- Brambles’ continued success lies in its ongoing investment in technology and automation.
- Brambles’ US$2.5billion IFCO sale has enabled the company to reinvest and set a new direction.
- The chair, CEO and CFO of the company are all Fellows of Chartered Accountants ANZ.
By Sally Rose
Brambles CEO Graham Chipchase FCA and CFO Nessa O’Sullivan FCA live in London, home of the A$18billion company’s headquarters, but spend much of their time visiting the business’s locations in Europe and the Americas. Recently, their travels took them to the Brambles offices in Sydney, where they met with chair Stephen Johns FCA, a resident Sydneysider. As the trio gathered for the release of the company’s full-year financial results on 21 August, they spoke to Acuity about how they are embracing technology to drive growth.
For the year ended 30 June 2019, Brambles reported a statutory net profit of US$1.47 billion. This followed the sale of its rigid plastic container business IFCO Systems for US$2.5 billion, some of which will fund a US$1.65 billion share buyback. However, while Brambles’ underlying annual profit grew 2% to US$803.7 million, the market was disappointed to see net profit from continuing businesses decrease by 13%. This came as Brambles’ Americas CHEP pallet business faced challenges and the company flagged a subdued macroeconomic outlook.
In his presentation to investors, Chipchase indicated that inflationary pressures on wages and other costs, a slowdown in Europe, the impact of Brexit, and the risk of a trade war between the US and China could all put pressure on Brambles’ ability to increase profits in the year ahead. But speaking to Acuity, he was upbeat about the group’s ability to continue delivering sustainable mid-single digit growth.
“Even if we start to see a real slowdown in the economy, we have an ability to grow the top line for a couple of reasons,” he says. “Firstly, the fundamentals of our circular reuse model, which our customers and their retailers use in a sustainable way to move products through the supply chain. But also, we keep on innovating.
“If we are not producing a better pallet, a more sustainable pallet, a more intelligent pallet by using technology and digital insights, then we will get left behind,” Chipchase says. “But I think we are very good at keeping ahead of the curve on that and that allows us to keep on growing.”
How is technology driving change?
Brambles has a long history of innovation. In 1875, an 18-year-old English migrant in Sydney, Walter Bramble, started his own ‘cut-up and deliver’ butchering business. Within two years, he had relocated the thriving enterprise north to Newcastle, and by 1925 W.E. Bramble & Sons had interests in transport, logistics, automotive engineering and real estate.
Today, Brambles is one of the world’s largest logistics companies. The A$18 billion ASX-listed enterprise owns about 330 million pallets, crates and containers, which it circulates through a ‘share and reuse’ model via a network of more than 750 service centres, employing about 11,000 people in about 60 countries.
The company boasts that it “delivers more things, to more people, in more places, than any other organisation in the world”.
In this era of the digital economy, leasing out pallets, crates and containers for transporting goods seems, at face value, to be a quaintly old-fashioned business model. The key to Brambles’ continued success probably lies within its ongoing investment in becoming what Chipchase calls a “technology-enabled” company.
Brambles is spending about US$160million over three years to automate about 50 plants in its North American CHEP pallet business. The project will bring the proportion of work performed by robotic automation in that business unit to85%. The capital investment is projected to pay for itself within about five years.
Along with such automation, Brambles is investing in machine learning and other artificial intelligence (AI) applications as it rolls out “smart pallets”, automates more of its back-office functions, and does more sophisticated financial and data analysis.
In 2016, the group founded BXB Digital to expand its capabilities in data analytics and develop innovative digital supply-chain solutions for its customers.
“We are increasingly using AI and machine learning tools to know where our pallets are and whether they are full or empty,” Chipchase says. “This also give sour customers more insight into what’s going on in their supply chain. Some of our pallets are already part of the Internet of Things.”
In the European business, an AI-enabled technology platform is being used to cross-reference the delivery routes of different clients to find opportunities to reduce the number of empty trucks making return journeys.
“In Europe, on 30% of journeys, the truck is empty. With better visibility through the supply chain, we can pair up customers who are shipping products in different directions so you end up with one truck being full all the way rather than two trucks being empty half the time,” Chipchase explains.
“We started off using spreadsheets to make the calculations, but now we are using algorithms to do it faster and more widely.”
The trial has been a success and is set to be implemented across other parts of the global business.
“When we put trackers on our pallets, we get insights that allow us to have a different conversation with our customers. Better data provides new information that opens up the possibility of thinking about different pricing and business models,” the CEO says.
“When we put trackers on our pallets we get insights that allow us to have a different conversation with our customers.”
In addition to the financial benefits automation-driven efficiency improvements bring, Chipchase is also keen to stress the role these technologies can play in reducing waste.
“Everything we do to identify and overcome bottlenecks in the supply chain ensures products arrive quicker, which is especially beneficial when you are transporting fresh produce.”
