100 Index over the three year period. The other half of the LTI share award is measured against the achievement of proﬁtable growth objectives. The growth element of the LTI share award is designed to incentivise both long term revenue and BVA growth. Vesting is based on achievement of sales revenue with three year performance hurdles set on a compound annual growth rate basis. The sales revenue growth targets are underpinned by BVA hurdles. This is designed to drive proﬁtable business growth, to ensure quality of earnings is maintained at a strong level and to deliver increased shareholder value. Both sales revenue growth and BVA are measured in constant currency. The target matrix is set by the Remuneration Committee and approved by the Board for each LTI award and published in the subsequent Remuneration Report and Financial Statements. This allows the Board to set targets for each LTI share award which reward strong performance in the light of the prevailing and forecast economic and trading conditions. The following table provides the vesting framework for the relevant awards made during the Year. These targets are lower than those set for 2009-2011 to reﬂect the signiﬁcantly different global economic and market conditions. If current performance is maintained until the performance hurdles are assessed, the awards will not vest. LTI performance matrix for ﬁnancial years 2010 to 2012 VESTING % CUMULATIVE THREE YEAR BVA US$M AT FIXED JUNE 2009 FX RATES 800 – 30% 50% 70% 90% 100% 1,000 30% 50% 70% 90% 100% 100% 1,200 50% 70% 90% 100% 100% 100% SALES REVENUE CAGR* 3% 4% 5% 6% 7% 8% *Three year compound annual growth rate (CAGR) over base year 4.2.3 ALL EMPLOYEE SHARE PLAN At the 2008 Annual General Meeting, shareholders gave approval to an all employee share plan (MyShare), which was implemented in January 2009. Since the initial launch, more than 20% of Brambles employees from more than 25 countries have elected to participate in MyShare. The number of shares purchased by employees (Acquired Shares) as at 30 June 2010 is 723,849 (excluding shares acquired through the dividend share plan). At the end of March 2011, the ﬁrst full cycle of MyShare will be completed when Brambles makes a matching number of shares available to employees. It is anticipated that this allocation will result in the MyShare employee shareholding representing 0.1% of issued capital. On completion of the ﬁrst full cycle of MyShare, a review will be undertaken. Members of the ELT are eligible to participate in MyShare. Shares purchased under MyShare are included in section 5.5, whereas matching share rights (Matching Awards) allocated during the Year are shown in section 5.6. BRAMBLES LIMITED ANNUAL REPORT 2010 35 5.1.4 G J HAYES Greg Hayes commenced as Chief Financial Ofﬁcer on 16 November 2009 and became an Executive Director of Brambles on 1 December 2009. Greg Hayes’ contract provides for the following remuneration package: – – base salary of A$1,250,000; and participation in Brambles’ incentive plans in line with current policy: > STI opportunity of 60% of base salary (target) and 90% (maximum); Grant of STI share awards, the value of which will match the STI payment each year; and Grant of annual LTI share awards equal to 130% of base salary. > > 5.2 Service contracts Current Executive Directors and Key Management Personnel are on continuing contracts which may be terminated without cause by the employer giving 12 months’ notice, or by the employee giving six months’ notice, with payments in lieu of notice calculated by reference to TFR/annual base salary. The termination conditions for Jim Ritchie, Kevin Shuba, Elton Potts and Jim Inﬁnger include payments in lieu of notice calculated by reference to annual base salary and health insurance beneﬁts. These standard service contracts require that any termination payments made would be reduced by any value to be received under any new employment. Other than Peter Mackie6, executives remunerated on a base salary approach receive pension contributions of 15% of base salary. DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED 5. EXECUTIVE DIRECTORS AND DISCLOSABLE EXECUTIVES 5.1 Executive Director changes The following changes occurred in respect to Brambles’ Executive Directors during the Year. Each of the departures was managed under the provisions of the existing employment contracts. The details were disclosed to the ASX on 6 October 2009 (in respect to Mike Ihlein and Tom Gorman) and 5 November 2009 (in respect to Liz Doherty and Greg Hayes). 5.1.1 M F IHLEIN Mike Ihlein retired as Chief Executive Ofﬁcer and an Executive Director on 1 November 2009. He agreed to remain in Brambles’ employ until 1 March 2010 to assist with the transition to the new Chief Executive Ofﬁcer. On retirement from Brambles, Mike Ihlein received the following payments: – – – – six months’ TFR (inclusive of payment in lieu of notice period); payment for any accrued annual leave and long service leave at the date of retirement; pro-rated STI payment based on performance against objectives for the Year; and relevant good leaver treatment in respect of his previously granted awards under the 2006 Share Plan. 5.1.2 M E DOHERTY Liz Doherty resigned from the Board on 16 November 2009. Her employment with Brambles ceased on 30 November 2009. On cessation of employment she received the following: – – 12 months’ TFR (inclusive of payment in lieu of notice period); and a payment in consideration for the unvested Brambles shares that Liz Doherty was granted on joining in December 2007. These shares were granted to her in consideration for the long term incentive shares that she forfeited on leaving Tesco. 5.1.3 T J GORMAN Tom Gorman was appointed by the Board to succeed Mike Ihlein as Chief Executive Ofﬁcer on 1 November 2009 and became an Executive Director of Brambles on 1 December 2009. Tom Gorman’s contract provides for the following remuneration package: – – TFR comprising salary and all other beneﬁts (other than incentive plans) of A$1,800,000; and participation in Brambles’ incentive plans in line with current policy: > > STI opportunity of 45% of TFR (target) and 67% (maximum); grant of STI share awards, the value of which will match the STI payment each year; and grant of annual LTI share awards equal to 115% of TFR. > 6 Peter Mackie receives employer superannuation (pension) contributions of 21% of base salary for income up to £153,700 and 15% of base salary for any amount above £153,700. 36 BRAMBLES LIMITED ANNUAL REPORT 2010 Contract terms for executives NAME AND ROLE(S) Executive Directors CONTRACT TYPE AND ANY SPECIAL TERMS SALARY/TFR AS AT 30 JUNE 2010 UNLESS INDICATED Thomas Joseph Gorman Group President, CHEP Europe, Middle East and Africa until 31 October 2009. Chief Executive Ofﬁcer from 1 November 2009. Continuing contract. TFR (including pension contributions) amount of A$1,800,000 Continuing contract. Base salary of A$1,250,000 Gregory John Hayes Chief Financial Ofﬁcer from 16 November 2009. Former Executive Directors Michael Francis Ihlein Chief Executive Ofﬁcer until 1 November 2009. Mary Elizabeth Doherty Chief Financial Ofﬁcer until 16 November 2009. Continuing contract. On death, estate entitled to 1.3 times TFR amount. Continuing contract. On death, estate entitled to 1.3 times TFR amount. TFR (including pension contributions) amount of A$2,363,000 as at date of cessation of employment (1 March 2010) TFR (including pension contributions) of A$1,260,000 as at date of cessation of employment (30 November 2009) Current Key Management Personnel James David Ritchie President, CHEP USA until 14 January 2010. Group President, CHEP Americas from 15 January 2010. Rudolph Joseph Westerbos Group President CHEP Europe, Middle East and Africa from 19 April 2010. Kevin John Shuba Group President, CHEP Americas until 14 January 2010. Group Senior Vice President and Customer Development Ofﬁcer from 15 January 2010. E Elton Potts Group President and Chief Operating Ofﬁcer, Recall Peter Stewart Mackie President, CHEP Europe until 31 October 2009. Acting Group President, CHEP Europe, Middle East and Africa from 1 November 2009 to 18 April 2010. Group President, CHEP Asia-Paciﬁc from 19 April 2010. Nicholas Peter Smith Group Senior Vice President, Human Resources Jasper Rayner Augusto Judd Group Senior Vice President – Strategic Development until 15 March 2010. Group Senior Vice President and Head of Innovation from 16 March 2010. James Louis Inﬁnger Group Senior Vice President and Chief Information Ofﬁcer from 19 October 2009. Former Senior Executive Craig Andrew van der Laan de Vries7 Group President, CHEP Asia-Paciﬁc and Global Head of Mergers and Acquisitions until 18 December 2009. Continuing contract. Base salary of US$530,000 Continuing contract. Base salary of €390,000 Continuing contract. Base salary of US$530,000 Continuing contract. Base salary of US$530,000 Continuing contract. Base salary of A$550,000 Continuing contract. Base salary of A$575,000 Continuing contract. Base salary of A$500,000 Continuing contract. Base salary of US$425,000 Continuing contract. On death, estate entitled to 0.5 times TFR amount and 0.5 times average annual STI paid to him over three previous years. TFR (including pension contributions) amount of A$1,025,000 as at date of cessation of employment (18 December 2009). 7 Craig van der Laan received payment in lieu of a 12 month notice period, calculated by reference to annual TFR and the average STI cash award received over the previous three years. BRAMBLES LIMITED ANNUAL REPORT 2010 37 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED 5.3 Total remuneration and beneﬁts for the Year The following table shows details of the total remuneration and beneﬁts provided to the Disclosable Executives for the Year, together with prior year comparatives. This includes one-off contractual payments to departing executives. The TFR amounts shown for Tom Gorman, Mike Ihlein, Liz Doherty and Craig van der Laan, are those to which they were entitled for the Year, and which they elected to receive in a combination of one or more of the following elements: cash salary payments; pension contributions; and motor vehicle beneﬁts. SHORT TERM EMPLOYEE BENEFITS POST EMPLOYMENT BENEFITS OTHER SHARE-BASED PAYMENT NAME YEAR CASH/ SALARY/ TFR/FEES US$’000 CASH BONUS US$’000 NON- MONETARY BENEFITS8 US$’000 SUPER- ANNUATION US$’000 TERMINATION/ SIGN-ON PAYMENTS/ RETIREMENT BENEFITS US$’000 OTHER US$’000 TOTAL BEFORE EQUITY US$’000 OPTIONS/ AWARDS US$’000 AS % OF TOTAL TOTAL US$’000 Executive Directors T J Gorman G J Hayes 20109 2009 20109 2009 Former Executive Directors M F Ihlein14 M E Doherty14 Totals 20109 2009 20109 2009 2010 2009 1,408 770 709 – 1,492 2,006 488 973 4,097 3,749 Current Key Management Personnel J L Inﬁnger J R A Judd P S Mackie E E Potts J D Ritchie K J Shuba N P Smith R J Westerbos 2010 2009 20109 2009 2010 2009 2010 2009 2010 2009 2010 2009 20109 2009 2010 2009 Former Senior Executive C A van der Laan14 20109 Totals 2009 2010 2009 301 – 592 701 443 – 513 497 509 – 563 554 544 461 146 – 425 945 4,036 3,158 692 94 349 – 191 19 1 – 441 209 – – – 1,482 94 99 – 252 41 276 – 278 53 164 – 184 – 296 54 65 – – 76 38 56 21 457 78 375 – 4 5 136 – – – 56 – 8 4 1 – 3 – – 3 1,614 224 583 12 27 80 95 – – – – – 122 80 37 – 66 55 69 – 67 80 66 – 75 71 76 62 16 – – – 472 268 – – – – 1,080 – 1,554 – 2,634 – – – – – – – – – 217 – – – – – 445 – 1,876 – 2,538 – 48 21 – – – – – – 48 21 10 – – – 17 – 18 18 13 – 19 19 – – 1 – – – 78 37 2,366 984 1,154 – 3,222 2,044 2,098 994 8,840 4,022 822 – 914 802 941 – 876 648 1,025 – 849 648 917 577 676 – 2,301 1,024 9,321 3,699 438 293 288 – 952 1,543 16% 23% 20% – 23% 43% (351) (20%) 323 1,327 2,159 25% – – 2,804 1,277 1,442 – 4,174 3,587 1,747 1,317 10,167 6,181 291 – 242 354 122 – 320 407 375 – 243 373 120 106 – – 26% 1,113 – 21% 31% 12% – 27% 39% 27% – 22% 37% 12% 16% – – – 1,156 1,156 1,063 – 1,196 1,055 1,400 – 1,092 1,021 1,037 683 676 – (1,028) (81%) 999 685 2,239 49% – – 1,273 2,023 10,006 5,938 8 Non-monetary beneﬁts include car parking, personal/spouse travel, club membership, motor vehicles, relocation and storage costs and fringe beneﬁts tax. 9 The year-on-year comparison of remuneration costs is affected by the movement of exchange rates from A$1=US$0.7479 for 2009 to A$1=US$0.8813 for 2010. Note: Footnote 14 appears on page 39. 38 BRAMBLES LIMITED ANNUAL REPORT 2010 5.4 Equity-based awards The following table shows details of equity-based awards made to the Disclosable Executives during the Year. STI and LTI share awards were made under the 2006 Share Plan, the terms and conditions of which are available in sections 7.2 and 7.3 (see plan numbers 18-20). Matching Awards were made under MyShare, the terms and conditions of which are available in sections 7.2 and 7.3 (plan numbers 28-40). Neither Dolph Westerbos or Craig van der Laan were awarded equity-based awards during the Year. EQUITY-BASED AWARDS NUMBER VALUE AT GRANT US$’00010 NAME TYPE OF AWARD Executive Directors T J Gorman STI LTI G J Hayes MyShare Matching Total STI LTI Total Former Executive Directors M F Ihlein14 MyShare Matching Total M E Doherty14 MyShare Matching Total Current Key Management Personnel J L Inﬁnger STI LTI J R A Judd P S Mackie E E Potts J D Ritchie K J Shuba N P Smith MyShare Matching Total STI LTI MyShare Matching Total STI LTI MyShare Matching Total STI LTI MyShare Matching Total STI LTI MyShare Matching Total STI LTI MyShare Matching Total STI LTI MyShare Matching Total 15,158 311,168 668 326,994 – 405,870 405,870 483 483 440 440 60,092 68,490 135 128,717 8,305 75,162 878 84,345 4,504 48,604 593 53,701 8,487 94,564 611 103,662 – 65,266 224 65,490 – 111,034 611 111,645 10,753 86,436 737 97,926 78 1,329 4 – 1,733 1,733 3 3 2 2 310 292 1 603 43 321 5 369 23 208 3 234 44 404 3 451 – 279 1 280 – 474 4 478 56 369 4 429 5.5 Shareholdings The table below shows details of Brambles Limited ordinary shares in which the Disclosable Executives held relevant interests, being issued shares held by them and their related parties. Over the ﬁve year period commencing from the date of employment with Brambles, the Chief Executive Ofﬁcer must, as a minimum, achieve and maintain a shareholding equal to 150% of TFR before tax. Other members of the ELT must, as a minimum, achieve and maintain a shareholding equal to 75% of TFR or 100% of base salary before tax. ORDINARY SHARES BALANCE AT THE START OF THE YEAR CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR11 12 Executive Directors T J Gorman G J Hayes Former Executive Directors14 1,411 M F Ihlein M E Doherty 245 – 783,524 10,151 685 – 489 441 Current Key Management Personnel J L Inﬁnger J R A Judd P S Mackie E E Potts J D Ritchie K J Shuba N P Smith R J Westerbos Former Senior Executive14 – 135 50,590 14,809 245 50,689 609 7,437 – 39,941 28,033 18,419 292 – 754 – 93013 – 784,01315 10,59216 13513 65,399 85413 58,126 39,941 46,452 1,04613 – C A van der Laan 15,000 34,779 49,779 10 The total value of the relevant equity award(s) is valued as at the date of grant using the methodology set out in section 7.1. The minimum possible future value of all awards yet to vest is zero, and is based on the performance/service conditions not being met. The maximum possible future value of awards yet to vest is equal to the value at grant. 11 On 31 July 2010 the following Disclosable Executives acquired ordinary shares under MyShare, which are held by Computershare Nominees CI Limited: Tom Gorman (76), Jim Inﬁnger (42), Jasper Judd (77), Peter Mackie (77), Elton Potts (69), Jim Ritchie (69), Kevin Shuba (69) and Nick Smith (77). 12 Of which Computershare Nominees CI Limited holds 592 shares for Liz Doherty, 1,029 for Jasper Judd, 867 for Elton Potts, 224 for Jim Ritchie and 864 for Kevin Shuba. 13 Held by Computershare Nominees CI Limited. 14 Closing balances are shown as at cessation of employment for former employees. Mike Ihlein’s employment ceased on 1 March 2010, Liz Doherty’s employment ceased on 30 November 2009 and Craig van der Laan’s employment ceased on 18 December 2009. 15 Of which 115,000 shares were held by UBS Wealth Management Australia Pty Limited for the Ihlein Family Superannuation Fund, 1,000 shares were held in the form of CREST Depository Interests by Citibank and 781 shares were held by Computershare Nominees CI Limited. 16 Of which 592 shares were held by Computershare Nominees CI Limited. BRAMBLES LIMITED ANNUAL REPORT 2010 39 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED 5.6 Interests in options/share rights17 The table below shows details of options/share rights over Brambles Limited ordinary shares in which the Disclosable Executives held relevant interests, in the form of: – – options, being awards made under the 2001 Option Plans; share rights, being awards made before 30 June 2004 under the 2001 Share Plans, awards made on 21 October 2005 under the 2004 Share Plans, and awards made on 19 January 2007, 29 August 2007 and 27 August 2008 under the 2006 Share Plan; Matching Awards being share rights awarded during the Year under MyShare. – BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR EXERCISED DURING THE YEAR18 LAPSED DURING THE YEAR NAME NUMBER NUMBER20 21 VALUE AT GRANT US$’000 NUMBER VALUE AT EXERCISE US$'000 NUMBER VALUE AT LAPSE US$’00022 BALANCE AT THE END OF THE YEAR19 VESTED AND EXERCISEABLE AT END OF YEAR NUMBER NUMBER Executive Directors T J Gorman G J Hayes 219,688 – 326,994 405,870 1,411 1,733 Former Executive Directors M F Ihlein14 M E Doherty14 809,734 246,453 483 440 Current Key Management Personnel J L Inﬁnger J R A Judd P S Mackie E E Potts J D Ritchie K J Shuba N P Smith – 128,717 177,446 110,041 210,106 123,368 334,421 97,463 84,345 53,701 103,662 65,490 111,645 97,926 Former Senior Executive 3 2 603 369 234 451 280 478 429 – – – – – 13,93123 6,27823 9,95523 58,71823 134,53424 – – – – – – 95 40 66 291 833 – – – – – 546,682 405,870 – – 110,038 567 700,179 68,71323 – – 28,668 17,701 27,109 37,538 28,136 – 246,893 – 128,717 148 219,192 91 139,763 140 276,704 266 92,602 145 283,396 – – 195,389 – – – – – – – – – C A van der Laan14 442,662 – – 34,77923 237 49,507 255 358,376 17 Of the awards detailed in section 7.3 the following plan numbers are relevant to Disclosable Executives: Tom Gorman (3-8, 12-14, 18-20); Greg Hayes (19-20); Mike Ihlein (10, 12-14, 24-35); Liz Doherty (9, 12-14, 24-33); Jim Inﬁnger (18-20, 36-40); Jasper Judd, Peter Mackie, and Elton Potts (3-8,12-14,18-20,24-40); Jim Ritchie (15-20, 36-40), Kevin Shuba (1-8, 12-14, 19-20, 24-40); Nick Smith (12-14, 18-20, 24-40) and Craig van der Laan (3-8, 12-14). Lapses occurred for Mike Ihlein, Jasper Judd, Peter Mackie, Elton Potts, Kevin Shuba and Craig van der Laan from plan numbers 4 and 5. Jasper Judd, Peter Mackie, Elton Potts, Kevin Shuba and Craig van der Laan exercised from plan number 3. In addition Kevin Shuba exercised from plan numbers 1 and 2. Jim Ritchie exercised an award from plan number 15, and his awards under plan number 17 lapsed. 18 Of the options/rights exercised during the Year, no monies were paid on exercise, with the exception of Kevin Shuba who paid US$417,529 on exercise of 104,010 options during the Year. 19 Since the end of the Year, on 30 July 2010 the following Executive Directors and Key Management Personnel received Matching Awards under MyShare: Tom Gorman (76), Jim Inﬁnger (42), Jasper Judd (77), Peter Mackie (77), Elton Potts (69), Jim Ritchie (69), Kevin Shuba (69) and Nick Smith (77). 20 During the Year, 3,582,251 performance share rights were granted under the 2006 Share Plan, of which 326,326 were granted to Tom Gorman and 405,870 were granted to Greg Hayes, prior to their appointment as Executive Directors. 21 During the Year, 537,154 Matching Awards were granted under MyShare, of which 483 were granted to Mike Ihlein and 440 were granted to Liz Doherty. Approval for the issue of these securities was obtained under ASX Listing Rule 10.14 at the AGM held on 25 November 2008. 668 Matching Awards were granted to Tom Gorman under MyShare. Tom Gorman’s application to continue to participate in MyShare was accepted before he became an Executive Director. 22 “Lapse” in this context means that the award was forfeited due to either the service or performance conditions not being met. 23 Vested during the Year. 24 Of which 9,326 vested during the Year. Note: Footnote 14 appears on page 39. 40 BRAMBLES LIMITED ANNUAL REPORT 2010 6. NON-EXECUTIVE DIRECTORS’ DISCLOSURES 6.1 Non-executive Directors’ remuneration policy Non-executive Directors’ fees are determined by the Executive Directors, with the Non-executive Directors taking no part in the discussion or decision relating to their fees. In setting the fees, advice is sought from external remuneration consultants on the appropriate level of fees, taking into account the responsibilities of Directors in dealing with the complexity and global nature of Brambles’ affairs and the level of fees paid to Non-executive Directors in comparable companies. Since 1 January 2007, Non-executive Directors’ fees have been ﬁxed and denominated in US dollars and then converted each month into the currency of the country in which each individual Non-executive Director resides. Following four years of unchanged fees, during the Year the Chairman initiated a review of Non-executive Director fees and the relativity between his fee and those of other Non-executive Directors. The aim of the review was to simplify the structure of the fees and ensure they properly reﬂect current market rates. At the completion of the review, it was decided that effective from 1 February 2010, Non-executive Directors’ fees would be denominated in Australian dollars, other than for UK based Non-executive Directors whose fees would be denominated in Pounds Sterling. This review led to a reduction in the Chairman’s fee and an increase in other Non-executive Directors’ fees. This review established the following fee structure: Chairman Australia based Non-executive Directors UK based Non-executive Directors25 Fee supplement for Audit Committee Chairman26 Fee supplement for Remuneration Committee Chairman25 26 A$543,333 A$173,000 £80,000 A$36,000 £15,000 The next fee review will take effect from 1 January 2011. 6.2 Non-executive Directors’ appointment letters Directors are appointed for an unspeciﬁed term but are subject to election by shareholders at the ﬁrst Annual General Meeting after their initial appointment by the Board. Under Brambles Limited’s constitution, no member of the Board may serve for more than three years from the date of appointment without being re-elected by shareholders. Re-appointment is not automatic. The Board reviews whether retiring Directors should stand for re-election, having regard to their performance and the contribution of their individual skills and experience to the desired overall composition of the Board. Letters of appointment for the Non-executive Directors, which are contracts for service but not contracts of employment, have been put in place. These letters conﬁrm that the Non-executive Directors have no right to compensation on the termination of their appointment for any reason, other than for unpaid fees and expenses for the period actually served. The Non-executive Directors do not participate in Brambles’ short or long term incentive plans, nor do they receive any beneﬁts in kind. Details of the years in which the Non-executive Directors are next due for re-election by shareholders are shown in the Corporate Governance Statement in section 2. 6.3 Non-executive Directors’ remuneration for the Year The fees and other beneﬁts provided to Non-executive Directors during the Year and during the prior year are set out in the table below. The full names of the Non-executive Directors and the dates of any changes in Non-executive Directors are shown in the Directors’ Report – Other Information. Any contributions to personal superannuation or pension funds on behalf of the Non-executive Directors are deducted from their overall fee entitlements. 25 Luke Mayhew, the Remuneration Committee Chairman, is currently the only UK based Non-executive Director. 26 The fee supplement is only payable to a Committee Chairman who is not also the Board Chairman. BRAMBLES LIMITED ANNUAL REPORT 2010 41 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED Table 6.3 Non-executive Directors’ remuneration for the Year SHORT TERM EMPLOYEE BENEFITS POST EMPLOYMENT BENEFITS SHARE-BASED PAYMENT NAME YEAR DIRECTORS’ FEES US$’000 SUPERANNUATION US$’000 OTHER27 US$’000 TOTAL BEFORE EQUITY US$’000 OPTIONS/AWARDS US$’000 TOTAL US$’000 Current Non-executive Directors A G Froggatt S P Johns S C H Kay G J Kraehe AO C L Mayhew J P Mullen B M Schwartz AM Former Non–executive Director D P Gosnell Totals 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 125 108 155 136 122 108 448 471 138 133 84 – 122 33 85 113 1,279 1,102 8 10 8 12 11 10 40 21 5 5 8 – 11 3 3 4 94 65 – – – – – – 4 4 1 – – – – – 31 22 36 26 133 118 163 148 133 118 492 496 144 138 92 – 133 36 119 139 1,409 1,193 – – – – – – – – – – – – – – – – – – 133 118 163 148 133 118 492 496 144 138 92 – 133 36 119 139 1,409 1,193 6.4 Non-executive Directors’ shareholdings Non-executive Directors are encouraged to hold shares in Brambles equal to their annual fees after tax within three years of their appointment. The following table contains details of Brambles Limited shares in which the Non-executive Directors held relevant interests, being issued shares held by them and their related parties. The Non-executive Directors do not participate in Brambles’ equity-based incentive schemes. ORDINARY SHARES BALANCE AT THE START OF THE YEAR CHANGES DURING THE YEAR BALANCE AT THE END OF THE YEAR Current Non-executive Directors A G Froggatt28 S P Johns29 S C H Kay30 G J Kraehe AO31 C L Mayhew32 J P Mullen 14,890 47,500 13,400 61,561 16,500 – – – – – – – 14,890 47,500 13,400 61,561 16,500 – B M Schwartz AM33 10,000 354 10,354 Former Non-executive Director D P Gosnell34 14,450 – 14,450 27 “Other” includes personal/spouse travel and fringe beneﬁts tax. 28 Of which 7,000 shares were held by Christine Joanne Froggatt. 29 Of which 27,500 shares were held by Canzak Pty Limited and 20,000 shares were held by Caran Pty Limited. 30 Of which 8,500 shares were held by the Sarah Carolyn Hailes Kay Superannuation Fund. 31 Held by Invia Custodians for Graham John Kraehe Private Superannuation Fund. 32 Held by Worldwide Nominees Limited. 33 Held by Brian Schwartz and Arlene Schwartz as trustees for the Schwartz Superannuation Fund. 34 Held by Susan Gosnell. 42 BRAMBLES LIMITED ANNUAL REPORT 2010 7. APPENDICES 7.1 Basis of valuation of equity-based awards Unless otherwise speciﬁed, the fair value of the options and share rights included in the tables in this report, has been estimated by Ernst & Young Transaction Advisory Services in accordance with the requirements of AASB 2: Share-based Payments, using a binomial model. Assumptions used in the evaluations are outlined in Note 27 on page 92. 7.2 Summary of 2001, 2004 and 2006 plans The table below contains details of the 2001 Share Plans, the 2001 Option Plans, the 2004 Share Plans and the 2006 Share Plan under which former or current Executive Directors and Disclosable Executives unvested and/or unexercised awards which could affect remuneration in this or future reporting periods. PLAN NATURE OF AWARD SIZE OF AWARD VESTING CONDITION VESTING SCHEDULE 2001 Option Plans Share rights % of salary/TFR Time and relative TSR hurdle (between 50th and 25th out of 100) 38% vesting if TSR is ranked 50th out of 100 companies. 100% vesting if ranked 25th or better. PERFORMANCE/ VESTING PERIOD Three years, with retests after four and ﬁve years. LIFE OF AWARD Maximum of six years. 2001 Share Plans Share rights % of salary/TFR Time and EPS CAGR hurdle (between 7% and 15% p.a.) 25th vesting if EPS CAGR is 7% p.a. 100% vesting if EPS CAGR is 15% p.a. Three years, with retests after four and ﬁve years. Maximum of six years. 2004 & 2006 Share Plans (STI) 2004 & 2006 Share Plans (Enhanced STI) 2004 & 2006 Share Plans (TSR LTI) 2006 Share Plan (TSR LTI) as amended at the 2008 AGM 2006 Share Plan (BVA LTI) Share rights up to 100% of size of STI Cash Award Time only. 100% vesting based on continuous employment. Three years. Maximum of six years. Share rights Up to 50% of size of STI Share Award Share rights % of salary/TFR Share rights % of salary/TFR Share rights % of salary/TFR Time and relative TSR hurdle (between 37th and 25th out of 100). 4% vesting if TSR is ranked 37th out of 100 companies. 100% vesting if 25th or better. Time and relative TSR hurdle (between 50th and 25th out of 100) 30% vesting if TSR is ranked 50th out of 100 companies. 100% vesting if 25th or better. Time and relative TSR hurdle (between 50th and 25th out of 100) Time and sales revenue growth and BVA performance 40% vesting if TSR is equal to the median ranked company. 100% vesting if 25% above the median ranked company. 20% vesting occurs if CAGR is 7% and BVA is US$2,000 over three year period. 100% vesting occurs if CAGR is 11% and BVA is US$2,200 over three year period. Three years. Maximum of six years. Three years. Maximum of six years. Three years. Maximum of six years. Three years. Maximum of six years. MyShare Matching share rights 1:1 match for every acquired share purchased Time and retention of acquired shares N/A Two years from ﬁrst acquisition. Automatic exercise on second anniversary of ﬁrst acquisition. The 2004 Share Plans operate in the same way as the 2006 Share Plan described in section 4.2 although, under the 2004 Share Plans, relative TSR performance is measured relative to the S&P/ASX50 and the FTSE 100. 7.3 Options and share rights The terms and conditions of each grant of options and share rights affecting remuneration in this or future reporting periods are outlined in the table below. Options and share rights granted under the plans carry no dividends or voting rights35. 35 Awards granted under the 2004 Plans were formerly over both BIL and BIP shares. BRAMBLES LIMITED ANNUAL REPORT 2010 43 DIRECTORS’ REPORT – REMUNERATION REPORT CONTINUED PLANS UNDER WHICH AWARDS MADE PLAN NUMBER GRANT DATE EXPIRY DATE EXERCISE PRICE VALUE AT GRANT STATUS/VESTING DATE 2001 Option Plan36 2001 Share Plans36 2006 Share Plans MyShare 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 4 March 2004 4 March 2004 19 January 200737 38 19 January 200738 40 19 January 200738 41 29 August 200737 29 August 200740 29 August 200741 26 February 200837 42 19 March 200843 28 April 200837 27 August 200837 27 August 200841 27 August 200844 1 June 2009 1 June 2009 1 June 2009 25 November 200937 25 November 200941 25 November 200944 31 March 200945 30 April 200945 29 May 200945 30 June 200945 31 July 200945 31 August 200945 30 September 200945 30 October 200945 30 November 200945 31 December 200945 29 January 201045 26 February 201045 31 March 201046 30 April 201046 31 May 201046 30 June 201046 30 July 201046 4 March 2010 A$5.31/£2.11 A$1.17/£0.44 100% exercisable from 4 March 2007 4 March 2010 31 August 201239 31 August 201239 31 August 201239 30 August 201339 30 August 201339 30 August 201339 2 December 201339 2 March 201439 29 April 201439 27 August 201439 27 August 201439 27 August 201439 1 July 2010 1 July 2011 1 October 2009 25 November 201539 25 November 201539 25 November 201539 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2011 1 April 2012 1 April 2012 1 April 2012 1 April 2012 1 April 2012 – A$4.67/£1.85 100% exercisable from 4 March 2007 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – A$12.60 100% exercisable from 19 January 2010 A$5.72 100% lapsed at 1 July 2009 A$6.97 100% lapsed at 1 July 2009 A$12.64 29 August 2010 A$6.75 29 August 2010 A$8.11 29 August 2010 A$9.39 100% lapsed at 30 November 2009 A$8.84 1 March 2011 A$8.01 28 April 2011 A$6.53 27 August 2011 A$5.99 27 August 2011 A$4.67 27 August 2011 A$5.75 100% vested at 1 June 2010 A$5.55 1 June 2011 A$5.68 100% lapsed at 30 September 2009 A$5.85 25 November 2012 A$5.85 25 November 2012 A$3.84 25 November 2012 A$5.09 31 March 2011 A$5.97 31 March 2011 A$5.91 31 March 2011 A$5.91 31 March 2011 A$5.67 31 March 2011 A$6.99 31 March 2011 A$7.79 31 March 2011 A$6.76 31 March 2011 A$6.30 31 March 2011 A$6.46 31 March 2011 A$6.23 31 March 2011 A$6.59 31 March 2011 A$7.00 31 March 2012 A$6.92 31 March 2012 A$6.31 31 March 2012 A$5.13 31 March 2012 A$5.18 31 March 2012 LUKE MAYHEW Non-executive Director and Chairman of the Remuneration Committee 19 August 2010 36 All values in A$ relate to awards originally made over BIL shares, and in £ to 42 Awards granted on 19 March 2008 were, for pricing and vesting purposes, taken awards made over BIP shares. to have been granted on 1 March 2008. 37 STI awards vest on the third anniversary of their grant date, subject to 43 Awards granted on 26 February 2008 were, for pricing and vesting purposes, continued employment. 38 Awards granted on 19 January 2007 were, for pricing and vesting purposes, taken to have been granted on 30 August 2006. 39 Awards granted to Elton Potts, Tom Gorman, Kevin Shuba, Jim Inﬁnger and Jim Ritchie expire three years earlier than the date shown, or immediately after vesting, if earlier. 40 Enhanced STI awards vest on the third anniversary of their grant date, subject to continuing employment and meeting a TSR performance condition. 41 These LTI awards vest on the third anniversary of their grant date, subject to continuing employment and meeting a TSR performance condition. taken to have been granted on 1 December 2007. 44 These LTI awards vest on the third anniversary of their grant date, subject to continuing employment and meeting a sales growth and BVA performance condition. 45 These Matching Awards granted under MyShare vest on 31 March 2011, subject to continuing employment and retention of the associated Acquired Shares. On vesting they are automatically exercised. 46 These Matching Awards granted under MyShare vest on 31 March 2012, subject to continuing employment and retention of the associated Acquired Shares. On vesting they are automatically exercised. 44 BRAMBLES LIMITED ANNUAL REPORT 2010 DIRECTORS’ REPORT – OTHER INFORMATION The information presented in this Report relates to the consolidated entity, the Brambles Group, consisting of Brambles Limited and the entities it controlled at the end of, or during the year ended 30 June 2010 (Year). PRINCIPAL ACTIVITIES The principal activities of the Group during the Year were the provision of pallet and container pooling and supply chain services and information management services. Brambles is a leading global provider of these services. The Group’s principal operations comprise two main businesses, CHEP and Recall. CHEP owns a pool of pallets and containers, which it issues, collects and reissues through its network of service centres to manufacturers, producers, distributors and retailers so that they may transport their products safely and efﬁciently. In addition, CHEP provides supply chain optimisation and transport management services. Recall is a global leader in the management of information, providing secure storage, digitisation, retrieval and destruction of information in multiple media formats. DIVIDENDS The Directors have declared a ﬁnal dividend of 12.5 Australian cents per share, which will be 20% franked. The dividend will be paid on Thursday, 14 October 2010 to shareholders on the register on Wednesday, 22 September 2010. On 8 April 2010, an interim dividend was paid, which was 12.5 Australian cents per share and 20% franked. Depending on certain elections made by shareholders, a ﬁnal dividend for the year ended 30 June 2009 of 12.5 Australian cents per share, 20% franked, was paid either on 8 October 2009 or 27 October 2009. The unfranked component of each dividend paid during the Year was conduit foreign income.1 DIRECTORS The name of each person who was a Director of Brambles Limited at any time during, or since the end of the Year, and the period for which they served as a Director are set out below. The qualiﬁcations, experience and special responsibilities for Directors are set out on page 15. Mary Elizabeth Doherty 1 July 2009 to 16 November 2009 There were no signiﬁcant changes in the nature of the Group’s principal activities during the Year. Anthony Grant Froggatt 1 July 2009 to date Thomas Joseph Gorman 1 December 2009 to date REVIEW OF OPERATIONS AND RESULTS A review of the Group’s operations, a review of the results of those operations and details of any signiﬁcant changes in its state of affairs during the Year, are given in the Letter from the Chairman and the CEO on page 1, the Operational and Financial Review on pages 4 to 11 and in the Treasury and Risk Review on pages 12 to 13. Information about the ﬁnancial position of the Group is included in the Operational and Financial Review on pages 4 to 11 and in the Performance Summary on pages 2 to 3. MATTERS SINCE THE END OF THE FINANCIAL YEAR The Directors are not aware of any matter or circumstance that has arisen since 30 June 2010 up to the date of this Report that has signiﬁcantly affected or may signiﬁcantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future ﬁnancial years, except as may be stated elsewhere in the Letter from the Chairman and the CEO on page 1 and the Operational and Financial Review on pages 4 to 11. BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS The business strategies and prospects for future ﬁnancial years, together with likely developments in the operations of the Group in future ﬁnancial years and the expected results of those operations known at the date of this Report, are set out in the Letter from the Chairman and the CEO on page 1 and the Operational and Financial Review on pages 4 to 11. Further information in relation to such matters has not been included because the Directors believe it would be likely to result in unreasonable prejudice to the Group. David Peter Gosnell 1 July 2009 to 31 March 2010 Gregory John Hayes 1 December 2009 to date Michael Francis Ihlein 1 July 2009 to 1 November 2009 Stephen Paul Johns 1 July 2009 to date Sarah Carolyn Hailes Kay 1 July 2009 to date Graham John Kraehe AO 1 July 2009 to date Christopher Luke Mayhew 1 July 2009 to date John Patrick Mullen 1 November 2009 to date Brian Martin Schwartz AM 1 July 2009 to date SECRETARY Details of the qualiﬁcations and the experience of the Company Secretary of Brambles Limited are as follows: Robert Nies Gerrard joined Brambles in 2003 as Senior Counsel and was appointed Group Company Secretary in February 2008. Prior to joining Brambles, he was General Counsel to, and Company Secretary of, Roc Oil Company Limited; Group Legal Manager, Cairn Energy plc; General Counsel to, and Company Secretary of, Command Petroleum Limited; and a solicitor with Allen Allen & Hemsley. He holds a Masters of Law (LLM) from the University of Sydney and Bachelor of Science (BSc) and Bachelor of Law (LLB) degrees from the University of New South Wales. He is a Solicitor of the Supreme Court of New South Wales. 1 This means that no Australian dividend withholding tax was payable on the dividends that Brambles paid to non-resident shareholders. BRAMBLES LIMITED ANNUAL REPORT 2010 45 DIRECTORS’ REPORT – OTHER INFORMATION CONTINUED DIRECTORS’ MEETINGS Details of the membership of Board committees are given in the Corporate Governance Statement on pages 20, 23 and 27. The following table shows the actual Board and committee meetings held during the Year and the number attended by each Director or committee member. DIRECTORS BOARD MEETINGS REGULAR SPECIAL SPECIAL COMMITTEES AUDIT COMMITTEE MEETINGS REMUNERATION COMMITTEE MEETINGS NOMINATIONS COMMITTEE MEETINGS (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) Current Directors A G Froggatt T J Gorman(c) G J Hayes(c) S P Johns S C H Kay G J Kraehe AO C L Mayhew J P Mullen(g) B M Schwartz AM Former Directors M E Doherty(d) D P Gosnell(e) M F Ihlein(f) 11 11 7 7 10 11 11 10 7 11 3 7 3 7 7 11 11 11 11 8 11 3 8 3 2 - - 3 3 3 2 - 3 3 3 3 3 - - 3 3 3 3 - 3 3 3 3 - 1 2 4 2 3 - - - 2 - 2 - 1 2 4 2 3 - - - 2 - 2 - - - 7 7 - - - 7 - 4 - - - - 7 7 - - - 7 - 5 - 7 - - - - 7 7 2 - - - - 7 - - - - 7 7 3 - - - - 4 - - 4 - 4 - - - - - - 4 - - 4 - 4 - - - - - - (a) This column refers to the number of meetings attended during the period the Director was a member of the Board or relevant committee which the Director was eligible to attend. (b) This column refers to the number of meetings held while the Director was a member of the Board or relevant committee which the Director was eligible to attend. (c) Tom Gorman and Greg Hayes were appointed as Directors with effect from 1 December 2009. (d) Liz Doherty resigned as a Director on 16 November 2009. (e) David Gosnell resigned as a Director on 31 March 2010. (f) Mike Ihlein retired as a Director on 1 November 2009. (g) John Mullen was appointed a Director on 1 November 2009. 46 BRAMBLES LIMITED ANNUAL REPORT 2010 DIRECTORS’ DIRECTORSHIPS OF OTHER LISTED COMPANIES The following lists the directorships held by the Directors in listed companies (other than Brambles Limited) since 30 June 2007 and the period for which each directorship has been held. DIRECTOR LISTED COMPANY PERIOD DIRECTORSHIP HELD A G Froggatt AXA Asia Paciﬁc Holdings Limited T J Gorman G J Hayes S P Johns S C H Kay G J Kraehe AO C L Mayhew J P Mullen(a) Billabong International Limited Scottish & Newcastle plc None None Leighton Holdings Limited Spark Infrastructure Group Westﬁeld Group: Westﬁeld Holdings Limited Westﬁeld America Trust (director of responsible entity, Westﬁeld America Management Limited) Westﬁeld Trust (director of responsible entity, Westﬁeld Management Limited) 1985 to current Commonwealth Bank of Australia Bluescope Steel Limited Djerriwarrh Investments Limited WH Smith plc Deutsche Post World Net Embarq Corporation Telstra Limited 2008 to current 2008 to current 2003 to 2007 - - 2009 to current 2005 to current 1985 to current 1996 to current 2003 to current 2002 to current 2002 to current 2006 to current 2005 to 2009 2006 to 2009 2008 to current 2005 to current 2009 to current 2009 to current B M Schwartz AM Insurance Australia Group Limited Westﬁeld Group: Westﬁeld Holdings Limited Westﬁeld America Trust (director of responsible entity, Westﬁeld America Management Limited) Westﬁeld Trust (director of responsible entity, Westﬁeld Management Limited) 2009 to current (a) John Mullen was appointed a director of MAp Airports Limited on 1 July 2010. INDEMNITIES Indemnities provided to Directors and ofﬁcers in accordance with the constitution of Brambles Limited are detailed in Note 35 on page 112. Insurance policies are in place to cover Directors and executive ofﬁcers, however, the terms of the policies prohibit disclosure of the details of the insurance cover and the premiums paid. ENVIRONMENT, OCCUPATIONAL HEALTH AND SAFETY, EMPLOYEES AND RESEARCH AND DEVELOPMENT Brambles’ Environmental Policy is set by the Board. It applies in all countries where Brambles operates and provides that Brambles will act with integrity and respect for the community and the environment, be committed to sound environmental practice in its daily operations, that it is a minimum requirement that all Brambles operations comply with all relevant environmental laws and regulations, that all employees care for the environment by adopting a speciﬁed set of environmental principles, that every business unit must ensure that those principles are adhered to and that each business unit should set environmental performance targets, monitor progress and report results. Regular environmental audits are conducted to evaluate compliance with applicable laws and regulations and implementation of the Environmental Policy. A copy of the complete Environmental Policy is set out in Brambles’ Code of Conduct, which is available at www.brambles.com. The Board is responsible for setting Brambles’ Health and Safety Policy, which states that Brambles is to provide and maintain a healthy and safe working environment and to prevent injury, illness or impairment to the health of employees, contractors, customers or the public. Brambles is committed to achieving Zero Harm. The Zero Harm Charter, which sets out the vision, values and behaviours and commitment required to work safely and ensure environmental compliance, is provided to all employees and, together with the complete Health and Safety Policy, is on the Brambles website at www.brambles.com. The Chief Executive Ofﬁcer together with the Group Presidents of CHEP and the Group President and Chief Operating Ofﬁcer of Recall are responsible for policy implementation and safety performance. BRAMBLES LIMITED ANNUAL REPORT 2010 47 DIRECTORS’ REPORT – OTHER INFORMATION CONTINUED Health and safety performance indicators measure compliance with corporate objectives and milestones, allow assessment of progress and comparison with industry benchmarks and provide incentives for improvement. The principal safety performance measures are Brambles Injury Frequency Rate (BIFR), Lost Time Injury Frequency Rate (LTIFR) and Lost Time Injury Severity Rate (LTISR). BIFR measures the combined number of fatalities, lost time injuries, modiﬁed duties and medical treatments per million hours worked. LTIFR measures the number of injuries that result in an employee being absent from work for one or more whole shifts per million work hours. LTISR measures the number of injury days lost per million work hours. During the Year, Brambles and CHEP used BIFR as their safety performance measure and Recall used LTIFR and LTISR. Recall will transition to BIFR from the 2011 year and this will become the primary measure for the entire Group. During the 2011 year a “balanced scorecard” approach to safety performance measurement will be adopted, to help provide new insights into safety performance and ways to improve upon it. The balanced scorecard will replace LTIFR and LTISR through the introduction of measures evaluating injury cost, employee perception of safety performance and business compliance against plans and strategies. A global engagement survey was conducted in November 2009 to obtain feedback from employees on Brambles as a place to work and the progress made since the previous survey. Brambles achieved an overall response rate to the survey of 89%, setting a new global benchmark for the Group. Employee engagement at Brambles has improved since the last survey. There are a number of programs in place to further improve employee engagement. Another survey will be carried out in the 2011 year. Brambles is a member of a leadership development consortium with CEDEP, the European Centre for Executive Development. In FY10 approximately 80 senior executives attended a number of development activities and Brambles also ran a Next Generation Leaders program to better equip high potential middle managers for future leadership roles. Brambles carries out research and development activities in relation to both its CHEP and Recall businesses. These activities comprise: – continuously testing its pallets and containers to make them more durable, sustainable and safer for use in the supply chain; developing new pallets, containers and other supply chain platforms; improving pallet and container repair equipment; developing unique identiﬁer technologies, including radio frequency indentiﬁcation; and research into and development of new service offerings, information technology and software solutions, and information and document management processes. – – – – ENVIRONMENTAL REGULATION Except as set out below, the operations of the Group in Australia are not subject to any particular and signiﬁcant environmental regulation under a law of the Commonwealth or a State or Territory. The operations of the Group in Australia involve the use or development of land, the use of transportation equipment and the transport of goods. These operations may be subject to State, Territory or Local government environmental and town planning regulations, or require a licence, consent or approval from Commonwealth, State or Territory regulatory bodies. There were no material breaches of environmental statutory requirements and no material prosecutions during the Year. Brambles’ businesses comply with all relevant environmental laws and regulations and none were involved in any material environmental prosecutions during the Year. INTERESTS IN SECURITIES Pages 39, 40 and 42 of the Remuneration Report include details of the relevant interests of Directors, and other Group Executives whose details are required to be disclosed, in shares and other securities of Brambles Limited. SHARE CAPITAL, OPTIONS AND SHARE RIGHTS Details of the changes in the issued share capital of Brambles Limited and options, share rights and MyShare matching share rights outstanding over Brambles Limited ordinary shares at the year end are given in Notes 26 and 27 on pages 89 to 92. No options, share rights or MyShare matching share rights over the shares of Brambles Limited’s controlled entities were granted during or since the end of the Year to the date of this Report. Since the end of the Year to the date of this Report, the following grants, exercises and forfeits in options, performance share rights and MyShare matching share rights over Brambles Limited ordinary shares have taken place, broken down by reference to the plan numbers shown on page 44 of the Remuneration Report: – – 57,933 grants under plan 40; 4,978 exercises, resulting in the issue of fully paid ordinary shares: 3,551 under the 2009 MyShare offer (plan numbers 24 to 35) and 1,427 under the 2010 MyShare offer (plan numbers 36 to 40); 881,333 lapses: 5,090 under the 2009 MyShare offer (plan numbers 24 to 35), 6,665 under the 2010 MyShare offer, 198,142 under plan 7, 663,669 under plan 8, 2,450 under plan 14 and 5,317 under plan 20. – 48 BRAMBLES LIMITED ANNUAL REPORT 2010 SHARE BUY-BACKS No ordinary shares were bought-back and cancelled during the Year. There is no current on-market buy-back in operation. AUDITORS’ INDEPENDENCE DECLARATION A copy of the auditors’ independence declaration as required under section 307C of the Act is set out on page 117. RISK MANAGEMENT A discussion of Brambles’ risk proﬁle, management and mitigation of risks can be found in the Treasury and Risk Review on pages 12 and 13 and the Corporate Governance Statement on pages 25 to 27. ANNUAL GENERAL MEETING The AGM will be held at 2.00pm (AEDT) on 18 November 2010 at The Wesley Theatre, Wesley Conference Centre, 220 Pitt Street, Sydney NSW 2000. This Directors’ Report is made in accordance with a resolution of the Board. G J KRAEHE AO Chairman T J GORMAN Chief Executive Ofﬁcer 19 August 2010 TREASURY POLICIES A discussion of the implementation of treasury policies and mitigation of treasury risks can be found in the Treasury and Risk Review on pages 12 and 13. NON-AUDIT SERVICES The amount of US$184,000 was paid or is payable to PricewaterhouseCoopers, the Group’s auditors, for non-audit services provided during the Year by them (or another person or ﬁrm on their behalf). These services primarily related to implementation of a compliance tracking system and tax consulting advice. The Audit Committee has reviewed the provision of non-audit services by PricewaterhouseCoopers and its related practices and provided the Directors with formal written advice of a resolution passed by the Audit Committee. Consistent with this advice, the Directors are satisﬁed that the provision of non-audit services by PricewaterhouseCoopers and its related practices did not compromise the auditor independence requirements of the Act for the following reasons: the nature of the non-audit services provided during the Year; the quantum of non-audit fees compared to overall audit fees; and the pre-approval, monitoring and ongoing review requirements under the Audit Committee Charter and the Charter of Audit Independence in relation to non-audit work. The auditors have also provided the Audit Committee with a letter conﬁrming that, in their professional judgement, as at 4 August 2010, they have maintained their independence in accordance with their ﬁrm’s requirements, with the provisions of APES 110 – Code of Ethics for Professional Accountants and the applicable provisions of the Act. On the same basis, they also conﬁrmed that the objectivity of the audit engagement partners and the audit staff is not impaired. BRAMBLES LIMITED ANNUAL REPORT 2010 49 SHAREHOLDER INFORMATION DIRECTORS G J Kraehe AO (Non-executive Chairman) A G Froggatt (Non-executive Director) T J Gorman (Chief Executive Ofﬁcer) G J Hayes (Chief Financial Ofﬁcer) S P Johns (Non-executive Director) S C H Kay (Non-executive Director) C L Mayhew (Non-executive Director) J P Mullen (Non-executive Director) B M Schwartz AM (Non-executive Director) COMPANY SECRETARY R N Gerrard REGISTERED OFFICE Brambles Limited Level 40, Gateway 1 Macquarie Place Sydney NSW 2000 Australia ACN 118 896 021 Telephone: 61 (0) 2 9256 5222 Facsimile: 61 (0) 2 9256 5299 Website: www.brambles.com STOCK EXCHANGE LISTING Brambles’ ordinary shares are listed on the Australian Securities Exchange and are traded under the stock code “BXB”. SHARE REGISTRY Online access to shareholding information is available to investors through the Link Market Services website. Link Market Services Limited Level 12, 680 George Street Sydney NSW 2000 Australia Locked Bag A14 Sydney South NSW 1235 Australia Telephone: 1300 883 073 (freecall within Australia) 61 (0) 2 8280 7143 (from outside Australia) Facsimile: 61 (0) 2 9287 0303 Email: Website: www.linkmarketservices.com.au registrars@linkmarketservices.com.au 50 BRAMBLES LIMITED ANNUAL REPORT 2010 SHARE OPTIONS/RIGHTS REGISTRY Employees or former employees of Brambles who have queries about the following interests: – – – – share options under the 2001 Option Plans; performance share rights under the 2001, 2004 or 2006 share plans; matching share rights under MyShare; or shares acquired under MyShare or other share interests held through Computershare Nominees CI Limited, may contact Computershare Plan Managers. Computershare Plan Managers Pty Limited Attention: Brambles Employee Share Plans GPO Box 658 Melbourne VIC 3001 Australia Telephone: 1800 133 976 (within Australia) 61 (0) 3 9415 4659 (from outside Australia) Facsimile: 61 (0) 3 9473 2458 Email: Website: www.computershare.com/brambles BramblesSharePlans@computershare.com.au UNCERTIFICATED FORMS OF SHAREHOLDING Brambles’ ordinary shares are held in uncertiﬁcated form. There are two types of uncertiﬁcated holdings: Issuer Sponsored Holdings: This type of holding is recorded on a subregister of the Brambles share register, maintained by Brambles. If your holding is recorded on the issuer sponsored subregister, you will be allocated a Securityholder Reference Number or SRN, which is a unique number used to identify your holding of ordinary shares in Brambles. Broker Sponsored Holdings: This type of holding is recorded on the main Brambles share register. Shareholders who are sponsored by an ASX market participant broker will be allocated a Holder