CEO focused on strategy
Picture: Brambles CEO Graham Chipchase FCA.
Chipchase joined Brambles as CEO designate in January 2017, taking the reins the following month. Prior to that, he spent 14 years at Rexam, one of the world’s largest consumer packaging companies, where he held the roles of group finance director, group director of plastic packaging and, for his last six years with the company, CEO.
He identifies “setting the right strategy” and “demonstrating leadership” to ensure that strategy is well executed as his core responsibilities as CEO, alongside ensuring the company is “a great and safe place to work”.
When it comes to keeping in touch with his 13 direct reports, Chipchase says he takes a “very fluid” approach based on what each individual needs. But with such a big and complex organisation to run, it is vital for the CEO to be confident that he and his leadership team are focused on the right priorities.
Asked how he does this, Chipchase says he is a long-time “big believer” in the balanced scorecard methodology. “It allows you to keep track of important strategic initiatives within each business,” he says. “Red, green and amber traffic lights focus you on what’s on track and what’s not.”
Chipchase says when he arrived at Brambles the company already had “the building blocks” of a balanced scorecard system in place, but he has consolidated things and made it a more central part of the management culture.
“It’s not rocket science, it’s just a nice easy way of seeing where the strategic priorities are.”
Of course, real success relies on having a sound underlying strategy in the first place. To ensure an ongoing reality check in this respect, Chipchase and CFO O’Sullivan have detailed quarterly strategy sessions with each of the business units.
CFO identifies business opportunities
Picture: Nessa O’Sullivan FCA
O’Sullivan has been in her current role since November 2016. Prior to that, she spent a decade with Coca-Cola Amatil, including five years as group CFO. The former auditor’s CV also includes 10 years at Yum! Restaurants International – the owner of KFC, Pizza Hut and Taco Bell– where she held a variety of senior finance, IT and strategy roles, including spending five years as CFO for the South Pacific region.
At Brambles, 15 senior executive leaders report directly to O’Sullivan, who has a broad range of responsibilities that include reporting, commercial, M&A, treasury, tax, internal audit, investor relations, and sustainability. In addition, she highlights group governance and providing business partnering services to the rest of the executive team as key to her role.
An ongoing priority is to continue to evolve the organisation’s financial reporting so it provides more forward-looking analysis. This requires a sophisticated combination of quantitative and qualitative analysis.
“The financial reporting team is not focused just on reporting the numbers but also very much on the implications of those numbers for the future,” she says. “We spend a lot of time reviewing the trends we are seeing with the business as a sanity check, so we can develop opportunities.”
“The financial reporting team are not focused just on reporting the numbers but also very much on the implications of those numbers for the future.”
The financial reporting team engages with each business unit monthly – and in a more granular way each quarter – to review how it is tracking against its three-year strategic plan. O’Sullivan points to creating that ongoing dialogue as one of her team’s key achievements over the past three years.
“This helps define reality early so you have the insights you need in a timely manner to course correct so the business can achieve the outcomes it needs,” she says. “You need to pick up on the early indicators so you have a chance to make the changes required to achieve the outcomes the business needs.”
As O’Sullivan sees it, tough economic conditions are when finance leaders get the chance to shine.
“Finance people come into their own during tougher periods because they can really add value to the business,” she says. “As we have faced a period of higher inflation over the last few years, finance has played a really strong role across the group, working within the business units to get to a position where we have changed the commercial terms in our contracts to be able to recover, or reduce our exposure to, those costs.
“A key part of my role is being a business partner to the rest of the executive leadership team across the group.”
One of her proudest achievements in the role is having successfully identified opportunities to take underperforming capital out of the business and reinvest it in high-performing core assets – and then working with people across the entire business to execute those moves successfully.
How a dual-track sale process reduces risk
One very notable recent example of this is the US$2.5billion IFCO sale, which has enabled the company to reinvest and set a new, ambitious direction for the future.
In August 2018, Brambles announced its intention to divest itself of IFCO Systems, either by sale or listing, and ran a dual-track sale process right up until a deal was signed with Triton (a wholly owned subsidiary of the Abu Dhabi Investment Authority) in February. The deal was completed in May.
This made for an “exceptionally intense” period for the finance team.
“There were members of my team who effectively worked the equivalent of two jobs as we went through the IFCO transaction,” O’Sullivan says. “Everyone was glad when the deal was complete, but they also appreciated the opportunity to work on the transaction and the experiences that came with it.”
O’Sullivan says a major benefit of running a dual-track process is that having your options open as a seller helps maintain rational thinking.
“You always have to have a view on value and have thoroughly weighed up your options before going into a transaction,” she explains. “Otherwise, there is a risk people fall in love with doing the deal and lose sight of the value equation.”