Identiﬁcation Number or HIN. One HIN can relate to an investor’s shareholdings in multiple companies. For example, a shareholder with a portfolio of holdings which are managed by a broker would have the same HIN for each shareholding. SHARE SALE FACILITY Ordinarily, Issuer Sponsored shareholders must establish a relationship with a broker in order to sell their shares. However, Brambles’ share registry provides Issuer Sponsored shareholders with an alternative to traditional share sale services. If you would like to take advantage of this service to sell your entire Brambles shareholding, please contact Link Market Services using the contact details above. Please note that under anti-money laundering regulations, Link Market Services may require shareholders to complete an identiﬁcation information form. If you are a Broker Sponsored shareholder, please contact your broker if you wish to sell your Brambles shares. ANNUAL GENERAL MEETING The Brambles Limited 2010 AGM will be held at 2.00pm (AEDT) on 18 November 2010 at The Wesley Theatre, Wesley Conference Centre, 220 Pitt Street, Sydney NSW 2000. FINANCIAL CALENDAR Final dividend 2010 Ex dividend date – Thursday, 16 September 2010 Record date – Wednesday, 22 September 2010 Payment date – Thursday, 14 October 2010 2011 (Provisional) Announcement of interim results – mid February Interim dividend – mid April Announcement of ﬁnal results – mid August Final dividend – mid October AGM – November ANALYSIS OF HOLDERS OF EQUITY SECURITIES AS AT 16 AUGUST 2010 Substantial shareholders Brambles has been notiﬁed of the following substantial shareholdings: HOLDER Baillie Gifford & Co BlackRock Investment Management (Australia) Limited Commonwealth Bank of Australia and its subsidiaries Maple-Brown Abbott Limited (a) Percentages are as disclosed in substantial holding notices given to Brambles Limited. Number of ordinary shares on issue and distribution of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total NUMBER OF ORDINARY SHARES % OF ISSUED ORDINARY (a) SHARE CAPITAL 71,408,272 71,242,004 165,509,641 71,359,976 5.06 5.00 11.64 5.02 HOLDERS 36,679 33,889 5,815 3,451 179 SHARES 17,869,288 80,617,400 41,940,646 74,053,386 1,207,753,965 80,013 1,422,234,685 The number of members holding less than a marketable parcel of 97 ordinary shares (based on a market price of A$5.19 on 16 August 2010) is 4,889 and they hold a total of 227,598 ordinary shares. The voting rights of ordinary shares are described on page 52. Number of options/rights on issue and distribution of holdings 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total The voting rights of options, performance share rights and MyShare Matching Awards are described on page 52. HOLDERS OPTIONS/RIGHTS 1,778 124 46 99 13 2,060 577,208 278,783 292,381 4,214,023 2,699,790 8,062,185 BRAMBLES LIMITED ANNUAL REPORT 2010 51 SHAREHOLDER INFORMATION CONTINUED Twenty largest ordinary shareholders NAME 1 HSBC Custody Nominees (Australia) Limited 2 J P Morgan Nominees Australia Limited 3 National Nominees Limited 4 Citicorp Nominees Pty Limited 5 Cogent Nominees Pty Limited 6 ANZ Nominees Limited 7 RBC Dexia Investor Services Australia Nominees Pty Limited 8 Australian Foundation Investment Company Limited 9 Australian Reward Investment Alliance 10 Citicorp Nominees Pty Limited 11 Citicorp Nominees Pty Limited 12 AMP Life Limited 13 HSBC Custody Nominees (Australia) Limited – A/C 2 14 Argo Investments Limited 15 UBS Wealth Management Australia Nominees Pty Ltd 16 Citicorp Nominees Pty Limited 17 Queensland Investment Corporation 18 Citicorp Nominees Pty Limited 19 Djerriwarrh Investments Limited 20 Perpetual Trustee Company Limited NUMBER OF ORDINARY SHARES % OF SHARE CAPITAL 409,331,962 253,538,728 251,287,062 105,598,325 31,284,571 22,755,658 9,527,278 8,425,028 7,971,074 6,335,432 6,040,000 5,791,384 4,427,855 4,252,106 3,955,975 3,480,239 3,442,985 3,428,016 2,886,018 2,550,196 28.78% 17.83% 17.67% 7.42% 2.20% 1.60% 0.67% 0.59% 0.56% 0.45% 0.42% 0.41% 0.31% 0.30% 0.28% 0.24% 0.24% 0.24% 0.20% 0.18% Percentage of total holdings of 20 largest holders 1,146,309,892 80.59% Voting rights: ordinary shares Brambles Limited’s constitution provides that each member entitled to attend and vote may do so in person or by proxy, by attorney or, where the member is a body corporate, by representative. The Directors may also determine that at any general meeting, a member who is entitled to attend and vote on a resolution at that meeting is entitled to a direct vote in relation to that resolution. The Directors have prescribed rules to govern direct voting which are available at www.brambles.com. have determined that members who submit a direct vote will be excluded on a vote by a show of hands. On a poll, every member present in person, by proxy, by attorney or, where the member is a body corporate, by representative and having the right to vote on the resolution has one vote for each ordinary share held. The Directors have determined that votes cast by members who submit a direct vote will be included on a vote by a poll, being one vote for each ordinary share held. On a show of hands, every member present in person, by proxy, by attorney or, where the member is a body corporate, by representative and having the right to vote on a resolution has one vote. The Directors Voting rights: options/rights Options over ordinary shares, performance share rights and MyShare Matching Awards do not carry any voting rights. 52 BRAMBLES LIMITED ANNUAL REPORT 2010 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2010 INDEX PAGE Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated cash ﬂow statement Consolidated statement of changes in equity Notes to the ﬁnancial statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. Basis of preparation Signiﬁcant accounting policies Critical accounting estimates and judgements Segment information Proﬁt from ordinary activities - continuing operations Signiﬁcant items - continuing operations Employment costs - continuing operations Net ﬁnance costs Income tax Earnings per share Dividends Discontinued operations Cash and cash equivalents Trade and other receivables Inventories Derivative ﬁnancial instruments Other assets Investments Property, plant and equipment Goodwill Intangible assets Trade and other payables Borrowings Provisions Retirement beneﬁt obligations Contributed equity Share-based payments Reserves and retained earnings Financial risk management Cash ﬂow statement - additional information Commitments Contingencies Auditors’ remuneration Key management personnel Related party information Events after balance sheet date Parent entity ﬁnancial information Directors’ declaration Independent auditors’ report 54 55 56 57 58 59 59 65 66 68 69 70 70 71 74 75 76 76 76 77 78 78 79 80 81 82 83 83 85 86 89 90 93 95 104 106 107 108 108 110 112 113 114 115 BRAM021 Annual Report 2010 FINS v7 FA.indd 53 10/9/10 6:46:06 PM BRAMBLES LIMITED ANNUAL REPORT 2010 53 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2010 Continuing operations Sales revenue Other income Operating expenses Share of results of joint ventures Operating proﬁt Finance revenue Finance costs Net ﬁnance costs Proﬁt before tax Tax expense Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt for the year attributable to members of the parent entity Earnings per share (cents) Total – basic – diluted Continuing operations – basic – diluted NOTE 2010 US$M 2009 US$M 5a 5a 5b 18c 8 9 12 10 4,146.8 4,018.6 97.0 96.7 (3,525.1) (3,402.1) 5.8 724.5 2.8 5.0 718.2 7.1 (112.4) (128.0) (109.6) (120.9) 614.9 597.3 (171.0) (163.3) 443.9 4.9 448.8 434.0 18.6 452.6 31.8 31.7 31.5 31.4 32.6 32.5 31.3 31.2 The consolidated income statement should be read in conjunction with the accompanying notes. Non-statutory measure: Underlying proﬁt Underlying proﬁt is proﬁt from continuing operations before ﬁnance costs, tax and Signiﬁcant items (refer Note 6). It is presented to assist users of the ﬁnancial statements to understand Brambles’ business results and reconciles with operating proﬁt as follows: Underlying proﬁt Signiﬁcant items: – restructuring costs – foreign exchange gain on capital repatriation – Walmart transition impact – USA pallet quality program costs* Operating proﬁt 733.4 900.6 (8.9) (153.3) – – – 724.5 77.3 (29.0) (77.4) 718.2 6a 6c 6d 6e * In October 2009, CHEP USA launched its Better Everyday customer service and quality program. In FY10, spending under the Better Everyday program, together with the ﬁnal US$37 million spending under the USA pallet quality program announced in February 2008, have been presented within Underlying proﬁt. In prior years, USA pallet quality program costs were presented as Signiﬁcant items. Comparatives have not been restated. 54 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 54 10/9/10 6:46:06 PM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010 Proﬁt for the year Other comprehensive income: NOTE 2010 US$M 2009 US$M 448.8 452.6 Actuarial losses on deﬁned beneﬁt pension plans 25e (5.9) (2.9) Exchange differences: – on translation of foreign operations – on entities disposed taken to proﬁt Cash ﬂow hedges Income tax on other comprehensive income Other comprehensive income for the year Total comprehensive income for the year attributable to members of the parent entity The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 28 28 28 9a (71.2) (262.6) – 1.4 0.8 (0.6) (14.2) 4.7 (74.9) (275.6) 373.9 177.0 BRAM021 Annual Report 2010 FINS v7 FA.indd 55 10/9/10 6:46:06 PM BRAMBLES LIMITED ANNUAL REPORT 2010 55 CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2010 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Derivative ﬁnancial instruments Other assets Total current assets Non-current assets Other receivables Investments Property, plant and equipment Goodwill Intangible assets Deferred tax assets Derivative ﬁnancial instruments Other assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Derivative ﬁnancial instruments Tax payable Provisions Total current liabilities Non-current liabilities Borrowings Derivative ﬁnancial instruments Provisions Retirement beneﬁt obligations Deferred tax liabilities Other liabilities Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings Parent entity interest Non-controlling interest Total equity NOTE 2010 US$M 2009 US$M 13 14 15 16 17 14 18 19 20 21 9 16 17 22 23 16 24 23 16 24 25 9 22 135.5 631.6 33.5 14.5 53.1 90.1 653.6 35.1 1.1 72.2 868.2 852.1 6.2 14.0 8.1 13.8 3,223.8 3,441.6 607.0 158.6 19.8 12.0 0.7 612.3 163.0 7.0 - 0.6 4,042.1 4,246.4 4,910.3 5,098.5 681.4 276.0 12.2 78.5 87.2 683.7 68.0 12.9 64.6 93.6 1,135.3 922.8 1,618.8 2,165.5 10.1 34.0 50.4 408.2 20.9 5.8 53.0 50.8 449.9 21.4 2,142.4 2,746.4 3,277.7 3,669.2 1,632.6 1,429.3 26 13,979.6 13,847.6 28 (15,007.4) (14,938.7) 28 2,660.1 2,520.1 1,632.3 1,429.0 28 0.3 0.3 1,632.6 1,429.3 The consolidated balance sheet should be read in conjunction with the accompanying notes. 56 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 56 10/9/10 6:46:07 PM CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2010 Cash ﬂows from operating activities Receipts from customers Payments to suppliers and employees Cash generated from operations Dividends received from joint ventures Interest received Interest paid Income taxes paid on operating activities Net cash inﬂow from operating activities Cash ﬂows from investing activities Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Purchases of intangible assets Proceeds from disposal of businesses Costs incurred on disposal of businesses Acquisition of subsidiaries, net of cash acquired Net cash outﬂow from investing activities Cash ﬂows from ﬁnancing activities Proceeds from borrowings Repayments of borrowings Net inﬂow/(outﬂow) from hedge instruments Proceeds from issues of ordinary shares Dividends paid, net of Dividend Reinvestment Plan Net cash outﬂow from ﬁnancing activities Net increase in cash and cash equivalents Cash and deposits, net of overdrafts, at beginning of the year Effect of exchange rate changes Cash and deposits, net of overdrafts, at end of the year The consolidated cash ﬂow statement should be read in conjunction with the accompanying notes. NOTE 2010 US$M 2009 US$M 4,658.5 4,575.7 (3,392.5) (3,306.8) 1,266.0 1,268.9 5.9 2.9 7.1 8.0 (104.6) (131.8) (179.9) (129.2) 30b 990.3 1,023.0 (496.5) (683.8) 88.0 (33.2) 1.3 – – 104.6 (24.3) 1.8 (4.8) (0.1) (440.4) (606.6) 2,222.9 1,404.2 (2,541.2) (1,513.5) 35.8 2.7 (7.9) 0.8 (204.5) (277.6) (484.3) (394.0) 65.6 54.1 3.6 30a 123.3 22.4 68.1 (36.4) 54.1 BRAM021 Annual Report 2010 FINS v7 FA.indd 57 10/9/10 6:46:07 PM BRAMBLES LIMITED ANNUAL REPORT 2010 57 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010 Year ended 30 June 2009 Opening balance Total comprehensive income Share-based payments: – expense recognised – shares issued – equity component of related tax Transactions with owners in their capacity as owners: – dividends declared – issues of ordinary shares, net of transaction costs – issues of ordinary shares under Dividend Reinvestment Plan Closing balance Year ended 30 June 2010 Opening balance Total comprehensive income Share-based payments: – expense recognised – shares issued Transactions with owners in their capacity as owners: – dividends declared – issues of ordinary shares, net of transaction costs – issues of ordinary shares under Dividend Reinvestment Plan NOTE SHARE CAPITAL US$M RESERVES 1 US$M RETAINED EARNINGS US$M NON- CONTROLLING INTEREST US$M TOTAL US$M 13,778.6 (14,671.5) 2,436.1 0.3 1,543.5 – (272.5) 449.5 – 177.0 – – – – 7.1 61.9 14.5 (6.3) (2.9) – – – – – – (365.5) – – 28 26 26 – – – – – – 14.5 (6.3) (2.9) (365.5) 7.1 61.9 13,847.6 (14,938.7) 2,520.1 0.3 1,429.3 13,847.6 (14,938.7) 2,520.1 0.3 1,429.3 – (70.3) 444.2 – 373.9 – – 10.7 (9.1) – – 28 26 26 – 11.8 120.2 – – – (304.2) – – – – – – – 10.7 (9.1) (304.2) 11.8 120.2 Closing balance 13,979.6 (15,007.4) 2,660.1 0.3 1,632.6 1 Refer Note 28 for further information on reserves. The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 58 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 58 10/9/10 6:46:07 PM NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 NOTE 1. BASIS OF PREPARATION These ﬁnancial statements present the consolidated results of Brambles Limited (ACN 118 896 021) (Company) and its subsidiaries (Brambles or the Group) for the year ended 30 June 2010. The ﬁnancial statements comply with International Financial Reporting Standards (IFRS). This general purpose ﬁnancial report has been prepared in accordance with Australian Accounting Standards (AAS), other authoritative pronouncements of the Australian Accounting Standards Board (AASB), the Urgent Issues Group Interpretations (UIG) and the requirements of the Corporations Act 2001 (Act). The ﬁnancial statements are drawn up in accordance with the conventions of historical cost accounting, except for derivative ﬁnancial instruments and ﬁnancial assets and liabilities at fair value through proﬁt or loss. References to 2010 and 2009 are to the ﬁnancial years ended 30 June 2010 and 30 June 2009 respectively. Details of Uniﬁcation, whereby Brambles Limited acquired all the share capital of Brambles Industries Limited (BIL) and Brambles Industries plc (BIP) under separate schemes of arrangement on 4 December 2006, are set out in Brambles’ 2007 Annual Report. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated ﬁnancial statements and all comparatives have been prepared using the accounting policies set out below which are consistent with the prior year, except for ﬁnancial statements presentation, segment reporting and ﬁnancial instruments disclosures. Financial statements presentation Brambles has applied revised AASB 101: Presentation of Financial Statements from 1 July 2009. The revised standard requires the presentation of a statement of comprehensive income rather than a statement of recognised income and expense. Additionally, a statement of changes in equity is now disclosed as a primary statement rather than in a note. Comparative information has been re-presented to conform to the revised standard. Segment reporting Brambles has applied AASB 8: Operating Segments from 1 July 2009. AASB 8 requires adoption of a management approach when reporting segment performance. The information presented is based on Brambles’ internal management reporting to the Chief Executive Ofﬁcer (CEO), being the chief operating decision-maker, and reﬂects what the CEO uses when evaluating segment performance and deciding how to allocate resources to operating segments. There have been no changes to the deﬁnition of operating segments, however additional disclosures are now included in the ﬁnancial statements. Geographic disclosures now present Australia separately. Comparative ﬁgures have been provided. Financial instruments disclosures Brambles has applied the amendments to AASB 7: Financial Instruments: Disclosures from 1 July 2009. These require disclosure of fair value measurements by source of input using the following fair value hierarchy: – Level 1 – the fair value is calculated using quoted prices in active markets; – – Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3 – the fair value is estimated using inputs for the asset or liability that are not observable market data. Comparative ﬁgures have been provided. Other new accounting standards and interpretations At 30 June 2010, certain other new accounting standards and interpretations have been published that will become mandatory in future reporting periods. Brambles has not early-adopted these new or amended accounting standards and interpretations in 2010. AASB 2009-8: Amendments to Australian Accounting Standards – Group Cash-Settled Share-based Payment Transactions is applicable to annual reporting periods beginning on or after 1 January 2010. The amendments conﬁrm that an entity receiving goods or services in a group share-based payment arrangement must recognise an expense for those goods or services regardless of which entity in the group settles the transaction or whether the transaction is settled in shares or cash. The amendments also clarify the measurement basis for such transactions. The amendments are not expected to affect Brambles’ accounting for share-based payments. Brambles will apply the amendments from 1 July 2010. AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 are applicable to annual reporting periods beginning on or after 1 January 2013. AASB 9 addresses the classiﬁcation and measurement of ﬁnancial assets and may affect Brambles’ accounting for ﬁnancial assets. Brambles is yet to assess the full impact of this standard. Basis of consolidation The consolidated ﬁnancial statements of Brambles include the assets, liabilities and results of Brambles Limited and all its legal subsidiaries. The consolidation process eliminates all inter-entity accounts and transactions. Any ﬁnancial statements of overseas subsidiaries that have been prepared in accordance with overseas accounting practices have been adjusted to comply with AAS before inclusion in the consolidation process. The ﬁnancial statements of all subsidiaries are prepared for the same reporting period. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identiﬁable net assets acquired is recognised as goodwill. Any deﬁciency of the cost of acquisition below the fair values of the identiﬁable net assets acquired (ie discount on acquisition) is credited to the income statement in the period of acquisition. The interest of non-controlling shareholders is stated at the non-controlling proportion of the fair values of the assets and liabilities recognised. With effect from 1 July 2009, any acquisition-related transaction costs are expensed in the period of acquisition. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. BRAM021 Annual Report 2010 FINS v7 FA.indd 59 10/9/10 6:46:07 PM BRAMBLES LIMITED ANNUAL REPORT 2010 59 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Investment in controlled entities Shares in controlled entities, as recorded in the parent entity, are recorded at cost, less provision for impairment. Investment in joint ventures Investments in joint venture entities are accounted for using the equity method in the consolidated ﬁnancial statements, and include any goodwill arising on acquisition. Under this method, Brambles’ share of the post-acquisition proﬁts or losses of the joint venture is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. If Brambles’ share of losses in a joint venture equals or exceeds its interest in the joint venture, Brambles does not recognise further losses unless it has incurred obligations or made payments on behalf of the joint venture. Loans to equity accounted joint ventures under formal loan agreements are long term in nature and are included as investments. Where there has been a change recognised directly in the joint venture’s equity, Brambles recognises its share of any changes as a change in equity. Non-current assets held for sale Non-current assets and disposal groups classiﬁed as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classiﬁed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classiﬁcation. Discontinued operations The trading results for business operations disposed during the year or classiﬁed as held for sale are disclosed separately as discontinued operations in the income statement. The amount disclosed includes any related impairment losses recognised and any gains or losses arising on disposal. Comparative amounts for the prior year are restated in the income statement to include current year discontinued operations. Presentation currency The consolidated and summarised parent entity ﬁnancial statements are presented in US dollars. Brambles uses the US dollar as its presentation currency because: a signiﬁcant portion of Brambles’ activity is denominated in US – dollars; and the US dollar is widely understood by Australian, UK and international investors and analysts. – Foreign currency Items included in the ﬁnancial statements of each of Brambles’ entities are measured using the functional currency of each entity. Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except where deferred in equity as qualifying cash ﬂow hedges or qualifying net investment hedges. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are recognised directly in equity. The results and cash ﬂows of Brambles Limited, subsidiaries and joint ventures are translated into US dollars using the average exchange rates for the period. Where this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, the exchange rate on the transaction date is used. Assets and liabilities of Brambles Limited, subsidiaries and joint ventures are translated into US dollars at the exchange rate ruling at the balance sheet date. The share capital of Brambles Limited is translated into US dollars at historical rates. All resulting exchange differences arising on the translation of Brambles’ overseas and Australian entities are recognised as a separate component of equity. The ﬁnancial statements of foreign subsidiaries and joint ventures that report in the currency of a hyperinﬂationary economy are restated in terms of the measuring unit current at the balance sheet date before they are translated into US dollars. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The principal exchange rates affecting Brambles were: Average 2010 2009 Year end 30 June 2010 US$:A$ US$:€ US$:£ 0.8813 0.7479 0.8498 1.3782 1.3822 1.2185 1.5733 1.6103 1.5051 30 June 2009 0.8114 1.4106 1.6637 Revenue Revenue is recognised to the extent that it is probable that the economic beneﬁts will ﬂow to Brambles and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of duties and taxes paid (Goods and Services Tax and local equivalents). Revenue for services is recognised when invoicing the customer following the provision of the service and/or under the terms of agreed contracts in accordance with agreed contractual terms in the period in which the service is provided. 60 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 60 10/9/10 6:46:07 PM Other income Other income includes net gains on disposal of property, plant and equipment in the ordinary course of business, which are recognised when control of the property has passed to the buyer. Amounts arising from compensation for irrecoverable pooling equipment are recognised only when it is probable that they will be received. DIVIDENDS Dividend revenue is recognised when Brambles’ right to receive the payment is established. Dividends received from investments in subsidiaries and joint ventures are recognised as revenue, even if they are paid out of pre-acquisition proﬁts. Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁnancial instrument) to the net carrying amount of the ﬁnancial asset. Borrowing costs Borrowing costs are recognised as expenses in the year in which they are incurred, except where they are included in the cost of qualifying assets. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s outstanding borrowings during the year. No borrowing costs were capitalised in 2010 or 2009. Pensions and other post-employment beneﬁts Payments to deﬁned contribution pension schemes are charged as an expense as they fall due. Payments made to state-managed retirement beneﬁt schemes are dealt with as payments to deﬁned contribution schemes where Brambles’ obligations under the schemes are equivalent to those arising in a deﬁned contribution pension scheme. A liability in respect of deﬁned beneﬁt pension schemes is recognised in the balance sheet, measured as the present value of the deﬁned beneﬁt obligation at the reporting date less the fair value of the pension scheme’s assets at that date. Pension obligations are measured as the present value of estimated future cash ﬂows discounted at rates reﬂecting the yields of high quality corporate bonds. The costs of providing pensions under deﬁned beneﬁt schemes are calculated using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Past service cost is recognised immediately to the extent that the beneﬁts are already vested, and otherwise is amortised on a straight-line basis over the average period until the beneﬁts become vested. Actuarial gains and losses arising from differences between expected and actual returns, and the effect of changes in actuarial assumptions are recognised in full through the statement of comprehensive income in the period in which they arise. The costs of other post-employment liabilities are calculated in a similar way to deﬁned beneﬁt pension schemes and spread over the period during which beneﬁt is expected to be derived from the employees’ services, in accordance with the advice of qualiﬁed actuaries. Executive and employee option plans Incentives in the form of share-based compensation beneﬁts are provided to executives and employees under share option, performance share and MyShare employee share plans approved by shareholders. Options and performance share awards are fair valued by qualiﬁed actuaries at their grant dates in accordance with the requirements of AASB 2: Share-based Payments, using a binomial model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, on a straight-line basis over the period in which the performance conditions are fulﬁlled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). Executives and employees in certain jurisdictions are provided cash incentives calculated by reference to the options and awards under the share option schemes (phantom shares). These phantom shares are fair valued on initial grant and at each subsequent reporting date. The cost of such phantom shares is charged to the income statement over the relevant vesting periods, with a corresponding increase in provisions. The fair value calculation of options and performance shares granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, Brambles reviews its estimate of the number of options and performance shares that are expected to become exercisable. The employee beneﬁt expense recognised each period takes into account the most recent estimate. Signiﬁcant items and Underlying proﬁt To assist users of the ﬁnancial statements in understanding Brambles’ business results, Brambles discloses Signiﬁcant items as a footnote to its income statement. Signiﬁcant items are items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: – outside the ordinary course of business (eg gains or losses on the sale or termination of operations, the cost of signiﬁcant reorganisations or restructuring); or part of the ordinary activities of the business but unusual due to their size and nature. – Underlying proﬁt is a non-statutory proﬁt measure and represents proﬁt from continuing operations before ﬁnance costs, tax and Signiﬁcant items. ASSETS Cash and cash equivalents For purposes of the cash ﬂow statement, cash includes deposits at call with ﬁnancial institutions and other highly liquid investments which are readily convertible to cash on hand and are subject to an insigniﬁcant risk of changes in value, net of outstanding bank overdrafts. Bank overdrafts are presented within borrowings in the balance sheet. Receivables Trade receivables due within one year do not carry any interest and are recognised at amounts receivable less an allowance for any uncollectible amounts. Trade receivables are recognised when services are provided and settlement is expected within normal credit terms. BRAMBLES LIMITED ANNUAL REPORT 2010 61 BRAM021 Annual Report 2010 FINS v7 FA.indd 61 10/9/10 6:46:07 PM NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Bad debts are written-off when identiﬁed. A provision for doubtful receivables is established when there is a level of uncertainty as to the full recoverability of the receivable, based on objective evidence. Signiﬁcant ﬁnancial difﬁculties of the debtor, probability that the debtor will enter liquidation, receivership or bankruptcy, and default or signiﬁcant delay in payment are considered indicators that the trade receivable is doubtful. The amount of the provision is measured as the difference between the carrying amount of the trade receivables and the estimated future cash ﬂows expected to be received from the relevant debtors. When a trade receivable for which a provision had been recognised becomes uncollectible in a subsequent period, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. Inventories Stock and stores on hand are valued at the lower of cost and net realisable value and, where appropriate, provision is made for possible obsolescence. Work in progress, which represents partly-completed work undertaken at pre-arranged rates but not invoiced at the balance sheet date, is recorded at the lower of cost or net realisable value. Cost is determined on a ﬁrst-in, ﬁrst-out basis and, where relevant, includes an appropriate portion of overhead expenditure. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs to make the sale. Recoverable amount of non-current assets At each reporting date, Brambles assesses whether there is any indication that an asset, or cash generating unit to which the asset belongs, may be impaired. Where an indicator of impairment exists, Brambles makes a formal estimate of recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. The impairment loss is recognised in the income statement in the reporting period in which the write-down occurs. The expected net cash ﬂows included in determining recoverable amounts of non-current assets are discounted to their present values using a market risk adjusted discount rate. Property, plant and equipment Property, plant and equipment (PPE) is stated at cost, net of depreciation and any impairment, except land which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of assets, and, where applicable, an initial estimate of the cost of dismantling and removing the item and restoring the site on which it is located. Subsequent expenditure is capitalised only when it is probable that future economic beneﬁts associated with the expenditure will ﬂow to Brambles. Repairs and maintenance are expensed in the income statement in the period they are incurred. Depreciation is charged in the ﬁnancial statements so as to write-off the cost of all PPE, other than freehold land, to their residual value on a straight-line or reducing balance basis over their expected useful lives to Brambles. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The expected useful lives of PPE are generally: – – – buildings pooling equipment other plant and equipment (owned and leased) 50 years 5–10 years 3–20 years The cost of improvements to leasehold properties is amortised over the unexpired portion of the lease, or the estimated useful life of the improvement to Brambles, whichever is the shorter. Provision is made for irrecoverable pooling equipment based on experience in each market. The provision is presented within accumulated depreciation. The carrying values of PPE are reviewed for impairment when circumstances indicate their carrying values may not be recoverable. Assets are assessed within the cash generating unit to which they belong. Any impairment losses are recognised in the income statement. The recoverable amount of PPE is the greater of its fair value less costs to sell and its value in use. Value in use is determined as estimated future cash ﬂows discounted to their present value using a pre-tax discount rate reﬂecting current market assessments of the time value of money and the risk speciﬁc to the asset. PPE is derecognised upon disposal or when no future economic beneﬁts are expected to arise from continued use of the asset. Any net gain or loss arising on derecognition of the asset is included in the income statement and presented within other income in the period in which the asset is derecognised. Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortised. Goodwill represents the excess of the cost of an acquisition over the fair value of Brambles’ share of the net identiﬁable assets of the acquired subsidiary or joint venture at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of joint ventures is included in investments in joint ventures. Upon acquisition, any goodwill arising is allocated to each cash generating unit expected to beneﬁt from the acquisition. Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. An impairment loss is recognised when the recoverable amount of the cash generating unit is less than its carrying amount. On disposal of an operation, goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Intangible assets Intangible assets acquired are capitalised at cost, unless acquired as part of a business combination in which case they are capitalised at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less provisions for amortisation and impairment. The costs of acquiring and developing computer software for internal use are capitalised as intangible non-current assets where it is used to support a signiﬁcant business system and the expenditure leads to the creation of a durable asset. 62 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 62 10/9/10 6:46:07 PM Useful lives have been established for all non-goodwill intangible assets. Amortisation charges are expensed in the income statement on a straight-line basis over those useful lives. Estimated useful lives are reviewed annually. The expected useful lives of intangible assets are generally: – – customer lists and relationships computer software 3–20 years 3–10 years There are no non-goodwill intangible assets with indeﬁnite lives. Intangible assets are tested for impairment where an indicator of impairment exists, either individually or at the cash generating unit level. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. LIABILITIES Payables Trade and other creditors represent liabilities for goods and services provided to Brambles prior to the end of the ﬁnancial year which remain unpaid at the reporting date. The amounts are unsecured and are paid within normal credit terms. Non-current payables are discounted to present value using the effective interest method. Provisions Provisions for liabilities are made on the basis that, due to a past event, the business has a constructive or legal obligation to transfer economic beneﬁts that are of uncertain timing or amount. Provisions are measured at the present value of management’s best estimate at the balance sheet date of the expenditure required to settle the obligation. The discount rate used is a pre-tax rate that reﬂects current market assessments of the time value of money and the risks appropriate to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a ﬁnance cost in the income statement. Interest bearing liabilities Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the borrowing proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classiﬁed as current liabilities unless Brambles has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Employee entitlements Employee entitlements are provided by Brambles in accordance with the legal and social requirements of the country of employment. Principal entitlements are for annual leave, sick leave, long service leave and contract entitlements. Annual leave and sick leave entitlements are presented within trade and other payables. Liabilities for annual leave, as well as those employee entitlements which are expected to be settled within one year, are measured at the amounts expected to be paid when they are settled. All other employee entitlement liabilities are measured at the estimated present value of the future cash outﬂows to be made in respect of services provided by employees up to the reporting date. Dividends A provision for dividends is only recognised where the dividends have been declared prior to the reporting date. Leases Leases are classiﬁed at their inception as either operating or ﬁnance leases based on the economic substance of the agreement so as to reﬂect the risks and beneﬁts incidental to ownership. OPERATING LEASES The minimum lease payments under operating leases, where the lessor effectively retains substantially all of the risks and beneﬁts of ownership of the leased item, are recognised as an expense on a straight-line basis over the term of the lease. FINANCE LEASES Finance leases, which effectively transfer substantially all of the risks and beneﬁts incidental to ownership of the leased item to Brambles, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, present value of the minimum lease payments, and disclosed as property, plant and equipment held under lease. A lease liability of equal value is also recognised. Lease payments are allocated between ﬁnance charges and a reduction of the lease liability so as to achieve a constant period rate of interest on the lease liability outstanding each period. The ﬁnance charge is recognised as a ﬁnance cost in the income statement. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Income tax The income tax expense or beneﬁt for the year is the tax payable or receivable on the current year’s taxable income based on the national income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the ﬁnancial statements, and to unused tax losses. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences between the carrying amounts of assets and liabilities in the ﬁnancial statements and the corresponding tax basis used in the computation of taxable proﬁt, calculated using tax rates which are enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufﬁcient taxable proﬁt will be available to allow all or part of the deferred tax asset to be utilised. BRAM021 Annual Report 2010 FINS v7 FA.indd 63 10/9/10 6:46:07 PM BRAMBLES LIMITED ANNUAL REPORT 2010 63 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Deferred tax assets and liabilities are not recognised: – where the deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁt nor taxable proﬁt or loss; or in respect of temporary differences associated with investments in subsidiaries and joint ventures where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. – Current and deferred tax attributable to amounts recognised directly in equity are also recognised directly in equity. Financial assets Brambles classiﬁes its ﬁnancial assets in the following two categories: ﬁnancial assets at fair value through proﬁt or loss and loans and receivables. The classiﬁcation depends on the purpose for which the ﬁnancial assets were acquired. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets at fair value through proﬁt or loss are ﬁnancial assets held for trading. A ﬁnancial asset is classiﬁed in this category if acquired principally for the purpose of selling in the short term. LOANS AND RECEIVABLES Loans and receivables are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. Financial assets are recognised on Brambles’ balance sheet when Brambles becomes a party to the contractual provisions of the instrument. Derecognition takes place when Brambles no longer controls the contractual rights that comprise the ﬁnancial instrument, which is normally the case when the instrument is sold, or all the cash ﬂows attributable to the instrument are passed through to an independent third party. Derivatives and hedging activities Derivative instruments used by Brambles, which are used solely for hedging purposes (ie to offset foreign exchange and interest rate risks), comprise interest rate swaps, caps, collars, forward rate agreements and forward foreign exchange contracts. Such derivative instruments are used to alter the risk proﬁle of Brambles’ existing underlying exposure in line with Brambles’ risk management policies. Derivative ﬁnancial instruments are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturities at the balance sheet date. The fair value of interest rate swap contracts is calculated as the present value of the forward cash ﬂows of the instrument after applying market rates and standard valuation techniques. For the purposes of hedge accounting, hedges are classiﬁed as either fair value hedges, cash ﬂow hedges or net investment hedges. FAIR VALUE HEDGES Fair value hedges are derivatives that hedge exposure to changes in the fair value of a recognised asset or liability, or an unrecognised ﬁrm commitment. In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the income statement. Any gain or loss attributable to the hedged risk on remeasurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing ﬁnancial instrument, the adjustment is amortised to the income statement such that it is fully amortised by maturity. Hedge accounting is discontinued prospectively if the hedge is terminated or no longer meets the hedge accounting criteria. In this case, any adjustment to the carrying amounts of the hedged item for the designated risk for interest-bearing ﬁnancial instruments is amortised to the income statement following termination of the hedge. CASH FLOW HEDGES Cash ﬂow hedges are derivatives that hedge exposure to variability in cash ﬂows that is either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction. In relation to cash ﬂow hedges to hedge forecast transactions which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and reserves in equity and the ineffective portion is recognised in the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualiﬁes for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net proﬁt or loss for the year. For all other cash ﬂow hedges, the gains or losses that are recognised in equity are transferred to the income statement in the same year in which the hedged ﬁrm commitment affects the net proﬁt and loss, for example when the future sale actually occurs. When the hedged ﬁrm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. 64 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 64 10/9/10 6:46:08 PM NET INVESTMENT HEDGES Hedges for net investments in foreign operations are accounted for similarly to cash ﬂow hedges. Any gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and reserves in equity and the ineffective portion is recognised in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed or sold. DERIVATIVES THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING Where derivatives do not qualify for hedge accounting, gains or losses arising from changes in their fair value are taken directly to net proﬁt or loss for the year. Contributed equity Ordinary shares including share premium are classiﬁed as contributed equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of Brambles’ own equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds of issue. Earnings per share (EPS) Basic EPS is calculated as net proﬁt attributable to members of the parent entity, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net proﬁt attributable to members of the parent entity, adjusted for: – costs of servicing equity (other than dividends) and preference share dividends; the after-tax effect of dividends and ﬁnance costs associated with dilutive potential ordinary shares that have been recognised as expenses; other non-discretionary changes in revenues or expenses during the year that would result from the dilution of potential ordinary shares; – – and divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. EPS on Underlying proﬁt after ﬁnance costs and tax is calculated as Underlying proﬁt after ﬁnance costs and tax attributable to members of the parent entity, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Rounding of amounts As Brambles is a company of a kind referred to in ASIC Class Order 98/0100, relevant amounts in the ﬁnancial statements and Directors’ Report have been rounded to the nearest hundred thousand US dollars or, in certain cases, to the nearest thousand US dollars. NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In applying its accounting policies, Brambles has made estimates and assumptions concerning the future, which may differ from the related actual outcomes. Those estimates and assumptions which have a signiﬁcant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. Irrecoverable pooling equipment provisioning Loss or damage is an inherent risk of pooling equipment operations. CHEP’s pooling equipment operations around the world differ in terms of business model, market dynamics, customer and distribution channel proﬁles, contractual arrangements and operational details. Brambles conducts audits on a regular basis to conﬁrm the existence and the condition of its pooling equipment assets, and monitors its pooling equipment operations using detailed key performance indicators (KPIs). The irrecoverable pooling equipment provision is determined by reference to historical statistical data in each market, including the outcome of audits and relevant KPIs, together with management estimates of future equipment losses. Impairment of goodwill Brambles’ business units undertake an impairment review process annually to ensure that goodwill balances are not carried at amounts that are in excess of their recoverable amounts. The recoverable amount of the goodwill in continuing operations is determined based on value in use calculations undertaken at the cash generating unit level. These calculations require the use of key assumptions which are set out in Note 20. Income taxes Brambles is a global company and is subject to income taxes in many jurisdictions around the world. Signiﬁcant judgement is required in determining the provision for income taxes on a worldwide basis. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Brambles recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the ﬁnal tax outcome of these matters is different from amounts provided, such differences will impact the current and deferred tax provisions in the period in which such outcome is obtained. Refer to Note 9 for further details. Provisions on divestments Brambles has made provisions in relation to vendor warranties and other matters associated with the divestments made in 2007 and prior years. These provisions have been established by management using information currently available. Where the eventual outcome of these matters is different from amounts currently provided, such differences will impact proﬁts in the period in which such outcome is recognised. Refer to Note 24 for further details. BRAM021 Annual Report 2010 FINS v7 FA.indd 65 10/9/10 6:46:08 PM BRAMBLES LIMITED ANNUAL REPORT 2010 65 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 4. SEGMENT INFORMATION Brambles’ segment information is provided on the same basis as its internal management reporting to the CEO and reﬂects how Brambles is organised and managed. Brambles has ﬁve reportable segments, being CHEP Americas, CHEP EMEA, CHEP Asia-Paciﬁc (pallet and container pooling businesses), Recall (information management business) and Brambles HQ (corporate centre). Discontinued operations primarily comprise the Cleanaway businesses (waste management), which were divested in 2006 and 2007. Segment results shown are consistent with internal management reporting. Segment performance is measured on sales, Underlying proﬁt, cash ﬂow from operations and Brambles Value Added (BVA). Underlying proﬁt is the main measure of segment proﬁt. A reconciliation between Underlying proﬁt and operating proﬁt is set out as a footnote to the income statement. Segment sales revenue is measured on the same basis as in the income statement. Segment sales revenue is allocated to segments based on the business stream and physical location of the business unit that invoices the customer. Intersegment revenue during the year was immaterial. There is no single external customer who contributed more than 10% of Group sales revenue. Assets and liabilities are measured consistently in segment reporting and in the balance sheet. Assets and liabilities are allocated to segments based on segment use and physical location. Cash, borrowings and tax balances are managed centrally and therefore not allocated to segments. By operating segment CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Total By geographic origin Americas Europe Australia Other Total By operating segment CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Continuing operations Discontinued operations Total SALES REVENUE CASH FLOW FROM OPERATIONS 1 BRAMBLES VALUE ADDED 2 2010 US$M 2009 US$M 2010 US$M 2009 US$M 2010 US$M 2009 US$M 1,533.6 1,556.9 1,482.6 1,452.6 390.9 323.4 3,407.1 3,332.9 739.7 685.7 – – 4,146.8 4,018.6 285.7 411.7 94.1 791.5 121.7 (30.9) 882.3 267.0 372.7 9.8 649.5 106.9 (34.0) 722.4 38.1 165.3 28.2 231.6 9.0 (25.2) 215.4 138.5 159.8 26.2 324.5 (6.4) (20.7) 297.4 1,868.9 1,870.2 1,537.9 1,537.1 501.6 238.4 421.2 190.1 4,146.8 4,018.6 OPERATING PROFIT 3 SIGNIFICANT ITEMS BEFORE TAX 4 UNDERLYING PROFIT 4 2010 US$M 2009 US$M 2010 US$M 2009 US$M 2010 US$M 2009 US$M 235.2 324.9 77.8 637.9 123.1 (36.5) 724.5 3.9 728.4 229.0 286.5 57.9 573.4 95.9 48.9 718.2 15.2 733.4 (1.9) (4.6) (0.6) (7.1) (1.5) (0.3) (8.9) 3.9 (5.0) (205.4) (41.0) (3.2) (249.6) (8.4) 75.6 (182.4) 15.2 (167.2) 237.1 329.5 78.4 645.0 124.6 (36.2) 733.4 434.4 327.5 61.1 823.0 104.3 (26.7) 900.6 66 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 66 10/9/10 6:46:08 PM By operating segment CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Total By operating segment CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Brambles HQ Total segment assets and liabilities Cash and borrowings Current tax balances Deferred tax balances Equity-accounted investments Total assets and liabilities Non-current assets by geographic origin5 Americas Europe Australia Other Total CAPITAL EXPENDITURE (INCLUDING ACQUISITIONS) DEPRECIATION AND AMORTISATION 2010 US$M 2009 US$M 2010 US$M 2009 US$M 214.2 174.8 67.2 456.2 73.7 2.1 312.6 223.6 93.0 629.2 59.0 5.4 171.9 167.8 52.1 391.8 47.9 4.3 173.3 168.5 36.5 378.3 46.0 0.3 532.0 693.6 444.0 424.6 SEGMENT ASSETS SEGMENT LIABILITIES 2010 US$M 2009 US$M 2010 US$M 2009 US$M 1,702.6 1,739.5 1,499.4 1,752.1 451.6 430.4 3,653.6 3,922.0 1,038.2 1,020.1 32.9 11.0 204.9 339.3 91.0 635.2 182.5 78.5 4,724.7 4,953.1 896.2 241.6 360.3 72.3 674.2 167.7 79.3 921.2 135.5 16.3 19.8 14.0 90.1 34.5 7.0 13.8 1,894.8 2,233.5 78.5 408.2 – 64.6 449.9 – 4,910.3 5,098.5 3,277.7 3,669.2 1,936.8 1,952.9 1,270.4 1,532.3 487.9 315.2 488.1 266.1 4,010.3 4,239.4 1 Cash ﬂow from operations is cash ﬂow generated after net capital expenditure but excluding Signiﬁcant items that are outside the ordinary course of business. 2 BVA represents the value generated over and above the cost of the capital used to generate that value. It is calculated using ﬁxed June 2009 exchange rates as: – Underlying proﬁt; plus – Signiﬁcant items that are part of the ordinary activities of the business; less – Average Capital Invested, adjusted for accumulated pre-tax Signiﬁcant items that are part of the ordinary activities of the business, multiplied by 12%. 3 Operating proﬁt is segment revenue less segment expense and excludes net ﬁnance costs. 4 Underlying proﬁt is proﬁt from continuing operations before ﬁnance costs, tax and Signiﬁcant items. Refer Note 6. 5 Non-current assets exclude ﬁnancial instruments and deferred tax assets. BRAM021 Annual Report 2010 FINS v7 FA.indd 67 10/9/10 6:46:08 PM BRAMBLES LIMITED ANNUAL REPORT 2010 67 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 5. PROFIT FROM ORDINARY ACTIVITIES – CONTINUING OPERATIONS a) Revenue and other income – continuing operations Sales revenue Net gains on disposals of property, plant and equipment Other operating income Other income Total income b) Operating expenses – continuing operations Employment costs (Note 7) Service suppliers: – transport – repairs and maintenance – subcontractors and other service suppliers Raw materials and consumables Occupancy Depreciation of property, plant and equipment Impairment of pooling equipment (refer Note 6) Irrecoverable pooling equipment provision expense Amortisation: – software – acquired intangible assets (other than software) – deferred expenditure Other1 c) Net foreign exchange gains and losses – continuing operations Net (losses)/gains included in operating proﬁt1 Net gains included in net ﬁnance costs 1 2009 includes a US$77.3 million foreign exchange gain on capital repatriation from an overseas subsidiary. Refer Note 6 for further details. 