Lessons from Recall informed IFCO deal
Running a dual-track process was something the board insisted on when it approved the strategy to divest. The chair says this was due to lessons learned the hard way when a planned trade sale of US-based document storage business Recall Holdings fell over amid tough capital market conditions in 2012.
“When we first announced the Recall sale, there was a lot of chatter in the industry as to how many people were interested in buying it… but as it turned out, we ended up in a failed sales situation initially because the potential buyers, who were all private equity players, utilised the system and we were vulnerable because we had announced our plans to the market and we had no plan B,” Brambles chair Johns explains.
“We started with something like 36 organisations registering [for access to the sale process]. We ultimately reduced that to a shortlist of six, and then buyers dropped out or made unreasonable demands… all the initial indications about what they were interested in paying subject to further due diligence didn’t work out. We had unsatisfactory offers so we withdrew from the market.”
The Brambles board then informed the market it would demerge Recall via an initial public offering (IPO) to list it on the ASX as a separate entity.
“We were quite prepared that if any bids came up during the demerger process we would obviously entertain them, but any bidder knew that we had a definite alternative,” Johns says.
In 2013, Brambles successfully floated Recall Holdings in a A$2 billion IPO. Two years later, US private equity firm Iron Mountain paid A$3.4 billion for the company, delivering a windfall to shareholders.
Chair committed to adding value
Picture: Stephen Johns FCA, Brambles chair.
Johns had already been a non-executive director of Brambles for 10 years when he was appointed chair in September 2014. His previous experience included chairing Spark Infrastructure and mining construction giant Leighton Holdings. Prior to that he had a long executive and non-executive career with shopping centre operator Westfield.
Johns stresses the need to “let management manage” operations while emphasising the critical role the board plays in having final oversight when setting the strategy. He and Chipchase speak on the phone or via video-conference “at least once a fortnight”, while he has less frequent catch-ups with O’Sullivan.
“Governance is part of the function of running the board but it’s only, I would hope, a small part,” he says. “It’s really important that all directors see their role as being beyond just mere compliance in order for them to add value to the way the business is run.”
“Governance is part of the function of running the board but it’s only, I would hope, a small part.”
Johns, Chipchase and O’Sullivan are all chartered accountants (in fact all three are FCAs), something they all recognise means they share a “common language and value set” that can be helpful.
Johns says it’s “purely coincidental” that the three leaders are from the same profession and says the challenges that come with having three FCAs in charge include avoiding groupthink and not treading on one another’s territory.
CFO O’Sullivan says it’s helpful to have both a chief executive and chair who possess a strong understanding of the complexity of the work she and her team do.
“I think an accounting and finance background is helpful for anyone in a commercial role,” she says.
Chipchase says that while the shared technical background is helpful, it’s the shared commitment to an ethical charter that’s most valuable. “There is an element of ethics and morals in business, which I think CAs share,” he says.
Brambles’ trio at the top will hope to leverage those benefits of their shared experience as they work to help the company become a technology-enabled business.
Graham Chipchase FCA
Other current roles:
Non-executive director at AstraZeneca
Previous roles: Rexam, CEO
MA (Honours) Chemistry from Oriel College, Oxford; fellow of the Institute of Chartered Accountants in England and Wales.
Nessa O’Sullivan FCA
Other current roles: Nil
Previous roles: Coca-Cola Amatil Australia & New Zealand, CFO; Yum! Brands International, South Pacific CFO; Tyco Grinnell, regional financial controller
Bachelor of Commerce from University College Dublin; fellow of the Institute of Chartered Accountants in Ireland; member of the Australian Institute of Company Directors.
Stephen Johns FCA
Since: 2014 (non-executive director since 2004)
Other current roles:
Non-executive director at Goodman Group and Garvan Institute of Medical Research
Chair of Leighton Holdings and Spark Infrastructure Group; CFO and non-executive director of Westfield Group
Bachelor of Economics from the University of Sydney; fellow of Chartered Accountants Australia and New Zealand; fellow of the Australian Institute of Company Directors.
Tips to reach the C-suite
The top piece of advice Brambles chief executive Graham Chipchase FCA has for corporate finance leaders with aspirations of reaching the C-suite is to hone their communication skills.
“A lot of finance people are great at analysing the numbers, but what really makes a good CFO – who can then become a CEO – is being able to bring the numbers to life.”
Not that ambitious accountants should be discouraged if they don’t have a natural gift of the gab. “Being able to communicate well and engage people is a learnable skill,” he says.
Chipchase also recommends seeking experience in non-financial roles, such as commercial or strategy roles, and taking up opportunities to work overseas.
“And remember, these are things that may be easier to do earlier in your career that can stand you in good stead later on.”
From the CA Library:
Crack the C-suite Code: How successful leaders make it to the top by Cassandra Frangos is available to borrow or download as an ebook.Download