2010 US$M 2009 US$M 4,146.8 4,018.6 26.4 70.6 97.0 11.9 84.8 96.7 4,243.8 4,115.3 779.5 778.2 730.7 376.3 458.0 193.5 262.3 405.5 – 111.2 24.2 6.7 7.6 169.6 758.5 353.4 434.1 181.1 254.3 391.3 33.6 97.8 22.8 6.6 3.9 86.5 3,525.1 3,402.1 (1.0) 2.3 1.3 75.5 0.1 75.6 68 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 68 10/9/10 6:46:08 PM NOTE 6. SIGNIFICANT ITEMS – CONTINUING OPERATIONS Signiﬁcant items are items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: – outside the ordinary course of business (eg gains or losses on the sale or termination of operations, the cost of signiﬁcant reorganisations or restructuring); or part of the ordinary activities of the business but unusual due to their size and nature. – Signiﬁcant items are disclosed to assist users of the ﬁnancial statements to understand Brambles’ business results. Items outside the ordinary course of business: – restructuring costsa Signiﬁcant items from continuing operations Items outside the ordinary course of business: – restructuring costsa – reset of tax cost bases on Uniﬁcationb – foreign exchange gain on capital repatriationc Items within ordinary activities, but unusual due to size and nature: – Walmart transition impactd – USA pallet quality program costse Signiﬁcant items from continuing operations 2010 BEFORE TAX US$M TAX US$M AFTER TAX US$M (8.9) (8.9) 2.6 2.6 (6.3) (6.3) 2009 BEFORE TAX US$M TAX US$M AFTER TAX US$M (153.3) – 77.3 (29.0) (77.4) (182.4) 47.0 (6.5) – 11.3 30.3 82.1 (106.3) (6.5) 77.3 (17.7) (47.1) (100.3) a In February 2009, Brambles announced a restructure of its operations, estimated to cost US$159– US$169 million before tax, as a response to the effects of the global economic crisis on its businesses. An impairment charge of US$33.6 million, a US$61.6 million charge for storage and scrapping costs and US$3.8 million depreciation expense were booked in 2009 against surplus pallets within the CHEP USA pool. Redundancy and plant closure expenses of US$63.2 million have been incurred in various countries, of which US$8.9 million was booked in 2010 (2009: US$54.3 million). b During 2009, a net adjustment of US$(6.5) million was made to tax cost bases and other Uniﬁcation tax matters. c During 2009, capital of €460 million was repatriated to Australia from an overseas subsidiary. As required by AASB 121: The Effects of Changes in Foreign Exchange Rates, a portion of the accumulated foreign currency translation reserve previously held in relation to the overseas subsidiary was recognised in the income statement, resulting in a US$77.3 million foreign exchange gain. d During 2009, non-recurring transition costs of US$29.0 million due to loss of white wood revenue and net additional operational costs were incurred within CHEP USA as a result of Walmart’s decision to modify management of pallet ﬂows within its network in the USA. e Costs of US$77.4 million were incurred within CHEP USA on the pallet quality program and reported as Signiﬁcant items in 2009. In October 2009, CHEP USA launched its Better Everyday customer service and quality program. In 2010, spending under the Better Everyday program, together with the ﬁnal US$37 million spending under the USA pallet quality program announced in February 2008, have been presented within Underlying proﬁt. BRAM021 Annual Report 2010 FINS v7 FA.indd 69 10/9/10 6:46:08 PM BRAMBLES LIMITED ANNUAL REPORT 2010 69 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 7. EMPLOYMENT COSTS – CONTINUING OPERATIONS Wages and salaries Social security costs Share-based payment expense Pension costs: – deﬁned contribution plans – deﬁned beneﬁt plans Other post-employment beneﬁts The average monthly number of employees in continuing operations was: CHEP Recall Brambles HQ NOTE 8. NET FINANCE COSTS Finance revenue Bank accounts and short term deposits Other Finance costs Interest expense on bank loans and borrowings Other Net ﬁnance costs 2010 US$M 2009 US$M 653.2 648.2 71.5 11.1 19.9 5.4 18.4 72.2 14.2 19.7 4.9 19.0 779.5 778.2 2010 2009 7,617 5,004 93 7,911 4,784 90 12,714 12,785 2010 US$M 2009 US$M 2.2 0.6 2.8 5.3 1.8 7.1 (101.9) (110.9) (10.5) (17.1) (112.4) (128.0) (109.6) (120.9) 70 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 70 10/9/10 6:46:08 PM NOTE 9. INCOME TAX a) Components of tax expense Amounts recognised in the income statement Current income tax – continuing operations: – income tax charge – prior year adjustments Deferred tax – continuing operations: – origination and reversal of temporary differences – previously unrecognised tax losses – prior year adjustments Tax expense – continuing operations Tax beneﬁt – discontinued operations (Note 12) Tax expense recognised in the income statement Amounts recognised in the statement of comprehensive income – on actuarial losses on deﬁned beneﬁt pension plans – on losses on revaluation of cash ﬂow hedges Tax beneﬁt recognised directly in the statement of comprehensive income b) Reconciliation between tax expense and accounting proﬁt before tax Proﬁt before tax – continuing operations Tax at standard Australian rate of 30% (2009: 30%) Effect of tax rates in other jurisdictions Prior year adjustments Current year tax losses not recognised Foreign withholding tax – unrecoverable Change in tax rates Non-deductible expenses Prior year tax losses recouped/recognised Other Tax expense – continuing operations Tax beneﬁt – discontinued operations (Note 12) Total income tax expense 2010 US$M 2009 US$M 201.8 13.8 215.6 (6.6) (15.7) (22.3) (44.6) 171.0 (1.0) 170.0 (1.3) 0.5 (0.8) 614.9 184.5 (9.9) (8.5) 6.1 5.5 0.2 7.5 (15.7) 1.3 171.0 (1.0) 170.0 147.3 (18.1) 129.2 29.1 (9.4) 14.4 34.1 163.3 (3.4) 159.9 0.2 (4.9) (4.7) 597.3 179.2 (3.6) (3.7) 14.6 9.4 (1.1) 6.1 (9.4) (28.2) 163.3 (3.4) 159.9 BRAM021 Annual Report 2010 FINS v7 FA.indd 71 10/9/10 6:46:09 PM BRAMBLES LIMITED ANNUAL REPORT 2010 71 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 9. INCOME TAX – CONTINUED c) Components of and changes in deferred tax assets Deferred tax assets shown in the balance sheet are represented by cumulative temporary differences attributable to: Items recognised through the income statement Employee beneﬁts Provisions Losses available against future taxable income Other Items recognised directly in equity Actuarial losses on deﬁned beneﬁt pension plans Cash ﬂow hedges Share-based payments Set-off of deferred tax liabilities Net deferred tax assets Changes in deferred tax assets were as follows: At 1 July Credited to the income statement Credited directly to equity Offset against deferred tax liabilities Currency variations At 30 June 2010 US$M 2009 US$M 10.5 37.6 143.5 48.9 240.5 3.3 4.9 0.3 8.5 7.5 52.0 116.8 46.9 223.2 2.3 5.3 0.3 7.9 (229.2) (224.1) 19.8 7.0 7.0 7.5 0.6 5.1 (0.4) 19.8 8.8 51.1 4.6 (52.5) (5.0) 7.0 Deferred tax assets are recognised for carried forward tax losses to the extent that the realisation of the related tax beneﬁt through future taxable proﬁts is probable. At reporting date, Brambles has unused tax losses of US$569.0 million (2009: US$493.1 million) available for offset against future proﬁts. A deferred tax asset has been recognised in respect of US$395.0 million (2009: US$324.8 million) of such losses. The beneﬁt for tax losses will only be obtained if: – Brambles derives future assessable income of a nature and of an amount sufﬁcient to enable the beneﬁt from the deductions for the losses to be realised; Brambles continues to comply with the conditions for deductibility imposed by tax legislation; and no changes in tax legislation adversely affect Brambles in realising the beneﬁt from the deductions for the losses. – – No deferred tax asset has been recognised in respect of the remaining unused tax losses of US$174.0 million (2009: US$168.3 million) due to the unpredictability of future proﬁt streams in the relevant jurisdictions. Other than China losses of US$31.5 million which will expire between 2011 and 2015, all other losses may be carried forward indeﬁnitely. 72 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 72 10/9/10 6:46:09 PM d) Components and changes in deferred tax liabilities Deferred tax liabilities shown in the balance sheet are represented by cumulative temporary differences attributable to: Items recognised through the income statement Accelerated depreciation for tax purposes Other Set-off of deferred tax assets Net deferred tax liabilities Changes in deferred tax liabilities were as follows: At 1 July (Credited)/charged to the income statement Credited to the statement of comprehensive income Offset against deferred tax asset Currency variations At 30 June 2010 US$M 2009 US$M 538.1 99.3 637.4 565.7 108.3 674.0 (229.2) (224.1) 408.2 449.9 449.9 (37.1) – 5.1 (9.7) 408.2 443.5 85.2 (9.1) (52.5) (17.2) 449.9 At reporting date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised in the consolidated ﬁnancial statements was US$1,865.6 million (2009: US$1,769.3 million). No liability has been recognised in respect of these temporary differences because Brambles is in a position to control distributions from subsidiaries and it is probable that such differences will not reverse in the foreseeable future. Unremitted earnings totalled US$2,093.3 million (2009: US$2,134.7 million), of which US$170.9 million (2009: US$212.3 million) relates to earnings post Uniﬁcation. e) Tax consolidation Brambles Limited and its Australian subsidiaries formed a tax consolidated group in 2006. Brambles Limited, as the head entity of the tax consolidated group, and its Australian subsidiaries have entered into a tax sharing agreement in order to allocate income tax expense. The tax sharing agreement uses a stand-alone basis of allocation. Consequently, Brambles Limited and its Australian subsidiaries account for their own current and deferred tax amounts as if they each continue to be taxable entities in their own right. In addition, the agreement provides funding rules setting out the basis upon which subsidiaries are to indemnify Brambles Limited in respect of tax liabilities and the methodology by which subsidiaries in tax loss are to be compensated. BRAM021 Annual Report 2010 FINS v7 FA.indd 73 10/9/10 6:46:09 PM BRAMBLES LIMITED ANNUAL REPORT 2010 73 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 10. EARNINGS PER SHARE Earnings per share – basic – diluted From continuing operations – basic – diluted – basic, on Underlying proﬁt after ﬁnance costs and tax From discontinued operations – basic – diluted 2010 US CENTS 2009 US CENTS 31.8 31.7 31.5 31.4 31.9 0.3 0.3 32.6 32.5 31.3 31.2 38.5 1.3 1.3 Options, performance share rights and MyShare matching conditional rights granted under Brambles’ share plans are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. Details are set out in Note 27. a) Weighted average number of shares during the year Used in the calculation of basic earnings per share Adjustment for share options and rights Used in the calculation of diluted earnings per share b) Reconciliations of proﬁts used in EPS calculations Statutory proﬁt Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt used in calculating basic and diluted EPS Underlying proﬁt after ﬁnance costs and tax Underlying proﬁt (Note 4) Net ﬁnance costs (Note 8) Underlying proﬁt before tax Tax expense on Underlying proﬁt Underlying proﬁt after ﬁnance costs and tax which reconciles to statutory proﬁt: Underlying proﬁt after ﬁnance costs and tax Signiﬁcant items after tax (Note 6) Proﬁt from continuing operations 2010 MILLION 2009 MILLION 1,411.3 1,388.3 5.9 4.4 1,417.2 1,392.7 2010 US$M 2009 US$M 443.9 4.9 448.8 434.0 18.6 452.6 733.4 900.6 (109.6) (120.9) 623.8 779.7 (173.6) (245.4) 450.2 534.3 450.2 534.3 (6.3) (100.3) 443.9 434.0 74 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 74 10/9/10 6:46:09 PM NOTE 11. DIVIDENDS a) Dividends declared and paid during the year Dividend per share (in Australian cents) Franked amount at 30% tax (in Australian cents) Cost (in US$ million) Payment date b) Dividend declared after reporting date Dividend per share (in Australian cents) Franked amount at 30% tax (in Australian cents) Cost (in US$ million) Payment date Dividend record date As this dividend had not been declared at the reporting date, it is not reﬂected in the ﬁnancial statements. INTERIM 2010 12.5 2.5 164.2 FINAL 2009 12.5 2.5 160.5 8 April 2010 8 October 2009 FINAL 2010 12.5 2.5 158.6 14 October 2010 22 September 2010 2010 US$M 2009 US$M c) Franking credits Franking credits available for subsequent ﬁnancial years based on a tax rate of 30% 34.2 22.0 The amounts above represent the balance of the franking account as at the end of the year, adjusted for: – – – – franking credits that will arise from the payment of the current tax liability; franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; franking credits that will arise from dividends recognised as receivables at the reporting date; and franking credits that may be prevented from being distributed in subsequent ﬁnancial years. The ﬁnal 2010 dividend has been franked at 20%. Brambles has lodged private ruling requests with the Australian Taxation Ofﬁce as a result of amendments to the Australian tax consolidation legislation that were enacted in June 2010. If these ruling requests are granted, Brambles will receive tax refunds relating to prior years and have reduced Australian tax obligations in future years. Depending on the outcome and timing of each ruling, Brambles may be unable to frank its future dividends in the short to medium term. BRAM021 Annual Report 2010 FINS v7 FA.indd 75 10/9/10 6:46:09 PM BRAMBLES LIMITED ANNUAL REPORT 2010 75 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 12. DISCONTINUED OPERATIONS Net favourable provision adjustments on divestments completed in 2007 and prior years have been recognised as Signiﬁcant items outside the ordinary course of business. The impact of these adjustments on proﬁt and cash ﬂow are summarised below: Proﬁt before tax Tax beneﬁt Proﬁt for the year from discontinued operations Net cash outﬂow from operating activities NOTE 13. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short term deposits Short term deposits have initial maturities varying between 7 days and 3 months. Refer to Note 29 for other ﬁnancial instruments disclosures. NOTE 14. TRADE AND OTHER RECEIVABLES Current Trade receivables Provision for doubtful receivables (a) Net trade receivables Other debtors Accrued and unbilled revenue Non-current Other receivables 2010 US$M 3.9 1.0 4.9 (1.2) 120.2 15.3 135.5 2009 US$M 15.2 3.4 18.6 (2.2) 55.0 35.1 90.1 507.8 (9.0) 498.8 93.4 39.4 631.6 461.8 (11.7) 450.1 119.6 83.9 653.6 6.2 8.1 a) Provision for doubtful receivables Trade receivables are non-interest bearing and are generally on 30–90 day terms. A provision for doubtful receivables is established when there is a level of uncertainty as to the full recoverability of the receivable, based on objective evidence. A provision of US$2.9 million (2009: US$8.4 million) has been recognised as an expense in the current year for speciﬁc trade and other receivables for which such evidence exists. Movements in the provision for doubtful receivables were as follows: At 1 July Charge for the year Amounts written off Foreign exchange differences At 30 June 11.7 2.9 (5.2) (0.4) 9.0 7.6 8.4 (4.8) 0.5 11.7 76 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 76 10/9/10 6:46:09 PM At 30 June, the ageing analysis of trade receivables by reference to due dates was as follows: Not past due Past due 0-30 days but not impaired Past due 31-60 days but not impaired Past due 61-90 days but not impaired Past 90 days but not impaired Impaired 2010 US$M 2009 US$M 410.0 70.7 12.9 5.2 – 9.0 271.8 115.7 27.5 18.5 16.6 11.7 507.8 461.8 At 30 June 2010, trade receivables of US$88.8 million (2009: US$178.3 million) were past due but not doubtful. These trade receivables comprise customers who have a good debt history and are considered recoverable. At 30 June 2010, trade receivables of US$9.0 million (2009: US$11.7 million) were considered to be impaired. A provision of US$9.0 million (2009: US$11.7 million) has been recognised for doubtful receivables. Other debtors primarily comprise GST/VAT recoverable, loss compensation receivables and certain balances arising from outside Brambles’ ordinary business activities, such as deferred proceeds on sale of businesses and property, plant and equipment. At 30 June 2010, other debtors of US$35.3 million (2009: US$35.0 million) were past due but not considered to be impaired. No speciﬁc collection issues have been identiﬁed with these receivables. An ageing of these receivables was as follows: Past due 0-30 days but not impaired Past due 31-60 days but not impaired Past due 61-90 days but not impaired Past 90 days but not impaired 6.7 3.3 3.8 21.5 35.3 10.1 0.6 2.0 22.3 35.0 At 30 June 2010, there were no balances within other debtors that were considered to be impaired (2009: nil). No provision has been recognised (2009: nil). Refer to Note 29 for other ﬁnancial instruments disclosures. NOTE 15. INVENTORIES Raw materials and consumables Work in progress 26.0 7.5 33.5 27.8 7.3 35.1 BRAM021 Annual Report 2010 FINS v7 FA.indd 77 10/9/10 6:46:09 PM BRAMBLES LIMITED ANNUAL REPORT 2010 77 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS Interest rate swaps – cash ﬂow hedges Interest rate swaps – fair value hedges Forward foreign exchange contracts – cash ﬂow hedges Forward foreign exchange contracts – held for trading Interest rate swaps – cash ﬂow hedges Interest rate swaps – fair value hedges Embedded derivatives Refer to Note 29 for other ﬁnancial instruments disclosures. NOTE 17. OTHER ASSETS Current Prepayments Current tax receivable Non-current Prepayments 2010 US$M 2009 US$M 2010 US$M 2009 US$M CURRENT ASSETS CURRENT LIABILITIES – 8.4 – 6.1 14.5 – – – 1.1 1.1 8.1 – 0.2 3.9 12.3 – 0.5 0.1 12.2 12.9 NON-CURRENT ASSETS NON-CURRENT LIABILITIES 0.1 11.5 0.4 12.0 – – – – 7.1 3.0 – 10.1 5.8 – – 5.8 2010 US$M 2009 US$M 36.8 16.3 53.1 37.7 34.5 72.2 0.7 0.6 78 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 78 10/9/10 6:46:09 PM NOTE 18. INVESTMENTS a) Joint ventures Brambles has investments in the following unlisted jointly controlled entities, which are accounted for using the equity method. NAME (AND NATURE OF BUSINESS) PLACE OF INCORPORATION CISCO – Total Information Management Pte. Limited (Information management) Recall Becker GmbH & Co. KG (Document management services) Singapore Germany b) Movement in carrying amount of investments in joint ventures At 1 July Share of results after income tax (Note 18c) Dividends received/receivable Foreign exchange differences At 30 June c) Share of results of joint ventures Trading revenue Expenses Proﬁt from ordinary activities before tax Tax expense on ordinary activities Proﬁt for the year d) Share of assets and liabilities of joint ventures Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets – continuing operations e) Share of commitments and contingent liabilities of joint ventures Contingent liabilities Lease commitments Total – continuing operations % INTEREST HELD AT REPORTING DATE JUNE 2010 49% 50% JUNE 2009 49% 50% 2010 US$M 2009 US$M 13.8 5.8 (5.9) 0.3 14.0 12.5 (5.6) 6.9 (1.1) 5.8 3.7 14.2 17.9 3.0 0.9 3.9 16.9 5.0 (7.1) (1.0) 13.8 11.6 (5.6) 6.0 (1.0) 5.0 3.2 13.8 17.0 2.3 0.9 3.2 14.0 13.8 0.5 1.8 2.3 0.7 2.5 3.2 BRAM021 Annual Report 2010 FINS v7 FA.indd 79 10/9/10 6:46:09 PM BRAMBLES LIMITED ANNUAL REPORT 2010 79 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 19. PROPERTY, PLANT AND EQUIPMENT At 1 July 2008 Cost Accumulated depreciation Net carrying amount Year ended 30 June 2009 Opening net carrying amount Additions Disposals Other transfers Depreciation charge Impairment of pooling equipment Irrecoverable pooling equipment provision expense Foreign exchange differences Closing net carrying amount At 30 June 2009 Cost Accumulated depreciation Net carrying amount Year ended 30 June 2010 Opening net carrying amount Additions Disposals Other transfers Depreciation charge Irrecoverable pooling equipment provision expense Foreign exchange differences Closing net carrying amount At 30 June 2010 Cost Accumulated depreciation Net carrying amount LAND AND BUILDINGS US$M PLANT AND EQUIPMENT US$M TOTAL US$M 145.9 5,935.8 6,081.7 (55.8) (2,327.0) (2,382.8) 90.1 3,608.8 3,698.9 90.1 3,608.8 3,698.9 5.4 (3.4) – 668.6 (88.6) (7.6) 674.0 (92.0) (7.6) (7.0) (384.3) (391.3) – – (33.6) (97.8) (33.6) (97.8) (10.4) (298.6) (309.0) 74.7 3,366.9 3,441.6 129.0 5,566.9 5,695.9 (54.3) (2,200.0) (2,254.3) 74.7 3,366.9 3,441.6 74.7 3,366.9 3,441.6 8.2 (2.2) 4.0 (6.8) 494.1 (58.1) (30.4) 502.3 (60.3) (26.4) (398.7) (405.5) – (111.2) (111.2) (4.3) (112.4) (116.7) 73.6 3,150.2 3,223.8 130.4 5,287.8 5,418.2 (56.8) (2,137.6) (2,194.4) 73.6 3,150.2 3,223.8 The net carrying amounts above include plant and equipment held under ﬁnance lease US$1.2 million (2009: US$1.9 million); leasehold improvements US$6.4 million (2009: US$6.4 million); and capital work in progress US$17.6 million (2009: US$17.9 million). 80 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 80 10/9/10 6:46:09 PM NOTE 20. GOODWILL a) Net carrying amounts and movements during the year At 1 July Carrying amount Year ended 30 June Opening net carrying amount Disposal of subsidiaries Other transfers Foreign exchange differences Closing net carrying amount At 30 June Gross carrying amount Accumulated impairment Net carrying amount 2010 US$M 2009 US$M 612.3 676.1 612.3 676.1 – – (5.3) 607.0 (0.6) 0.3 (63.5) 612.3 607.0 612.3 – – 607.0 612.3 b) Segment-level summary of net carrying amount Goodwill acquired through business combinations is allocated to cash generating units (CGU), which are the smallest identiﬁable groupings of Brambles’ cash generating assets. A segment-level summary of the goodwill allocation is presented as follows: CHEP Americas CHEP EMEA CHEP Asia-Paciﬁc Total CHEP Recall Total goodwill 51.4 36.4 25.9 51.3 41.0 24.5 113.7 116.8 493.3 607.0 495.5 612.3 c) Recoverable amount testing - continuing operations The recoverable amount of goodwill is determined based on value in use calculations undertaken at the CGU level. The value in use is calculated using a discounted cash ﬂow methodology covering a 10 year period with an appropriate terminal value at the end of that period. Based on the impairment testing, the carrying amounts of goodwill in the CGUs related to continuing operations at reporting date were fully supported. The following describes the key assumptions on which management has based its cash ﬂow projections: CASH FLOW FORECASTS Cash ﬂow forecasts are based on the most recent ﬁnancial projections covering a maximum period of ﬁve years. Cash ﬂows beyond that period are extrapolated using estimated growth rates. Financial projections are based on assumptions that represent management’s best estimates. GROWTH RATES Growth rates ranging from nil to 4% were used beyond the period covered in the ﬁnancial projections. They are based on management’s expectations for future performance and do not normally exceed the long term growth rate for the business in which the CGU operates. TERMINAL VALUE The terminal value calculated after year 10 is determined using the stable growth model, having regard to the weighted average cost of capital and terminal growth factor appropriate to each CGU. DISCOUNT RATES Discount rates used are the pre-tax weighted average cost of capital (WACC) and include a premium for market risks appropriate to each country in which the CGU operates. WACCs ranged between 8.3% and 26.5%. SENSITIVITY Any reasonable change to the above key assumptions would not cause the carrying value of the CGU to materially exceed its recoverable amount. BRAM021 Annual Report 2010 FINS v7 FA.indd 81 10/9/10 6:46:10 PM BRAMBLES LIMITED ANNUAL REPORT 2010 81 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 21. INTANGIBLE ASSETS At 1 July 2008 Gross carrying amount Accumulated amortisation Net carrying amount Year ended 30 June 2009 Opening carrying amount Additions Disposals Other transfers Amortisation charge Foreign exchange differences Closing carrying amount At 30 June 2009 Gross carrying amount Accumulated amortisation Net carrying amount Year ended 30 June 2010 Opening carrying amount Additions Disposals Amortisation charge Foreign exchange differences Closing carrying amount At 30 June 2010 Gross carrying amount Accumulated amortisation Net carrying amount 1 Other intangible assets primarily comprise acquired customer lists and agreements. SOFTWARE US$M OTHER 1 US$M TOTAL US$M 314.5 (230.9) 83.6 174.3 (71.0) 103.3 488.8 (301.9) 186.9 83.6 20.9 (0.1) 2.4 (22.8) (6.8) 77.2 103.3 186.9 3.5 – 2.1 (10.5) (12.6) 85.8 24.4 (0.1) 4.5 (33.3) (19.4) 163.0 307.9 160.2 468.1 (230.7) (74.4) (305.1) 77.2 85.8 163.0 77.2 22.8 (0.1) 85.8 11.6 (0.1) (24.2) (14.3) (1.7) 74.0 1.6 84.6 163.0 34.4 (0.2) (38.5) (0.1) 158.6 317.3 172.1 489.4 (243.3) (87.5) (330.8) 74.0 84.6 158.6 82 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 82 10/9/10 6:46:10 PM NOTE 22. TRADE AND OTHER PAYABLES Current Trade payables GST/VAT and other payables Accruals and deferred income Non-current Other liabilities Trade payables and other current payables are non-interest bearing and are generally settled on 30–90 day terms. Refer to Note 29 for other ﬁnancial instruments disclosures. NOTE 23. BORROWINGS Current Unsecured: – bank overdraft – bank loans1 – accrued interest on loan notes2,3,4 – ﬁnance lease liabilities (Note 31) Non-current Unsecured: – bank loans1 – loan notes2,3,4,5 – ﬁnance lease liabilities (Note 31) Total borrowings 2010 US$M 2009 US$M 305.7 70.2 305.5 681.4 287.1 72.6 324.0 683.7 20.9 21.4 12.2 240.3 22.9 0.6 276.0 36.0 16.6 14.9 0.5 68.0 324.5 1,629.1 1,293.7 535.0 0.6 1.4 1,618.8 2,165.5 1,894.8 2,233.5 1 Unsecured bank loans include the following: (i) revolving loans in various currencies priced off LIBOR and drawn under multi-currency global banking facilities with a range of maturities out to December 2013; and (ii) various regional banking facilities providing local currency funding to certain subsidiaries. Included in bank loans is a borrowing of US$61.5 million (2009: US$71.2 million) which has been designated as a hedge of the net investment in Brambles’ European subsidiaries and is being used to partially hedge Brambles’ exposure to foreign exchange risks on these investments. 2 Notes issued in August 2004 in respect of US$425.0 million US private placement. The terms of the note are (i) Series A US$171.0 million 5.39% Guaranteed Senior Unsecured Notes due 4 August 2011; (ii) Series B US$157.5 million 5.77% Guaranteed Senior Unsecured Notes due 4 August 2014; and (iii) Series C US$96.5 million 5.94% Guaranteed Senior Unsecured Notes due 4 August 2016. 3 Notes issued in May 2009 in respect of US$110.0 million US private placement. The terms of the note are (i) Series A US$35.0 million 7.29% Guaranteed Senior Unsecured Notes due 7 May 2014; (ii) Series B US$55.0 million 7.83% Guaranteed Senior Unsecured Notes due 7 May 2016; and (iii) Series C US$20.0 million 8.23% Guaranteed Senior Unsecured Notes due 7 May 2019. 4 Notes issued in March 2010 to qualiﬁed institutional buyers in accordance with Rule 144A and Regulation S of the United States Securities Act. The terms of the notes are (i) US$250.0 million 3.95% Guaranteed Senior Notes due 1 April 2015; and (ii) US$500.0 million 5.35% Guaranteed Senior Notes due 1 April 2020. 5 US$450.0 million of loan notes have been hedged with interest rate swaps for fair value risk. In accordance with AASB139, the carrying value of the notes have been adjusted by US$14.4 million in relation to changes in fair value attributable to the hedged risk. Refer to Note 29 for other ﬁnancial instruments disclosures. BRAM021 Annual Report 2010 FINS v7 FA.indd 83 10/9/10 6:46:10 PM BRAMBLES LIMITED ANNUAL REPORT 2010 83 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 23. BORROWINGS – CONTINUED a) Borrowing facilities and credit standby arrangements Total facilities: – committed borrowing facilities – loan notes – credit standby/uncommitted/overdraft arrangements Facilities used at reporting date:1 – committed borrowing facilities – loan notes – credit standby/uncommitted/overdraft arrangements Facilities available at reporting date: – committed borrowing facilities – credit standby/uncommitted/overdraft arrangements 2010 US$M 2009 US$M 2,481.0 2,845.3 1,285.0 151.2 535.0 129.6 3,917.2 3,509.9 534.4 1,647.5 1,285.0 43.8 535.0 43.5 1,863.2 2,226.0 1,946.6 1,197.8 107.4 86.1 2,054.0 1,283.9 Borrowing facilities are arranged by Brambles on behalf of its subsidiaries. Funding is generally sourced from relationship banks and debt capital market investors on a medium to long term basis. The expiry dates of committed facilities range out to calendar year 2013 with loan notes having maturities out to April 2020. The average term to maturity of the committed bank facilities and the loan notes is equivalent to 3.6 years (2009: 3.3 years). These facilities are unsecured and are guaranteed as described in Note 37b. b) Borrowing facilities maturity proﬁle MATURITY TYPE 2010 Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Over 5 years 2009 Less than 1 year 1 – 2 years 2 – 3 years 3 – 4 years 4 – 5 years Over 5 years Bank loans/overdrafts Bank loans/loan notes Bank loans Bank loans/loan notes Loan notes Loan notes Bank loans/overdrafts Bank loans Bank loans/loan notes Loan notes Bank loans/loan notes Loan notes US$M TOTAL FACILITIES FACILITIES USED1 FACILITIES AVAILABLE 460.8 763.9 677.4 936.1 407.5 671.5 249.0 271.5 117.8 145.9 407.5 671.5 211.8 492.4 559.6 790.2 – – 3,917.2 1,863.2 2,054.0 134.7 685.8 795.6 583.0 981.8 329.0 45.2 332.8 557.3 380.6 581.1 329.0 89.5 353.0 238.3 202.4 400.7 – 3,509.9 2,226.0 1,283.9 1 Facilities used represents the principal value of loan notes and borrowings debited against the relevant facilities to reﬂect the correct amount of funding headroom. This amount differs by US$31.6 million (2009: US$7.5 million) from loan notes and borrowings as shown in the balance sheet which are measured on the basis of amortised cost as determined under the effective interest method and include accrued interest and fair value adjustments on certain hedging instruments. 84 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 84 10/9/10 6:46:10 PM NOTE 24. PROVISIONS At 1 July 2009 Current Non-current Charge to income statement: – additional provisions – unused amounts reversed Utilisation of provision Currency variations At 30 June 2010 Current Non-current EMPLOYEE ENTITLEMENTS US$M BUSINESS DISPOSALS US$M OTHER US$M TOTAL US$M 41.8 5.4 47.2 71.3 – (60.8) (0.3) 57.4 49.1 8.3 8.1 18.8 26.9 1.1 (6.6) (0.6) (2.1) 18.7 8.1 10.6 43.7 28.8 72.5 93.6 53.0 146.6 44.3 116.7 – (6.6) (71.3) (132.7) (0.4) 45.1 30.0 15.1 (2.8) 121.2 87.2 34.0 Employee entitlements provision comprises US$8.8 million (2009: US$9.0 million) for long service leave, US$1.6 million for phantom shares (2009: US$1.3 million) and US$47.0 million (2009: US$36.9 million) for bonuses and other employee-related obligations (other than those resulting from pension plans). None of these amounts related to phantom shares which had vested at reporting date. US$0.5 million (2009: US$3.6 million) of the long service leave provision has been recognised as current as it is expected to be settled within one year from reporting date. The remaining balance of long service leave of US$8.3 million (2009: US$5.4 million) is expected to settle within the next two to ten years and has been discounted to present value. Business disposals provision is in respect of divestments completed in 2007 and prior years. Other provisions comprise US$4.6 million (2009: US$39.8 million) for restructuring costs, US$1.3 million (2009: US$1.3 million) for litigation and customer disputes and US$39.2 million (2009: US$31.4 million) for other known exposures. BRAM021 Annual Report 2010 FINS v7 FA.indd 85 10/9/10 6:46:10 PM BRAMBLES LIMITED ANNUAL REPORT 2010 85 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25. RETIREMENT BENEFIT OBLIGATIONS a) Deﬁned contribution plans Brambles operates a number of deﬁned contribution retirement beneﬁt plans for qualifying employees. The assets of these plans are held in separately administered trusts or insurance policies. In some countries, Brambles’ employees are members of state-managed retirement beneﬁt plans. Brambles is required to contribute a speciﬁed percentage of payroll costs to the retirement beneﬁt plan to fund beneﬁts. The only obligation of Brambles with respect to deﬁned contribution retirement beneﬁt plans is to make the speciﬁed contributions. US$19.9 million (2009: US$19.7 million) representing contributions paid and payable to these plans by Brambles at rates speciﬁed in the rules of the plans relating to continuing operations has been recognised as an expense in the income statement. b) Deﬁned beneﬁt plans Brambles operates a number of deﬁned beneﬁt pension plans, which are closed to new entrants. The majority of the plans are self-administered and the plans’ assets are held independently of Brambles’ ﬁnances. Under the plans, members are entitled to retirement beneﬁts based upon a percentage of ﬁnal salary. No other post-retirement beneﬁts are provided. The plans are funded plans. The plan assets and the present value of the deﬁned beneﬁt obligation recognised in Brambles’ balance sheet are based upon the most recent formal actuarial valuations which have been updated to 30 June 2010 by independent professionally qualiﬁed actuaries and take account of the requirements of AASB 119. The present value of the deﬁned beneﬁt obligation, the related current service cost and past service cost were measured using the projected unit credit method. In addition to the principal deﬁned beneﬁt plans included in disclosures below, Brambles has a number of other arrangements in several countries that are either deﬁned beneﬁt pension plans or have certain deﬁned beneﬁt characteristics. Each of these arrangements has been assessed as immaterial separately and in aggregate and they have not been subjected to an independent AASB 119 valuation. c) Balance sheet amounts The amounts recognised in Brambles’ balance sheet in respect of deﬁned beneﬁt plans were as follows: Present value of deﬁned beneﬁt obligations Fair value of plan assets Net liability recognised in the balance sheet 2010 US$M 2009 US$M 211.1 196.0 (160.7) (145.2) 50.4 50.8 Brambles has no legal obligation to settle this liability with an immediate contribution or additional one-off contributions. Brambles intends to continue to make contributions to the plans at the rates recommended by the funds’ actuaries. Refer Note 25(i). d) Income statement amounts The amounts recognised in Brambles’ income statement in respect of deﬁned beneﬁt plans were as follows: Current service cost Interest cost Expected return on plan assets Changes arising from curtailments and settlements Net beneﬁt expense included in employment cost (Note 7) e) Statement of comprehensive income Actuarial losses reported in the consolidated statement of comprehensive income Cumulative actuarial losses recognised 3.5 12.2 3.6 12.8 (10.3) (10.9) – 5.4 (0.6) 4.9 (5.9) (18.3) (2.9) (12.4) 86 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 86 10/9/10 6:46:10 PM f) Deﬁned beneﬁt obligation Changes in the present value of the deﬁned beneﬁt obligation were as follows: At 1 July Current service cost Interest cost Contributions from plan members Actuarial gains and losses Currency variations Beneﬁts paid Curtailments At 30 June 2010 US$M 2009 US$M 196.0 242.5 3.5 12.2 0.7 19.3 (13.8) (6.8) – 3.6 12.8 0.7 (23.4) (33.9) (5.7) (0.6) 211.1 196.0 All Brambles’ deﬁned beneﬁt pension arrangements are closed to new entrants. Under the projected unit method, the current service cost of these arrangements will increase as a percentage of payroll as the members of the plan approach retirement. g) Plan assets Assets held in the plans fell within the following categories: Equities Bonds/gilts Insurance bonds Cash Other Changes in the fair value of the plan assets were as follows: At 1 July Expected return on plan assets Actuarial gains and losses Currency variations Contributions from sponsoring employers Contributions from plan members Beneﬁts paid At 30 June The actual return on plan assets was US$23.7 million (2009: US$(15.4) million). 2010 FAIR VALUE 2009 FAIR VALUE US$M % US$M % 68.6 53.0 3.9 20.3 14.9 42.7 33.0 2.4 12.6 9.3 66.3 47.3 4.9 16.2 10.5 45.7 32.6 3.4 11.1 7.2 160.7 100.0 145.2 100.0 2010 US$M 2009 US$M 145.2 10.3 13.4 (9.2) 7.1 0.7 (6.8) 179.1 10.9 (26.3) (20.3) 6.8 0.7 (5.7) 160.7 145.2 BRAM021 Annual Report 2010 FINS v7 FA.indd 87 10/9/10 6:46:10 PM BRAMBLES LIMITED ANNUAL REPORT 2010 87 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 25. RETIREMENT BENEFIT OBLIGATIONS – CONTINUED h) Principal actuarial assumptions Principal actuarial assumptions (expressed as weighted averages) used in determining Brambles’ deﬁned beneﬁt obligations were: At 30 June 2010 Rate of increase in salaries Rate of increase in pensions Discount rate Retail price inﬂation Return on equities Return on bonds Return on cash At 30 June 2009 Rate of increase in salaries Rate of increase in pensions Discount rate Retail price inﬂation Return on equities Return on bonds Return on cash UK EUROPE OTHER THAN UK SOUTH AFRICA 4.4% 3.4% 5.3% 3.4% 7.5% 5.3% 1.0% 4.4% 3.4% 6.2% 3.4% 8.3% 6.0% 1.0% 3.3% 2.8% 4.6% 2.0% 6.8% 3.6% 2.0% 3.7% 2.9% 6.2% 2.4% 7.8% 4.5% 2.4% 5.8% 5.8% 9.0% 5.8% 10.0% 9.0% 6.0% 8.0% 6.5% 9.0% 6.5% 12.6% 9.3% 7.6% The expected return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the beneﬁt obligation. i) Employer contributions During the year, employer contributions to the main deﬁned beneﬁt plans ranged between 15% and 26% of pensionable pay. The obligation to contribute to the various deﬁned beneﬁt plans is covered by trust deeds and/or legislation. Funding levels and contributions for these plans are based on regular actuarial advice. Comprehensive actuarial valuations are made at no more than three yearly intervals. Additional annual contributions of US$3.1 million (2009: US$3.4 million) are being paid to remove the identiﬁed deﬁcits over a period of 6 years. Contributions paid to the plans during 2010 were US$7.1 million (2009: US$6.8 million), all of which related to continuing operations. It is estimated that the amount of contributions to be paid to the plans during 2011 will be US$7.5 million. j) Historical summary The history of the deﬁned beneﬁt plan deﬁcit at the end of each year is as follows: – plan liabilities – plan assets Net liability recognised in the balance sheet The history of favourable/(unfavourable) experience adjustments made in each year is as follows: 2010 US$M 2009 US$M 2008 US$M 2007 US$M 2006 US$M (211.1) (196.0) (242.5) (216.8) (602.1) 160.7 (50.4) 145.2 (50.8) 179.1 (63.4) 187.2 (29.6) 453.1 (149.0) – on plan liabilities – on plan assets Net (unfavourable)/favourable adjustment (19.3) 13.4 (5.9) 23.4 (26.3) (2.9) (13.9) (20.7) (34.6) (17.2) 17.2 – 3.0 31.1 34.1 88 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 88 10/9/10 6:46:10 PM NOTE 26. CONTRIBUTED EQUITY Total ordinary shares, of no par value, issued and fully paid: At 1 July 2008 Issued during the year Issued during the year under the Dividend Reinvestment Plan At 30 June 2009 At 1 July 2009 Issued during the year Issued during the year under the Dividend Reinvestment Plan At 30 June 2010 SHARES US$M 1,383,550,886 13,778.6 1,630,312 16,687,841 7.1 61.9 1,401,869,039 13,847.6 1,401,869,039 2,048,065 18,312,603 13,847.6 11.8 120.2 1,422,229,707 13,979.6 Ordinary shares of Brambles Limited entitle the holder to participate in dividends and the proceeds on any winding up of the Company in proportion to the number of shares held. BRAM021 Annual Report 2010 FINS v7 FA.indd 89 10/9/10 6:46:10 PM BRAMBLES LIMITED ANNUAL REPORT 2010 89 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 27. SHARE-BASED PAYMENTS The Remuneration Report sets out details relating to the Brambles share plans (pages 43 to 44), together with details of options, performance share rights and MyShare matching conditional rights issued to Executive Directors and other Key Management Personnel (pages 39 to 40). Options and rights granted by Brambles do not result in an entitlement to participate in share issues of any other corporation. Set out below are summaries of options and rights granted under the plans. a) Grants over Brambles Limited shares issued subsequent to Uniﬁcation GRANT DATE EXPIRY DATE BALANCE AT 1 JULY GRANTED DURING THE YEAR EXERCISED DURING THE YEAR FORFEITED/ LAPSED DURING THE YEAR BALANCE AT 30 JUNE 2010 Performance share rights 19 Jan 2007 29 Aug 2007 26 Feb 2008 19 Mar 2008 28 Apr 2008 27 Aug 2008 1 Jun 2009 16 Nov 2009 25 Nov 2009 12 Apr 2010 31 Aug 2012 30 Aug 2013 2 Dec 2013 2 Mar 2014 29 Apr 2014 27 Aug 2014 1 Jun 2011 19 Oct 2010 25 Nov 2012 12 Apr 2013 MyShare matching conditional rights 1,900,630 1,982,795 28,406 36,365 125,250 3,844,813 85,830 – – – – – – – – – – 60,092 (682,268) (1,089,055) 129,307 (164,157) (211,414) 1,607,224 – – – (28,406) – – – 36,365 125,250 (192,623) (741,413) 2,910,777 (58,718) – – – 27,112 60,092 3,582,251 (8,029) (84,758) 3,489,464 22,902 – – 22,902 2009 Plan Year 2010 Plan Year Total rights 2009 (summarised) Total rights 31 Mar 2011 31 Mar 2012 218,242 – 359,308 194,472 (18,786) (33,230) (874) (1,665) 525,534 191,933 8,222,331 4,219,025 (1,125,455) (2,189,941) 9,125,960 4,442,317 4,251,970 (185,022) (286,934) 8,222,331 Of the above grants, 147,577 rights were exercisable at 30 June 2010. Weighted average data: – fair value at grant date of grants made during the year – share price at exercise date of grants exercised during the year – remaining contractual life at 30 June 2010 2009 A$ A$ years 5.16 7.08 3.0 5.61 6.57 4.3 90 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 90 10/9/10 6:46:11 PM b) Grants over BIL or BIP shares pre-Uniﬁcation, now over Brambles Limited shares GRANT DATE EXPIRY DATE EXERCISE PRICE BALANCE AT 1 JULY GRANTED DURING THE YEAR EXERCISED DURING THE YEAR FORFEITED/ LAPSED DURING THE YEAR BALANCE AT 30 JUNE 2010 Options 10 Sep 2003 10 Sep 2003 4 Mar 2004 4 Mar 2004 Total options Performance share rights 10 Sep 2003 4 Mar 2004 24 Nov 2004 8 Sep 2004 8 Sep 2004 21 Oct 2005 21 Oct 2005 Total rights Total 10 Sep 2009 10 Sep 2009 4 Mar 2010 4 Mar 2010 10 Sep 2009 4 Mar 2010 4 Mar 2010 8 Sep 2010 9 Sep 2010 21 Oct 2011 22 Oct 2011 Weighted average exercise price of options: – previously over BIL shares – previously over BIP shares 2009 (summarised) Total options Total rights Total Weighted average exercise price of options: – previously over BIL shares – previously over BIP shares A$4.75 £1.72 A$5.31 £2.11 108,171 181,691 155,586 155,586 601,034 25,034 10,599 10,599 33,789 34,818 134,401 97,794 347,034 948,068 A$ £ 5.08 1.90 2,687,502 3,397,673 6,085,175 A$ £ 7.70 1.89 Of the above grants, 58,408 rights were exercisable at 30 June 2010. Weighted average data: – share price at exercise date of grants exercised during the year – remaining contractual life at 30 June – – – – – – – – – – – – – – – – – – – – – (108,171) (181,691) (155,586) (155,586) (601,034) (25,034) (10,599) (10,599) – – – – – – – – – – – – – – – – (6,500) (15,289) (22,818) (107,491) (82,076) (265,117) (866,151) – (4,110) (4,110) (23,509) (23,509) 12,000 12,000 22,800 11,608 58,408 58,408 5.08 1.90 – – – – (275,257) (1,811,211) (1,279,246) (1,771,393) (1,554,503) (3,582,604) 601,034 347,034 948,068 5.03 1.72 8.47 – 5.08 1.90 2010 2009 A$ £ 7.33 3.95 7.40 3.53 years 0.7-0.9 0.9-1.1 There were 76,184 grants, 5,553 exercises and 934,350 forfeits in options, performance share rights and MyShare matching conditional rights over Brambles Limited shares between the end of the ﬁnancial year and 17 August 2010. BRAM021 Annual Report 2010 FINS v7 FA.indd 91 10/9/10 6:46:11 PM BRAMBLES LIMITED ANNUAL REPORT 2010 91 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 27. SHARE-BASED PAYMENTS – CONTINUED c) Fair value calculations The fair value of equity-settled options, performance share rights and MyShare matching conditional rights was determined as at grant date, using a binomial valuation methodology. The values calculated do not take into account the probability of options and rights being forfeited prior to vesting, as a probability adjustment is made when computing the share-based payment expense. The signiﬁcant inputs into the valuation models for the equity-settled grants made during the year were: Weighted average share price Expected volatility Expected life Annual risk-free interest rate Expected dividend yield 2010 GRANTS A$6.59 38% 2009 GRANTS A$7.22 33% 3.0 years 1.0-3.0 years 4.86% 3.56-5.60% 3.75% 3.5-3.9% The expected volatility was determined based on a two-year historic volatility of Brambles’ share prices. d) Share-based payment expense – continuing operations Brambles recognised a total expense of US$11.146 million (2009: US$14.213 million) relating to share-based payments, all within continuing operations. Of this amount, US$0.472 million related to phantom share provisions (2009: US$0.240 million beneﬁt). 92 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 92 10/9/10 6:46:11 PM NOTE 28. RESERVES AND RETAINED EARNINGS Reserves Retained earnings Non-controlling interests in reserves and retained earnings a) Movements in reserves and retained earnings 2010 US$M 2009 US$M (15,007.4) (14,938.7) 2,660.1 2,520.1 (12,347.3) (12,418.6) 0.3 0.3 RESERVES HEDGING US$M SHARE- BASED PAYMENTS US$M FOREIGN CURRENCY TRANSLATION US$M UNIFICATION US$M OTHER US$M TOTAL US$M RETAINED EARNINGS US$M (0.2) 65.8 481.4 (15,385.8) 167.3 (14,671.5) 2,436.1 – – – – (27.9) 9.7 13.7 (4.8) – – – – – – – – – – – – – 14.5 (6.3) (2.9) – – – (77.3) (0.6) (185.3) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (77.3) (0.6) (185.3) (27.9) 9.7 13.7 (4.8) 14.5 (6.3) (2.9) – – (3.1) – – – – – – – – – – (365.5) 452.6 (9.5) 71.1 218.2 (15,385.8) 167.3 (14,938.7) 2,520.1 (9.5) – – (10.6) 4.1 12.3 (0.3) (4.6) – – – – 71.1 218.2 (15,385.8) 167.3 (14,938.7) 2,520.1 – – – – – – – 10.7 (9.1) – – – (71.2) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (71.2) (10.6) 4.1 12.3 (0.3) (4.6) 10.7 (9.1) – – (4.6) – – – – – – – – (304.2) 448.8 (8.6) 72.7 147.0 (15,385.8) 167.3 (15,007.4) 2,660.1 Year ended 30 June 2009 Opening balance Actuarial loss on deﬁned beneﬁt plans FCTR released to proﬁts during the year FCTR on entities disposed taken to proﬁt Foreign exchange differences Cash ﬂow hedges: – fair value losses – tax on fair value losses – transfers to net proﬁt – tax on transfers to net proﬁt Share-based payments: – expense recognised during the year – shares issued – equity component of related tax Dividends declared Net proﬁt for the year Closing balance Year ended 30 June 2010 Opening balance Actuarial loss on deﬁned beneﬁt plans Foreign exchange differences Cash ﬂow hedges: – fair value losses – tax on fair value losses – transfers to net proﬁt – transfers to property, plant and equipment – tax on transfers to net proﬁt Share-based payments: – expense recognised during the year – shares issued Dividends declared Net proﬁt for the year Closing balance BRAM021 Annual Report 2010 FINS v7 FA.indd 93 10/9/10 6:46:11 PM BRAMBLES LIMITED ANNUAL REPORT 2010 93 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 28. RESERVES AND RETAINED EARNINGS – CONTINUED b) Nature and purpose of reserves HEDGING RESERVE This comprises the cumulative portion of the gain or loss of cash ﬂow hedges that are determined to be effective hedges. Amounts are recognised in the income statement when the associated hedged transaction is recognised or the hedge or a portion thereof becomes ineffective. SHARE-BASED PAYMENTS RESERVE This comprises the cumulative share-based payment expense recognised in the income statement in relation to equity-settled options and share rights issued but not yet exercised. Refer to Note 27 for further details. FOREIGN CURRENCY TRANSLATION RESERVE This comprises cumulative exchange differences arising from the translation of the ﬁnancial statements of foreign subsidiaries, net of qualifying net investment hedges. The relevant accumulated balance is recognised in the income statement on disposal of a foreign subsidiary. UNIFICATION RESERVE On Uniﬁcation, Brambles Limited issued shares on a one-for-one basis to those BIL and BIP shareholders who did not elect to participate in the Cash Alternative. The Uniﬁcation reserve of US$15,385.8 million represents the difference between the Brambles Limited share capital measured at fair value on 4 December 2006, and the carrying value of the share capital of BIL and BIP at that date. OTHER This comprises a merger reserve created in 2001 and a capital redemption reserve created in 2006. 94 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 94 10/9/10 6:46:11 PM NOTE 29. FINANCIAL RISK MANAGEMENT Brambles is exposed to a variety of ﬁnancial risks: market risk (including the effect of ﬂuctuations in interest rates and exchange rates), liquidity risk and credit risk. Brambles’ overall risk management program focuses on the unpredictability of ﬁnancial markets and seeks to minimise potential adverse effects on the ﬁnancial performance of Brambles. Brambles uses standard derivative ﬁnancial instruments to manage its risk exposure in the normal course of business. Brambles does not trade in ﬁnancial instruments for speculative purposes. Hedging activities are conducted through Brambles’ Treasury department on a centralised basis in accordance with Board policies and guidelines through standard operating procedures and delegated authorities. Policies with respect to ﬁnancial risk management and hedging activities are discussed below and should be read in conjunction with detailed information contained in the Treasury and Risk Review on pages 12 to 13. a) Fair values Set out below is a comparison by category of the carrying amounts and fair values of ﬁnancial instruments recognised in the balance sheet. With the exception of loans and receivables and derivatives designated as hedging instruments, all other ﬁnancial assets are classiﬁed as ﬁnancial assets at fair value through proﬁt or loss. Financial assets – cash at bank and in hand (Note 13) – short term deposits (Note 13) – trade receivables (Note 14) – interest rate swaps (Note 16) – embedded derivatives (Note 16) – forward foreign currency contracts (Note 16) Financial liabilities – trade payables (Note 22) – bank overdrafts (Note 23) – bank loans (Note 23) – loan notes (Note 23) – ﬁnance lease liabilities (Note 23) – interest rate swaps (Note 16) – forward foreign currency contracts (Note 16) CARRYING AMOUNT FAIR VALUE 2010 US$M 2009 US$M 2010 US$M 2009 US$M 120.2 15.3 498.8 20.0 0.4 6.1 55.0 35.1 450.1 – – 1.1 120.2 15.3 498.8 20.0 0.4 6.1 55.0 35.1 450.1 – – 1.1 305.7 12.2 287.1 36.0 305.7 12.2 287.1 36.0 564.8 1,645.7 564.8 1,645.7 1,316.6 549.9 1,360.0 515.6 1.2 18.2 4.1 1.9 18.1 0.6 1.2 18.2 4.1 1.9 18.1 0.6 BRAM021 Annual Report 2010 FINS v7 FA.indd 95 10/9/10 6:46:11 PM BRAMBLES LIMITED ANNUAL REPORT 2010 95 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 29. FINANCIAL RISK MANAGEMENT – CONTINUED a) Fair values – continued Brambles uses various methods in estimating the fair values of ﬁnancial instruments. The methods comprise: – – Level 1 – the fair value is calculated using quoted prices in active markets; Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3 – the fair value is estimated using inputs for the asset or liability that are not observable market data. – The table below sets out the fair values and methods used to estimate the fair value of derivatives designated as hedging instruments. Derivative ﬁnancial assets – interest rate swaps – embedded derivatives – forward foreign currency contracts Derivative ﬁnancial liabilities – interest rate swaps – forward foreign currency contracts 2010 2009 LEVEL 1 US$M LEVEL 2 US$M LEVEL 3 US$M TOTAL US$M LEVEL 1 US$M LEVEL 2 US$M LEVEL 3 US$M TOTAL US$M – – – – – 20.0 0.4 6.1 18.2 4.1 – – – – – 20.0 0.4 6.1 18.2 4.1 – – – – – – – 1.1 18.1 0.6 – – – – – – – 1.1 18.1 0.6 The fair values of derivatives designated as hedging instruments are determined using valuation techniques that are based on observable market data. For forward foreign currency contracts, the net fair value is taken to be the unrealised gain or loss at balance date calculated by reference to the current forward rates for contracts with similar maturity dates. Fair value for other ﬁnancial assets and liabilities has been calculated by discounting future cash ﬂows at prevailing interest rates for the relevant yield curve. 96 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 96 10/9/10 6:46:11 PM b) Market risk Brambles has the following risk policies in place with respect to market risk. INTEREST RATE RISK Brambles’ exposure to potential volatility in ﬁnance costs, predominantly US dollars, Australian dollars and euros, is managed by maintaining a mix of ﬁxed and ﬂoating-rate instruments within select target bands over deﬁned periods. In most cases, interest rate derivatives are used to achieve these targets synthetically. The following table sets out the ﬁnancial instruments exposed to interest rate risk at reporting date: Financial assets (ﬂoating rate) Cash at bank Short term deposits Weighted average effective interest rate Financial liabilities (ﬂoating rate) Bank overdrafts Bank loans Interest rate swaps (notional value) – cash ﬂow hedges Interest rate swaps (notional value) – fair value hedges Net exposure to cash ﬂow interest rate risk Weighted average effective interest rate Financial liabilities (ﬁxed rate) Loan notes Finance lease liabilities Interest rate swaps (notional value) – cash ﬂow hedges Interest rate swaps (notional value) – fair value hedges Net exposure to fair value interest rate risk Weighted average effective interest rate 2010 US$M 2009 US$M 120.2 15.3 135.5 1.3% 55.0 35.1 90.1 1.0% 12.2 36.0 564.8 1,645.7 (460.9) (612.3) 450.0 – 566.1 1,069.4 3.0% 3.2% 1,316.6 549.9 1.2 1.9 460.9 612.3 (450.0) – 1,328.7 1,164.1 5.4% 6.0% Interest rate swaps – cash ﬂow hedges Brambles enters into various interest rate risk management transactions for the purpose of managing ﬁnance costs to achieve more stable and predictable ﬁnance expense results. The instruments primarily used are interest rate swaps and caps. During 2010, Brambles entered into or maintained interest rate swap transactions with various banks hedging variable rate borrowings in US dollars and euros. The purpose of the interest rate swaps was to hedge variable interest expense under borrowings against rising interest rates. Interest rate swaps achieve this by synthetically converting the variable interest rate payment into a ﬁxed interest liability on the dates on which interest is payable on the underlying debt. The fair value of these contracts at reporting date was US$(15.1) million (2009: US$(18.1) million). The terms of the contracts have been negotiated to match the projected drawdowns and rollovers of variable rate bank debt. Interest rate swaps – fair value hedges During 2010, concurrent with the issue of US$750.0 million in ﬁxed rate bonds, Brambles entered into interest rate swap transactions with various banks swapping US$450.0 million ﬁxed rate borrowings to variable rate borrowings. The fair value of these contracts at reporting date was US$16.9 million (2009: nil). The terms of the swaps match the terms of the ﬁxed rate bond issue for the amounts and durations being hedged. The gain or loss from re-measuring the interest rate swaps at fair value is recorded in the income statement together with any changes in the fair value of the hedged asset or liability that is attributed to the hedged risk. For 2010, all interest rate swaps were effective hedging instruments. BRAM021 Annual Report 2010 FINS v7 FA.indd 97 10/9/10 6:46:11 PM BRAMBLES LIMITED ANNUAL REPORT 2010 97 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 29. FINANCIAL RISK MANAGEMENT – CONTINUED b) Market risk – continued Sensitivity analysis The following table sets out the sensitivity of Brambles’ ﬁnancial assets and ﬁnancial liabilities to interest rate risk applying the following assumptions: US dollar interest rates Australian dollar interest rates Sterling interest rates Euro interest rates Impact on proﬁt after tax Impact on equity INTEREST RATE RISK 2010 2009 LOWER RATES HIGHER RATES LOWER RATES HIGHER RATES - 25 bps + 75 bps - 25 bps + 50 bps - 25 bps + 75 bps - 50 bps + 50 bps - 25 bps + 75 bps - 25 bps + 50 bps - 25 bps + 75 bps - 25 bps + 50 bps US$M US$M US$M US$M 0.9 (0.2) (3.0) 0.7 2.0 (0.3) (5.4) 0.7 Based on ﬁnancial instruments held at 30 June 2010, if interest rates were to parallel shift by the number of basis points in the different currencies noted above with all other variables held constant, proﬁt after tax for the year would have been US$0.9 million higher or US$3.0 million lower (2009: US$2.0 million higher or US$5.4 million lower), mainly as a result of lower/higher interest expense on bank borrowings. The impact on equity would have been US$0.2 million lower or US$0.7 million higher (2009: US$0.3 million lower or US$0.7 million higher) mainly as a result of the incremental movement through the hedging reserve relating to the effective portion of cash ﬂow hedges. Given its geographically diverse operations, Brambles had interest rate exposure positions against a variety of currencies, but predominantly US dollars, Australian dollars and euros. 98 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 98 10/9/10 6:46:12 PM FOREIGN EXCHANGE RISK Exposure to foreign exchange risk generally arises in transactions affecting either the value of transactions translated back to the functional currency of a subsidiary or affecting the value of assets and liabilities of overseas subsidiaries when translated back to the Group’s reporting currency. Foreign exchange hedging is used when a transaction exposure exceeds certain thresholds and as soon as a deﬁned exposure arises. Currency proﬁle The following table sets out the currency mix proﬁle of Brambles’ ﬁnancial instruments at reporting date: 2010 Financial assets – cash at bank and in hand – short term deposits – interest rate swaps – embedded derivatives – forward foreign currency contracts Financial liabilities – bank overdrafts – bank loans – loan notes – ﬁnance lease liabilities – interest rate swaps – forward foreign currency contracts – net investment hedge 2009 Financial assets – cash at bank and in hand – short term deposits – forward foreign currency contracts Financial liabilities – bank overdrafts – bank loans – loan notes – ﬁnance lease liabilities – interest rate swaps – forward foreign currency contracts – net investment hedge US DOLLAR US$M AUST. DOLLAR US$M STERLING US$M EURO US$M OTHER US$M TOTAL US$M 23.9 0.2 20.0 – 215.3 259.4 – – – – 2.6 – – – 127.6 127.6 134.4 137.0 – 0.3 399.4 1,316.6 0.4 17.4 – – – – 115.4 155.7 – – 1,849.2 156.0 2.8 – 3.4 6.2 – 894.3 549.9 0.7 16.6 101.0 – 2.3 12.2 129.2 143.7 – 161.0 – – 1.5 1.9 – – – – – – – – – – – 48.8 48.8 8.2 – – – – 3.1 – 27.8 0.4 – – 110.5 138.7 7.3 62.9 – 0.7 0.8 65.9 14.7 – 0.4 60.2 141.2 4.6 41.0 – 0.1 – 120.2 15.3 20.0 0.4 648.0 803.9 12.2 503.3 1,316.6 1.2 18.2 269.5 105.4 646.0 61.5 402.7 – 61.5 151.1 2,559.0 8.6 2.8 7.2 18.6 22.8 397.3 – 1.0 – 48.3 71.2 41.3 20.1 1.3 62.7 55.0 35.1 189.9 280.0 5.0 36.0 121.9 1,574.5 – 0.2 – 35.1 – 549.9 1.9 18.1 189.4 71.2 1,562.5 164.4 11.3 540.6 162.2 2,441.0 BRAM021 Annual Report 2010 FINS v7 FA.indd 99 10/9/10 6:46:12 PM BRAMBLES LIMITED ANNUAL REPORT 2010 99 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 29. FINANCIAL RISK MANAGEMENT – CONTINUED b) Market risk – continued Forward foreign exchange contracts – cash ﬂow hedges Brambles enters into forward foreign exchange contracts to hedge currency exposures arising from normal commercial transactions such as the purchase and sale of equipment and services, intercompany interest and royalties. During 2010, Brambles entered into forward foreign exchange transactions with various banks in a variety of cross-currencies for terms ranging up to six months. Most contracts create an obligation on Brambles to take receipt of or deliver a foreign currency which is used to fulﬁl the foreign currency sale or purchase order. The gain or loss from re-measuring the foreign exchange contracts at fair value is deferred and recognised in the hedging reserve in equity to the extent that the hedge is effective and reclassiﬁed into proﬁt and loss when the hedged item is recognised. Any ineffective portion is charged to the income statement. For 2010 and 2009, all foreign exchange contracts were effective hedging instruments. Foreign exchange contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. The fair value of these contracts at reporting date was US$(0.2) million (2009: US$(0.5) million). Other forward foreign exchange contracts Brambles enters into other forward foreign exchange contracts for the purpose of hedging various cross-border intercompany loans to overseas subsidiaries. In this case, the forward foreign exchange contract provides an economic hedge against exchange ﬂuctuations in the foreign currency loan balance. The face value and terms of the foreign exchange contracts match the intercompany loan balances. Gains and losses on realignment of the intercompany loan and foreign exchange contracts to spot rates are offset in the income statement. Consequently, these foreign exchange contracts are not designated for hedge accounting purposes and are classiﬁed as held for trading. These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are taken to the income statement immediately. The fair value of these contracts at reporting date was US$2.2 million (2009: US$1.0 million). Hedge of net investment in foreign entity Included in bank loans at 30 June 2010 is a borrowing of US$61.5 million (2009: US$71.2 million) denominated in euros. This loan has been designated as a hedge of the net investment in Brambles’ European subsidiaries and is being used to partially hedge Brambles’ exposure to foreign exchange risks on these investments. For 2010 and 2009, there was no ineffectiveness to be recorded from such partial hedges of net investments in foreign entities. Sensitivity analysis The following table sets out the sensitivity of Brambles’ ﬁnancial assets and ﬁnancial liabilities to foreign exchange risk (transaction exposures only): FOREIGN EXCHANGE RISK 2010 2009 LOWER RATES HIGHER RATES LOWER RATES HIGHER RATES Exchange rate movement -10% +10% -10% +10% Impact on proﬁt after tax Impact on equity US$M US$M US$M US$M 0.3 (4.3) (0.3) 4.3 3.2 (5.0) (3.2) 5.0 Based on the ﬁnancial instruments held at 30 June 2010, if exchange rates were to weaken/strengthen by 10% with all other variables held constant, proﬁt after tax for the year would have been US$0.3 million higher/lower (2009: US$3.2 million higher/lower). The impact on equity would have been US$4.3 million lower/higher (2009: US$5.0 million lower/higher) as a result of the incremental movement through the foreign currency translation reserve relating to the effective portion of a net investment hedge. 100 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 100 10/9/10 6:46:12 PM c) Liquidity risk Brambles’ objective is to maintain adequate liquidity to meet its ﬁnancial obligations as and when they fall due. Brambles funds its operations through existing equity, retained cash ﬂow and borrowings. Funding is generally sourced from relationship banks and debt capital market investors on a medium to long term basis. Bank credit facilities are generally structured on a committed multi-currency revolving basis and at balance date had maturities ranging out to December 2013. Borrowings under the facilities are ﬂoating-rate, unsecured obligations with covenants and undertakings typical for these types of arrangements. Borrowings are raised from debt capital markets by the issue of unsecured ﬁxed interest notes, with interest payable semi-annually. Brambles also has access to further funding through overdrafts, uncommitted and standby lines of credit, principally to manage day-to-day liquidity. To minimise foreign exchange risks, borrowings are arranged in the currency of the relevant operating asset to be funded. Refer to Note 23a for borrowing facilities and credit standby arrangements disclosures. Maturities of derivative ﬁnancial assets and liabilities The maturity of Brambles’ contractual cash ﬂows on net and gross settled derivative ﬁnancial instruments, based on the remaining period to contractual maturity date, is presented below. Cash ﬂows on interest rate swaps and forward foreign exchange contracts are valued based on forward interest rates applicable at reporting date. YEAR 1 US$M YEAR 2 US$M YEAR 3 US$M YEAR 4 US$M OVER 4 YEARS US$M TOTAL CONTRACTUAL CASH FLOWS US$M CARRYING AMOUNT ASSETS/ (LIABILITIES) US$M 2010 Net settled Interest rate swaps – cash ﬂow hedges – fair value hedges Gross settled Forward foreign exchange contracts – inﬂow – (outﬂow) 2009 Net settled (8.2) 8.4 (5.1) 7.0 (1.9) 4.5 648.0 (646.0) 2.2 – – 1.9 – – 2.6 0.1 (0.4) – – (0.3) – (2.6) – – (2.6) (15.1) 16.9 (15.1) 16.9 648.0 (646.0) 3.8 2.0 – 3.8 Interest rate swaps (12.3) (4.4) (1.1) (0.3) – (18.1) (18.1) Gross settled Forward foreign exchange contracts – inﬂow – (outﬂow) 189.9 (189.4) (11.8) – – (4.4) – – (1.1) – – (0.3) – – – 189.9 (189.4) (17.6) 0.5 – (17.6) BRAM021 Annual Report 2010 FINS v7 FA.indd 101 10/9/10 6:46:12 PM BRAMBLES LIMITED ANNUAL REPORT 2010 101 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 29. FINANCIAL RISK MANAGEMENT – CONTINUED c) Liquidity risk – continued Maturities of non-derivative ﬁnancial liabilities The maturity of Brambles’ contractual cash ﬂows on non-derivative ﬁnancial liabilities, based on the remaining period to contractual maturity date which includes principal and interest, is presented below. Refer to Note 23b for borrowing facilities maturity proﬁle. YEAR 1 US$M YEAR 2 US$M YEAR 3 US$M YEAR 4 US$M OVER 4 YEARS US$M TOTAL CONTRACTUAL CASH FLOWS US$M CARRYING AMOUNT US$M 2010 Financial liabilities Trade payables Bank overdrafts Bank loans Loan notes Finance lease liabilities Financial guarantees1 2009 Financial liabilities Trade payables Bank overdrafts Bank loans Loan notes Finance lease liabilities Financial guarantees1 305.7 12.2 256.8 92.0 0.6 667.3 98.8 766.1 287.1 36.0 78.2 47.5 0.6 449.4 83.8 533.2 – – 108.4 230.9 0.5 339.8 – 339.8 – – 391.6 32.5 0.9 425.0 – 425.0 – – 123.4 59.1 0.1 182.6 – 182.6 – – 434.7 195.1 0.5 630.3 – 630.3 – – 112.2 93.6 – – – – 305.7 12.2 600.8 305.7 12.2 564.8 1,280.1 1,755.7 1,316.6 – 1.2 1.2 205.8 1,280.1 2,675.6 2,200.5 – – 98.8 – 205.8 1,280.1 2,774.4 2,200.5 – – 411.4 23.3 0.1 434.8 – 434.8 – – 546.2 414.7 – 287.1 36.0 287.1 36.0 1,862.1 1,645.7 713.1 2.1 549.9 1.9 960.9 2,900.4 2,520.6 – 83.8 – 960.9 2,984.2 2,520.6 1 Refer to Note 32a for details on ﬁnancial guarantees. The amounts disclosed above are the maximum amounts allocated to the earliest period in which the guarantee could be called. Brambles does not expect these payments to eventuate. d) Credit risk exposure Brambles is exposed to credit risk on its ﬁnancial assets, which comprise cash and cash equivalents, trade and other receivables and derivative ﬁnancial instruments. This exposure to credit risks arises from the potential failure of counterparties to meet their obligations. The maximum exposure to credit risk at the reporting date is the carrying amount of the ﬁnancial instruments as set out in Note 29a. There is no signiﬁcant concentration of credit risk. Brambles trades only with recognised, creditworthy third parties. Collateral is generally not obtained from customers. Customers are subject to credit veriﬁcation procedures including an assessment of their independent credit rating, ﬁnancial position, past experience and industry reputation. Credit limits are set for each individual customer and approved by the credit manager in accordance with an approved authority matrix. These credit limits are regularly monitored and revised based on historic turnover activity and credit performance. In addition, overdue receivable balances are monitored and actioned on a regular basis. Exposure to credit risk also arises from amounts receivable from unrealised gains on derivative ﬁnancial instruments. At the reporting date, this amount was US$26.1million (2009: US$1.1 million). Brambles transacts derivatives with prominent ﬁnancial institutions and has credit limits in place to limit exposure to any potential non-performance by its counterparties. 102 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 102 10/9/10 6:46:12 PM e) Capital risk management Brambles’ objective when managing capital is to ensure Brambles continues as a going concern as well as to provide a balance between ﬁnancial ﬂexibility and balance sheet efﬁciency. In determining its capital structure, Brambles considers the robustness of future cash ﬂows, potential funding requirements for growth opportunities and acquisitions, the cost of capital and ease of access to funding sources. Brambles manages its capital structure to be consistent with a solid investment grade credit. At 30 June 2010, Brambles held investment grade credit ratings of BBB+ from Standard and Poor’s and Baa1 from Moody’s Investor Services. Initiatives available to Brambles to achieve its desired capital structure include adjusting the amount of dividends paid to shareholders, returning capital to shareholders, buying-back share capital, issuing new shares, selling assets to reduce debt and varying the maturity proﬁle of its borrowings. Brambles considers its capital to comprise: Total borrowings Less: cash and cash equivalents Net debt Total equity Total capital 2010 US$M 2009 US$M 1,894.8 2,233.5 135.5 90.1 1,759.3 2,143.4 1,632.6 1,429.3 3,391.9 3,572.7 Brambles has adopted a ﬁnancial policy to target a net debt to EBITDA ratio of less than 1.75 to 1. Brambles is compliant with this ﬁnancial policy at 30 June 2010. Under the terms of its major borrowing facilities, Brambles is required to comply with the following ﬁnancial covenants: – – the ratio of net debt to EBITDA is to be no more than 3.5 to 1; and the ratio of EBITDA to net ﬁnance costs is to be no less than 3.5 to 1. Brambles has complied with these ﬁnancial covenants for 2010 and prior years. At balance date, based on the deﬁnitions below, the ratios were: Total borrowings Less: fair value adjustments due to hedge accounting Less: cash and cash equivalents Net debt EBITDA Net ﬁnance costs Net debt/EBITDA (times) EBITDA/net ﬁnance cost (times) 1,894.8 2,233.5 14.4 135.5 – 90.1 1,744.9 2,143.4 1,171.6 1,207.6 109.6 120.9 1.5 10.7 1.8 10.0 The following deﬁnitions apply in the calculation of these ﬁnancial covenants: – EBITDA means Brambles’ consolidated operating proﬁt (excluding Signiﬁcant items outside the ordinary course of business) before depreciation, amortisation, impairment, proﬁt of joint ventures and associates and certain fair value adjustments in respect of ﬁnancial derivatives; and net debt means Brambles’ consolidated total borrowings, excluding the impact of fair value adjustments in relation to hedge accounting, less cash and cash equivalents. – BRAM021 Annual Report 2010 FINS v7 FA.indd 103 10/9/10 6:46:12 PM BRAMBLES LIMITED ANNUAL REPORT 2010 103 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 30. CASH FLOW STATEMENT – ADDITIONAL INFORMATION a) Reconciliation of cash For the purpose of the cash ﬂow statement, cash comprises: Cash at bank and in hand (Note 13) Short term deposits (Note 13) Bank overdraft (Note 23) b) Reconciliation of proﬁt after tax to net cash ﬂows from operating activities Proﬁt after tax Adjustments for: – depreciation and amortisation – irrecoverable pooling equipment provision expense – net gains on disposals of property, plant and equipment – impairment of pooling equipment – foreign exchange gain on capital repatriation – other valuation adjustments – net gains on disposal of businesses and investments – net gains after tax on completed disposals of discontinued operations – joint ventures – equity-settled share-based payments – ﬁnance revenues and costs Movements in operating assets and liabilities, net of acquisitions and disposals: – (increase)/decrease in trade and other receivables – (increase) in prepayments – decrease in inventories – (decrease)/increase in deferred tax – increase/(decrease) in trade and other payables – increase/(decrease) in tax payables – (decrease)/increase in provisions – other Net cash inﬂow from operating activities 2010 US$M 2009 US$M 120.2 15.3 (12.2) 123.3 55.0 35.1 (36.0) 54.1 448.8 452.6 444.0 111.2 (26.4) – – (1.1) – (7.5) 0.1 10.7 7.9 (19.3) (0.8) 22.1 (45.1) 15.5 35.3 (4.1) (1.0) 424.6 97.8 (11.9) 33.6 (77.3) (1.9) (0.6) (17.0) 2.1 14.5 (3.0) 56.3 (6.0) 7.3 49.7 (31.9) (19.0) 53.5 (0.4) 990.3 1,023.0 104 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 104 10/9/10 6:46:12 PM c) Reconciliation of movement in net debt Net debt at beginning of the year Net cash inﬂow from operating activities Net cash outﬂow from investing activities Net (inﬂow)/outﬂow from hedge instruments Proceeds from issue of ordinary shares Dividends paid, net of Dividend Reinvestment Plan Interest accruals, ﬁnance leases and other Foreign exchange differences Net debt at end of the year Being: Current borrowings Non-current borrowings Cash and cash equivalents Net debt at end of the year 2010 US$M 2009 US$M 2,143.4 2,426.2 (990.3) (1,023.0) 440.4 (35.8) (2.7) 204.5 26.0 606.6 7.9 (0.8) 277.6 (7.5) (26.2) (143.6) 1,759.3 2,143.4 276.0 68.0 1,618.8 2,165.5 (135.5) (90.1) 1,759.3 2,143.4 d) Non-cash ﬁnancing or investing activities Dividends of US$120.2 million were satisﬁed by issues of shares under the Dividend Reinvestment Plan. There were no other ﬁnancing or investing transactions during the year which have had a material effect on the assets and liabilities of Brambles that did not involve cash ﬂows. BRAM021 Annual Report 2010 FINS v7 FA.indd 105 10/9/10 6:46:12 PM BRAMBLES LIMITED ANNUAL REPORT 2010 105 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 31. COMMITMENTS a) Capital expenditure commitments At 30 June 2010, Brambles had commitments of US$41.1 million (2009: US$29.2 million) principally relating to property, plant and equipment. Capital expenditure contracted for but not recognised as liabilities at reporting date were as follows: Within one year Between one and ﬁve years 2010 US$M 32.2 8.9 41.1 2009 US$M 29.2 – 29.2 b) Operating lease commitments Brambles has taken out operating leases for ofﬁces, operational locations and plant and equipment. The leases have varying terms, escalation clauses and renewal rights. Escalation clauses are rare and any impact is considered immaterial. The future minimum lease payments under such non-cancellable operating leases are as follows: Within one year Between one and ﬁve years After ﬁve years Minimum lease payments PLANT OCCUPANCY 2010 US$M 23.6 28.4 – 52.0 2009 US$M 33.1 59.5 4.3 96.9 2010 US$M 2009 US$M 157.2 452.7 302.3 912.2 140.4 464.1 363.7 968.2 During the year, operating lease expense of US$205.2 million (2009: US$185.0 million) was recognised in the income statement. c) Finance lease commitments Finance leases of plant and equipment are not a material feature of Brambles’ funding arrangements. Finance lease commitments are payable as follows: Within one year Between one and ﬁve years Minimum lease payments recognised as a liability PLANT 2010 US$M 2009 US$M 0.6 0.6 1.2 0.5 1.4 1.9 106 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 106 10/9/10 6:46:13 PM NOTE 32. CONTINGENCIES a) Subsidiaries of Brambles Limited have contingent unsecured liabilities in respect of guarantees given relating to performance under contracts entered into totalling US$98.8 million (2009: US$83.8 million), of which US$92.7 million (2009: US$79.4 million) is also guaranteed by Brambles Limited and is included in Note 37b. b) A subsidiary has provided guarantees on a several basis in relation to a reduction in the share premium account of a subsidiary of Brambles in favour of certain creditors which amounts to US$3.3 million (2009: US$5.4 million). c) A subsidiary has guaranteed certain lease obligations of third parties totalling US$15.3 million (2009: US$21.7 million). A subsidiary of Brambles Limited has provided guarantees to support lease facilities entered into by certain Brambles’ subsidiaries. Total facilities available amount to US$11.7 million (2009: US$13.9 million), of which US$11.7 million (2009: US$13.9 million) has been drawn. d) Environmental contingent liabilities Brambles’ activities have included the treatment and disposal of hazardous and non-hazardous waste through subsidiaries and corporate joint ventures. In addition, other activities of Brambles entail using, handling and storing materials which are capable of causing environmental impairment. As a consequence of the nature of these activities, Brambles has incurred and may continue to incur environmental costs and liabilities associated with site and facility operation, closure, remediation, aftercare, monitoring and licensing. Provisions have been made in respect of estimated environmental liabilities at all sites and facilities where obligations are known to exist and can be reliably measured. However, additional liabilities may emerge due to a number of factors including changes in the numerous laws and regulations which govern environmental protection, liability, land use, planning and other matters in each jurisdiction in which Brambles operates or has operated. These extensive laws and regulations are continually evolving in response to technological advances, scientiﬁc developments and other factors. Brambles cannot predict the extent to which it may be affected in the future by any such changes in legislation or regulation. e) In the ordinary course of business, Brambles becomes involved in litigation. Provision has been made for known obligations where the existence of the liability is probable and can be reasonably quantiﬁed. Receivables have been recognised where recoveries, for example from insurance arrangements, are virtually certain. As the outcomes of these matters remain uncertain, contingent liabilities exist for possible amounts eventually payable that are in excess of the amounts provided. f) Brambles has given vendor warranties in relation to businesses sold in prior years. Brambles has recognised the ﬁnancial impact of such vendor warranties and adjustments on the basis of information currently available. A contingent liability exists for any amounts which may ultimately be borne by Brambles which are in excess of the amounts provided at 30 June 2010. BRAM021 Annual Report 2010 FINS v7 FA.indd 107 10/9/10 6:46:13 PM BRAMBLES LIMITED ANNUAL REPORT 2010 107 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 33. AUDITORS’ REMUNERATION PricewaterhouseCoopers (PwC) earned the following remuneration from Brambles during the year: Amounts received or due and receivable by PwC (Australia) for: Audit services: – audit and review of Brambles’ ﬁnancial reports – other assurance services Other services: – tax advisory services – other Total remuneration of PwC (Australia) Amounts received or due and receivable by related practices of PwC (Australia) for: Audit services: – audit and review of Brambles’ ﬁnancial reports – other assurance services Other services: – tax advisory services – other Total remuneration of related practices of PwC (Australia) Total auditors’ remuneration 2010 US$’000 2009 US$’000 1,338 1,252 256 31 1,594 1,283 33 – 33 37 22 59 1,627 1,342 2,531 3,209 53 6 2,584 3,215 43 108 151 51 – 51 2,735 3,266 4,362 4,608 From time to time, Brambles employs PwC on assignments additional to their statutory audit duties where PwC, through their detailed knowledge of the Group, are best placed to perform the services from an efﬁciency, effectiveness and cost perspective. The performance of such non-audit related services is always balanced with the fundamental objective of ensuring PwC’s objectivity and independence as auditors. To ensure this balance, the Audit Committee has established a policy whereby its approval is required wherever management recommends that PwC undertake non-audit work. Valuation services, actuarial services and internal audit services will not be performed by PwC. In 2010 and 2009, non-audit assignments primarily related to implementation of a compliance tracking system and tax consulting advice. NOTE 34. KEY MANAGEMENT PERSONNEL a) Key management personnel compensation Short term employee beneﬁts Post employment beneﬁts Other beneﬁts Termination/sign-on/retirement beneﬁts Share-based payments 12,269 7,722 594 126 5,172 2,012 397 64 631 4,895 20,173 13,709 108 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 108 10/9/10 6:46:13 PM b) Equity instruments disclosure relating to key management personnel The number of ordinary shares and options/share rights in Brambles held during the ﬁnancial year by each key management personnel, including their related parties, are set out below: NAME AND HOLDINGS 2010 Executive Directors T J Gorman Ordinary shares Share rights G J Hayes Ordinary shares Share rights Former Executive Directors M F Ihlein Ordinary shares Share rights M E Doherty Ordinary shares Share rights Current Key Management Personnel J L Inﬁnger Ordinary shares Share rights J R A Judd Ordinary shares Share rights P S Mackie Ordinary shares Share rights E E Potts Ordinary shares Share rights J D Ritchie Ordinary shares Share rights K J Shuba Ordinary shares Options/share rights N P Smith Ordinary shares Share rights R J Westerbos Ordinary shares Share rights Former Senior Executive C A van der Laan Ordinary shares Share rights BALANCE AT START OF THE YEAR GRANTED DURING THE YEAR EXERCISED DURING THE YEAR LAPSED DURING THE YEAR CHANGES DURING THE YEAR BALANCE AT END OF THE YEAR1 VESTED AND EXERCISABLE AT END OF THE YEAR 245 – 219,688 326,994 – – – 405,870 783,524 809,734 10,151 246,453 – 483 – 440 – – – 128,717 50,590 – – – – – – – – – – – – – – – – – 110,038 – – – – – 685 – 930 546,682 – – – 405,870 489 – 441 – 784,013 700,179 10,592 246,893 135 – 135 128,717 14,809 65,399 177,446 84,345 13,931 28,668 – 219,192 245 – – – 110,041 53,701 6,278 17,701 609 – 854 139,763 50,689 – – – 7,437 58,126 210,106 103,662 9,955 27,109 – 276,704 – – – – 39,941 123,368 65,490 58,718 37,538 – 39,941 92,602 28,033 – – – 18,419 46,452 334,421 111,645 134,534 28,136 – 283,396 292 – 97,463 97,926 – – 15,000 442,662 – – – – – – – – – – – – – 754 – – – 1,046 195,389 – – – 34,779 49,779 34,779 49,507 – 358,376 – – – – – 68,713 – – – – – – – – – – – – – – – – – – – – 1 Closing balances are as the end of the year for ongoing employees and as at cessation of employment for those whose employment ended during the year. BRAM021 Annual Report 2010 FINS v7 FA.indd 109 10/9/10 6:46:13 PM BRAMBLES LIMITED ANNUAL REPORT 2010 109 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 34. KEY MANAGEMENT PERSONNEL – CONTINUED b) Equity instruments disclosure relating to key management personnel NAME AND HOLDINGS 2009 Executive Directors M F Ihlein Ordinary shares Share rights M E Doherty Ordinary shares Share rights Current Key Management Personnel T J Gorman Ordinary shares Share rights J R A Judd Ordinary shares Share rights E E Potts Ordinary shares Share rights K J Shuba Ordinary shares Options/share rights N P Smith Ordinary shares Share rights C A van der Laan Ordinary shares Share rights Former Senior Executive C M Norin Ordinary shares Share rights BALANCE AT START OF THE YEAR GRANTED DURING THE YEAR EXERCISED DURING THE YEAR LAPSED DURING THE YEAR CHANGES DURING THE YEAR BALANCE AT END OF THE YEAR VESTED AND EXERCISABLE AT END OF THE YEAR 646,470 – – – 137,054 783,524 602,526 461,376 136,762 117,406 – 809,734 – – 28,406 218,047 – – 36,365 183,323 69,654 – – – – – – – – – – – 10,151 10,151 – 246,453 245 – 245 219,688 (19,064) 50,590 142,669 93,647 30,785 28,085 – 177,446 45,000 – – – 5,689 50,689 166,236 90,926 25,436 21,620 – 210,106 27,780 – – – 244,519 133,832 23,746 20,184 – – – 97,463 130,862 – – – – – – 371,060 188,344 64,490 52,252 – 442,662 – (115,862) 15,000 334,421 125,208 253 – 292 – 28,033 292 97,463 – – – – – – – – – – – – – – – – – – – – 164,292 78,251 35,896 90,324 115 – 115 116,323 58,485 c) Other transactions with key management personnel Other transactions with key management personnel are set out in Note 35d. Further remuneration disclosures are set out in the Directors’ Report on pages 31 to 44 of the Annual Report. NOTE 35. RELATED PARTY INFORMATION a) Brambles Brambles comprises Brambles Limited and the entities which it controls. Borrowings under the bilateral bank credit facilities are undertaken by a limited number of Brambles subsidiaries. Funding of other subsidiaries within Brambles is by way of intercompany loans, all of which are documented and carry commercial interest rates applicable to the currency and terms of the loans. Brambles Limited charges Brambles’ borrowers a commercially-determined guarantee fee for the guarantees and cross-guarantees it has given in relation to borrowing facilities, as described in Note 37b. 110 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 110 10/9/10 6:46:13 PM Dividends are declared within the group only as required for funding or other commercial reasons. Brambles also has in place cost sharing agreements to ensure that relevant costs are taken up by the entities receiving the beneﬁts. All amounts receivable and payable by entities within Brambles and any interest thereon are eliminated on consolidation. b) Material subsidiaries The principal subsidiaries of Brambles during the year were: NAME CHEP CHEP USA CHEP Canada, Inc. CHEP UK Limited CHEP France SA CHEP Deutschland GmbH CHEP Espana SA CHEP Mexico SA de CV CHEP Benelux Nederland BV CHEP Italia SRL Brambles Enterprises Limited PLACE OF INCORPORATION USA Canada UK France Germany Spain Mexico The Netherlands Italy UK CHEP South Africa (Proprietary) Limited South Africa CHEP Australia Limited CHEP (Shanghai) Company Limited CHEP Technology Pty Limited CHEP India Pvt Limited LeanLogistics Inc Recall Recall Limited Recall France SA Recall Corporation, Inc. Recall do Brasil Ltda AUSDOC Holdings Pty Limited Recall Information Management Pty Limited Recall Deutschland GmbH Brambles HQ Brambles Industries Limited Brambles Holdings (UK) Limited Australia China Australia India USA UK France USA Brazil Australia Australia Germany Australia UK Brambles International Finance BV The Netherlands Brambles USA Inc. Brambles North America Incorporated Brambles Finance plc Brambles Finance Limited USA USA UK Australia % INTEREST HELD AT REPORTING DATE 2010 2009 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 In addition to the list above, there are a number of other subsidiaries within Brambles which are mostly intermediary holding companies or are dormant. Investments in subsidiaries are primarily by means of ordinary or common shares. All subsidiaries prepare accounts with a 30 June balance date. BRAM021 Annual Report 2010 FINS v7 FA.indd 111 10/9/10 6:46:13 PM BRAMBLES LIMITED ANNUAL REPORT 2010 111 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS – CONTINUED FOR THE YEAR ENDED 30 JUNE 2010 NOTE 35. RELATED PARTY INFORMATION – CONTINUED c) Joint ventures Brambles’ share of the net results of joint ventures is disclosed in Note 18. d) Other transactions Other transactions entered into during the year with Directors of Brambles Limited; with Director-related entities; with key management personnel (KMP, as set out in the Directors’ Report); or with KMP-related entities were on terms and conditions no more favourable than those available to other employees, customers or suppliers and include transactions in respect of the employee option plans, contracts of employment and reimbursement of expenses. Any other transactions were trivial or domestic in nature. e) Other related parties A subsidiary has a non-interest bearing advance outstanding as at 30 June 2010 of US$1.201 million (2009: US$1.099 million) to Brambles Custodians Pty Limited, the trustee under Brambles’ employee loan scheme. This scheme enabled employees to acquire shares in BIL and has been closed to new entrants since August 2002. f) Directors’ indemnities Under its constitution, to the extent permitted by law, Brambles Limited indemniﬁes each person who is, or has been a Director or Secretary of Brambles Limited against any liability which results from facts or circumstances relating to the person serving or having served in the capacity of Director, Secretary, other ofﬁcer or employee of Brambles Limited or any of its subsidiaries, other than: (aa) in respect of a liability other than for legal costs: (i) a liability owed to Brambles Limited or a related body corporate; (ii) a liability for a pecuniary penalty order under section 1317G of the Act or a compensation order under section 1317H of the Act; or (iii) a liability that is owed to someone (other than Brambles Limited or a related body corporate) and did not arise out of conduct in good faith; and (bb) in respect of a liability for legal costs: (i) (ii) (iii) (iv) in defending or resisting proceedings in which the person is found to have a liability for which they could not have been indemniﬁed under paragraph (aa)(i) above; in defending or resisting criminal proceedings in which the person is found guilty; in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the Court to be established; or in connection with proceedings for relief to any persons under the Act in which the Court denies the relief. Paragraph (bb)(iii) above does not apply to costs incurred in responding to actions brought by ASIC or a liquidator as part of an investigation before commencing proceedings for the Court order. As allowed by its constitution, Brambles Limited has provided indemnities from time to time to Directors, Secretaries or other Statutory Ofﬁcers of its subsidiaries (Beneﬁciaries) against all loss, cost and expenses (collectively Loss) caused by or arising from any act or omission by the relevant person in performance of that person’s role as a Director, Secretary or Statutory Ofﬁcer. The indemnity given by the Company excludes the following matters: (a) any Loss to the extent caused by or arising from an act or omission of the Beneﬁciary prior to the effective date of the indemnity; (b) any Loss to the extent indemnity in respect of that Loss is prohibited under the Corporations Act (or any other law); (c) any Loss to the extent it arises from private or personal acts or omissions of the Beneﬁciary; (d) any Loss comprising the reimbursement of normal day-to-day expenses such as travelling expenses; (e) any Loss to the extent the Beneﬁciary failed to act reasonably to mitigate the Loss; (f) any Loss to the extent it is caused by or arises from acts or omissions of the Beneﬁciary after the date the indemnity is revoked by the Company in accordance with the terms of the indemnity; (g) any Loss to the extent it is caused by or arises from any breach by the Beneﬁciary of the terms of the indemnity. Insurance policies are in place to cover Directors, Secretaries and other Statutory Ofﬁcers of Brambles Limited and its subsidiaries, however the terms of the policies prohibit disclosure of the details of the insurance cover and the premiums paid. NOTE 36. EVENTS AFTER BALANCE SHEET DATE Other than those outlined in the Directors’ Report, there have been no events that have occurred subsequent to 30 June 2010 and up to the date of this report that have had a material impact on Brambles’ ﬁnancial performance or position. 112 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 112 10/9/10 6:46:13 PM NOTE 37. PARENT ENTITY FINANCIAL INFORMATION a) Summarised ﬁnancial data of Brambles Limited (Loss)/proﬁt for the year1 Other comprehensive income/(loss) for the year Total comprehensive income Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Contributed equity Share-based payment reserve Foreign currency translation reserve Retained earnings Total equity PARENT ENTITY 2010 US$M 2009 US$M (8,573.3) 347.1 665.1 (2,718.0) (7,908.2) (2,370.9) 1.7 18.5 6,642.5 19,267.7 6,644.2 19,286.2 21.5 46.6 68.1 26.8 4,603.8 4,630.6 6,576.1 14,655.6 13,979.6 13,847.6 28.2 1,061.5 (8,493.2) 27.3 396.4 384.3 6,576.1 14,655.6 1 The parent entity’s loss for 2010 includes a charge of US$9.1 billion after tax against the parent entity’s investment in subsidiaries. The price of Brambles shares as quoted on the Australian Securities Exchange at 30 June 2010 has been used to determine the new carrying value of these investments. This non-cash charge is reversed on consolidation and does not impact the consolidated ﬁnancial statements. b) Guarantees and contingent liabilities Brambles Limited and certain of its subsidiaries are parties to a deed of cross-guarantee which supports global ﬁnancing credit facilities available to certain Brambles’ subsidiaries. Total facilities available amount to US$2,459.9 million (2009: US$2,826.6 million) of which US$527.4 million (2009: US$1,640.9 million) has been drawn. Brambles Limited and certain of its subsidiaries are parties to guarantees which support US Private Placement borrowings of US$535.0 million (2009: US$535.0 million) by a subsidiary. Brambles Limited and certain of its subsidiaries are parties to a guarantee which support notes of US$750.0 million (2009: nil) issued by a subsidiary to qualiﬁed institutional buyers in accordance with Rule 144A and Regulation S of the United States Securities Act. Brambles Limited has guaranteed repayment of certain facilities and ﬁnancial accommodations made available to certain Brambles’ subsidiaries. Total facilities available amount to US$327.2 million (2009: US$315.9 million), of which US$130.1 million (2009: US$98.8 million) has been drawn. Other than these guarantees, the parent entity did not have any contingent liabilities at 30 June 2010 or 30 June 2009. c) Contractual commitments Brambles Limited did not have any contractual commitments for the acquisition of property, plant and equipment at 30 June 2010 or 30 June 2009. BRAM021 Annual Report 2010 FINS v7 FA.indd 113 10/9/10 6:46:14 PM BRAMBLES LIMITED ANNUAL REPORT 2010 113 DIRECTORS’ DECLARATION In the opinion of the Directors of Brambles Limited: (a) the ﬁnancial statements and notes set out on pages 53 to 113 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the ﬁnancial position of Brambles as at 30 June 2010 and of its performance for the year ended on that date; (b) there are reasonable grounds to believe that Brambles Limited will be able to pay its debts as and when they become due and payable. A statement of compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board is included within Note 1 to the ﬁnancial statements. The Directors have been given the declarations by the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Directors. G J KRAEHE AO Chairman 19 August 2010 T J GORMAN Chief Executive Ofﬁcer 114 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 114 10/9/10 6:46:14 PM INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BRAMBLES LIMITED PricewaterhouseCoopers ABN 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 www.pwc.com/au REPORT ON THE FINANCIAL REPORT We have audited the accompanying ﬁnancial report of Brambles Limited (the Company), which comprises the balance sheet as at 30 June 2010, and the income statement, the statement of comprehensive income, statement of changes in equity and cash ﬂow statement for the year ended on that date, a summary of signiﬁcant accounting policies, other explanatory notes and the Directors’ declaration for Brambles. Brambles comprises the Company and the entities it controlled at the year’s end or from time to time during the ﬁnancial year. Directors’ responsibility for the ﬁnancial report The Directors of the Company are responsible for the preparation and fair presentation of the ﬁnancial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the ﬁnancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the Directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the ﬁnancial statements comply with International Financial Reporting Standards. Auditors’ responsibility Our responsibility is to express an opinion on the ﬁnancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the ﬁnancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁnancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁnancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁnancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the ﬁnancial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the ﬁnancial report. Our audit did not involve an analysis of the prudence of business decisions made by Directors or management. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditors’ opinion In our opinion: (a) the ﬁnancial report of Brambles Limited is in accordance with the Corporations Act 2001, including: giving a true and fair view of Brambles’ ﬁnancial position as at 30 June 2010 and of its performance for the year ended on that date; and (i) (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the ﬁnancial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. BRAM021 Annual Report 2010 FINS v7 FA.indd 115 10/9/10 6:46:14 PM BRAMBLES LIMITED ANNUAL REPORT 2010 115 INDEPENDENT AUDITORS’ REPORT – CONTINUED TO THE MEMBERS OF BRAMBLES LIMITED REPORT ON THE REMUNERATION REPORT We have audited the Remuneration Report included in pages 31 to 44 of the Directors’ Report for the year ended 30 June 2010. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditors’ opinion In our opinion, the Remuneration Report of Brambles Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. Matters relating to the electronic presentation of the audited ﬁnancial report This auditors’ report relates to the ﬁnancial report and Remuneration Report of Brambles Limited for the year ended 30 June 2010 included on Brambles’ web site. The Directors of the Company are responsible for the integrity of the Brambles’ web site. We have not been engaged to report on the integrity of this web site. The auditors’ report refers only to the ﬁnancial report and Remuneration Report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the ﬁnancial report or the Remuneration Report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited ﬁnancial report and Remuneration Report to conﬁrm the information included in the audited ﬁnancial report and Remuneration Report presented on this website. PRICEWATERHOUSECOOPERS M G JOHNSON Partner Sydney 19 August 2010 M DOW Partner 116 BRAMBLES LIMITED ANNUAL REPORT 2010 AUDITORS’ INDEPENDENCE DECLARATION PricewaterhouseCoopers ABN 52 780 433 757 Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999 www.pwc.com/au As lead auditor for the audit of Brambles Limited for the year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Brambles Limited and the entities it controlled during the period. M G JOHNSON Partner PricewaterhouseCoopers Sydney 19 August 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 117 10/9/10 6:46:16 PM BRAMBLES LIMITED ANNUAL REPORT 2010 117 FIVE YEAR FINANCIAL PERFORMANCE SUMMARY Continuing operations Sales revenue Operating proﬁt Net ﬁnance costs Proﬁt before tax Tax expense Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt for the year Depreciation and amortisation Continuing operations Discontinued operations Capex on property, plant & equipment Continuing operations Discontinued operations Cash ﬂow Cash ﬂow from operations Free cash ﬂow Dividends paid Free cash ﬂow after dividends Balance sheet Capital employed Net debt Equity Employees Continuing operations Discontinued operations Earnings per share (US cents) Basic From continuing operations On Underlying proﬁt after ﬁnance costs and tax Dividend declared per share (Australian cents) Interim and ﬁnal Special 2010 US$M 2009 US$M 2008 US$M 2007 US$M 2006 US$M 4,146.8 4,018.6 4,358.6 3,868.8 3,522.1 724.5 718.2 1,030.6 796.0 701.1 (109.6) (120.9) (149.5) (59.9) (111.8) 614.9 597.3 881.1 736.1 589.3 (171.0) (163.3) (234.2) (302.4) (226.7) 443.9 434.0 646.9 433.7 362.6 4.9 18.6 1.8 857.6 1,101.8 448.8 452.6 648.7 1,291.3 1,464.4 444.0 424.6 458.6 404.3 – – – – 412.0 80.7 498.8 672.4 849.2 – – – 695.7 24.7 581.7 182.8 882.3 548.6 204.5 344.1 722.4 419.5 277.6 141.9 810.0 412.6 444.8 838.3 490.2 604.0 (32.2) (113.8) 762.6 559.7 296.7 263.0 3,391.5 3,572.7 3,969.7 3,419.6 4,643.1 1,759.3 2,143.4 2,426.2 1,996.9 1,690.1 1,632.2 1,429.3 1,543.5 1,422.7 2,953.0 12,714 12,785 12,305 12,327 12,249 – – – 1,841 14,043 31.8 31.5 31.9 25.0 – 32.6 31.3 38.5 30.0 – 46.0 45.9 45.4 34.5 – 83.4 28.0 37.3 17.0 – 86.7 21.5 25.3 25.0 34.5 118 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 118 10/9/10 6:46:16 PM GLOSSARY 2001 Option Plans 2001 Share Plans 2004 Share Plans 2006 Share Plan Act Actual rates AGM ASX The Brambles Industries Limited 2001 Executive Share Option Plan and the Brambles Industries plc 2001 Executive Share Option Plan, incorporating Brambles Limited rollover amendments of 22 August 2006. The Brambles Industries Limited 2001 Executive Performance Share Plan and the Brambles Industries plc 2001 Executive Performance Share Plan, incorporating Brambles Limited rollover amendments of 22 August 2006. The Brambles Industries Limited 2004 Performance Share Plan and the Brambles Industries plc 2004 Performance Share Plan, incorporating Brambles Limited rollover amendments of 22 August 2006. The Brambles Limited 2006 Performance Share Plan, as amended on 25 November 2008 and 18 November 2009. The Corporations Act 2001 (Cth). In the statutory ﬁnancial statements, results are translated into US dollars at the applicable actual monthly exchange rates ruling in each period. Annual General Meeting. Australian Securities Exchange. Average Capital Invested Average Capital Invested or ACI is a 12 month average of Capital Invested. BIL BIP Board Capital Invested is calculated as net assets before tax balances, cash and borrowings, but after adjustment for accumulated pre-tax Signiﬁcant items, actuarial gains or losses and net equity adjustments for equity-settled share-based payments. Brambles Industries Limited, which was one of the two listed entities in the previously dual-listed companies structure. Brambles Industries plc, which was one of the two listed entities in the previously dual-listed companies structure. The Board of Brambles Limited. Brambles or Group Brambles Limited and all of its related bodies corporate. BVA CAGR Cash ﬂow from operations CGPR Company Constant currency Brambles Value Added or BVA represents the value generated over and above the cost of the capital used to generate that value. It is calculated using ﬁxed June 2009 exchange rates as: – – – Underlying proﬁt; plus Signiﬁcant items that are part of the ordinary activities of the business; less Average Capital Invested, adjusted for accumulated pre-tax Signiﬁcant items that are part of the ordinary activities of the business, multiplied by 12%. Compound Annual Growth Rate. The CAGR of sales revenue is the annualised percentage at which sales revenue would have grown over a period if it grew at a steady rate. Cash ﬂow generated after net capital expenditure but excluding Signiﬁcant items that are outside the ordinary course of business. The Australian Securities Exchange Corporate Governance Council Corporate Governance Principles and Recommendations. Brambles Limited (ACN 118 896 021) Constant currency results are presented by translating both current and comparable period results into US dollars at the actual monthly exchange rates applicable in the comparable period, so as to show relative performance between the two periods before the translation impact of currency ﬂuctuations. Continuing operations Continuing operations refers to CHEP, Recall and Brambles HQ. Discontinued operations Operations which have been divested or which are held for sale. DLC Dual-listed companies structure – the previous contractual arrangement between Brambles Industries Limited and Brambles Industries plc under which they operated as if they were a single economic enterprise, whilst retaining their separate legal identities, tax residences and stock exchange listings. BIL and BIP operated as a DLC from August 2001 to December 2006. BRAM021 Annual Report 2010 FINS v7 FA.indd 119 10/9/10 6:46:16 PM BRAMBLES LIMITED ANNUAL REPORT 2010 119 GLOSSARY – CONTINUED DMS DPS EBITDA EPS Free cash ﬂow fx FY10 or Year FY11 Document Management Solutions, a Recall service line. Data Protection Services, a Recall service line. Earnings before interest, tax, depreciation and amortisation. EBITDA is deﬁned as Operating proﬁt from continuing operations after adding back depreciation and amortisation and Signiﬁcant items outside the ordinary course of business. Earnings per share. Cash ﬂow generated after net capital expenditure, ﬁnance costs and tax, but excluding the net cost of acquisitions and proceeds from business disposals. Foreign exchange. The 2010 ﬁnancial year commencing 1 July 2009 and ending 30 June 2010. The 2011 ﬁnancial year commencing 1 July 2010 and ending 30 June 2011. Group or Brambles Brambles Limited and all of its related bodies corporate. IBC IFRS IPEP KPI(s) LSE LTI LTIFR LTISR OHS&E MyShare Intermediate Bulk Container, for the transport and storage of bulk products. International Financial Reporting Standards. Brambles reports its ﬁnancial results under Australian Accounting Standards, which are compliant with IFRS. Irrecoverable pooling equipment provision. Key Performance Indicator(s). London Stock Exchange. Long Term Incentive. Lost Time Injury Frequency Rate. Lost Time Injury Severity Rate. Occupational Health Safety and Environment. The Brambles Limited MyShare Plan, an all employee share plan, under which employees acquire ordinary shares by means of deductions from their after-tax pay and must hold those shares for a two year period. If they hold those shares and remain employed at the end of the two year period, then Brambles will match the number of shares they hold by issuing or transferring to them the same number of shares which they held for the qualifying period at no additional cost to the employee. Net new business wins The change in sales revenue in a period resulting from business won or lost in that period and the previous 12 months. Net new business is calculated on a constant currency basis. PAT RFID ROCI RPC SDS Signiﬁcant items STI TFR TSR Underlying proﬁt Uniﬁcation Proﬁt After Tax. Radio Frequency Identiﬁcation. Return on Capital Invested or ROCI is calculated as Underlying proﬁt divided by Average Capital Invested. Reusable Plastic Container, generally used for shipment and display of produce items. Secure Destruction Services, a Recall service line. Signiﬁcant items are items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: – outside the ordinary course of business (e.g. gains or losses on the sale or termination of operations, the cost of signiﬁcant reorganisations or restructuring); or part of the ordinary activities of the business but unusual due to their size and nature. – Short Term Incentive. Total Fixed Remuneration. Total Shareholder Return. TSR measures the returns that a company has provided for its shareholders, reﬂecting share price movements and reinvestment of dividends over a speciﬁed performance period. Under the 2006 Share Plan, TSR is normally calculated on the average daily closing share prices in the three months immediately preceding the start of a period and the end of a period. Underlying proﬁt is proﬁt from continuing operations before ﬁnance costs, tax and Signiﬁcant items. The uniﬁcation of the dual-listed companies structure which operated between Brambles Industries Limited and Brambles Industries plc under a new single Australian holding company, Brambles Limited, which took place in December 2006. 120 BRAMBLES LIMITED ANNUAL REPORT 2010 BRAM021 Annual Report 2010 FINS v7 FA.indd 120 10/9/10 6:46:16 PM INVESTOR INFORMATION BRAMBLES LIMITED Level 40, Gateway 1 Macquarie Place Sydney NSW 2000 Australia Telephone: 61 (0) 9256 5222 Facsimile: 61 (0) 9256 5299 Website: www.brambles.com Brambles Limited has a primary listing on the Australian Securities Exchange. The global headquarters of Brambles is in Sydney, Australia. All currency amounts in this report are in US dollars unless otherwise speciﬁed. ANNUAL GENERAL MEETING The AGM will be held at 2.00pm (AEDT) on Thursday, 18 November 2010 at: The Wesley Theatre Wesley Conference Centre 220 Pitt Street Sydney NSW 2000 A live webcast of the meeting will be broadcast on www.brambles.com DIVIDEND The Directors have declared a ﬁnal dividend of 12.5 Australian cents per share, which will be 20% franked. The dividend will be paid on Thursday, 14 October 2010. Shareholders may elect to receive dividend payments in Australian dollars or Pounds sterling, by contacting Brambles’ share registry, Link Market Services Limited. The relevant contact details are set out in Shareholder Information on page 50. BRAMBLES BUSINESS UNITS CHEP Americas 8517 South Park Circle Orlando FL 32819-9040 United States of America Telephone: 1 407 370 2437 Facsimile: 1 407 363 5354 Email: chep_americas@chep.com Website: www.chep.com CHEP EMEA Weybridge Business Park Addlestone Road, Addlestone Surrey KT15 2UP United Kingdom Telephone: 44 (0) 1932 850 085 Facsimile: 44 (0) 1932 850 144 Email: info.emea@chep.com Website: www.chep.com CHEP Asia-Paciﬁc Level 6, Building C 11 Talavera Road North Ryde NSW 2113 Australia Telephone: 61 (0) 2 9856 2437 Facsimile: 61 (0) 2 9856 2404 Email: ap.marketing@chep.com Website: www.chep.com Recall One Recall Center 180 Technology Parkway Norcross GA 30092 United States of America Telephone: 1 770 776 1000 Facsimile: 1 770 776 1001 Email: recall.communications@recall.com Website: www.recall.com WE’RE BUILDING A STRONGER FOUNDATION CONTENTS 001 _ Letter from the Chairman and the CEO 002 _ Performance summary 004 _ Operational and ﬁnancial review 012 _ Treasury and risk review 014 _ Board of Directors 016 _ Executive leadership team 018 _ Corporate governance statement 031 _ Directors’ report – remuneration report 045 _ Directors’ report – other information 050 _ Shareholder information 053 _ Financial report – ﬁnancial statements 114 _ Financial report – Directors’ declaration 115 _ Financial report – independent auditors’ report 117 _ Auditors’ independence declaration 118 _ Five year ﬁnancial performance summary 119 _ Glossary IBC _ Investor information Brambles Limited ABN 89 118 896 021 1 2 0 M A R B . y e n d y S . n o t g n i l l e W . d n a l k c u A . d e t i i m L e v i t a e r C t h g i s n I B R A M B L E S A N N U A L R E P O R T 2 0 1 0 WWW.BRAMBLES.COM ANNUAL REPORT 2010 WE’RE BUILDING A STRONGER FOUNDATION Brambles is committed to achieving Zero Harm, which means zero injuries and zero environmental damage, and has used a PEFC, Chain of Custody accredited printer to produce this Annual Report. 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