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Brambles Industries (BI.)

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Tuesday 21 October, 2003

Brambles Industries

AGM Statement

Brambles Industries PLC
21 October 2003

                 Brambles Industries plc Annual General Meeting
                                21 October 2003



DON ARGUS - Chairman's address.  Part I



Good morning, ladies and gentlemen.



To begin, I'd like to offer my apology together with an apology on behalf of
Graham Kraehe and Allan McDonald for being unable to attend this morning's
meeting in person.



Fortunately, today's communication and technology allows us to participate in
this meeting.



If there is a technical problem, Sir David Lees will continue my address but I
trust that we won't experience any difficulties.



As Sir David mentioned, Sir John Parker retires from the Board at the end of
this meeting. Sir John has an intimate knowledge of Brambles and his insightful
contributions around the Board table will be missed. All of us wish him well for
the future.



As you would no doubt be aware, Sir CK Chow has chosen to resign as Chief
Executive Officer and as a Director. He resigned to take up a new position in
Hong Kong. While this was unexpected, it had been a long term goal of CK's to
return to Hong Kong and we wish him every success there.



When one considers the complexity of our business, the restructuring programmes
that are well underway and the need for strong financial discipline, and to
ensure continuity in the important work going on, the Board unanimously agreed
that David Turner was the right person to take over from CK.



David is a top quality international executive. He knows the industries we
compete in and he has an in-depth knowledge of Brambles' global businesses.



David will be talking to you in a few minutes about how he sees Brambles and his
priorities.



But first, let me move on to today's agenda.



I will start off by giving you an overview of Brambles' performance, the issues
we are dealing with and how we see the year ahead.



David Turner will then report in some detail on each of our businesses and in
particular our progress in turning around CHEP USA and Europe.



Then we will move on to the formal part of the meeting.



As you can see from the notice of meeting, we have 19 resolutions to consider,
including three special resolutions, so I intend to spend a little time taking
you through the more complex resolutions.



When we move to vote, you will have the opportunity to ask questions or make
comments on any of the resolutions or any other matter related to Brambles'
business.



At the end of the meeting, the Directors and executives in London would like you
to join them for a cup of tea or coffee in the foyer.



OVERVIEW OF BRAMBLES' PERFORMANCE



Let me move on to Brambles' performance.



At the start, let me make it very clear that all of us on the Board and all of
the management team know that Brambles' performance and returns are simply not
good enough.



We are all absolutely focused on making Brambles generate the returns that will
restore long term value for all shareholders.



When I spoke to you this time last year, I laid out the strategy we had put in
place to turn around CHEP in the USA and CHEP in Europe. I said we were
embarking on a 30 month plan to restore value to shareholders, and that we would
have to face up to some very difficult issues during that 30 month period.



The key components of that programme are:



•         getting the right people in the right jobs,

•         cutting capital expenditure on pallets through better controls over
pallet usage,

•         ensuring that pallet usage is more effectively tracked and measured,

•         ensuring we are pricing correctly across the supply chain in our
chosen market segments, by making sure pallet users pay a price that reflects
the value of the service we provide,

•         making sure we remain competitive by reducing the costs to serve our
customers, and

•         investing in profitable growth initiatives as opposed to growth for
growth's sake.

Before I talk about our progress on the turnaround, let me make some comments on
the group overall.



Nearly all of our businesses compete in growth industries. They each provide
essential and important services to companies around the world. They are all
well placed to take advantage of the growing pressure on companies by
governments, investors and communities to be sustainable.



The barriers to entry for competitors are high, and it is not easy to duplicate
what we do.



Our major businesses have been created through years of capital investment,
innovation and experience.



But from time to time, because of the diverse nature of our operations, the
geographic spread, and the rapid change in every industry today, it is only
prudent to review the economic proposition behind our businesses.



This is what we have done at CHEP. While it is not finally complete, at its
conclusion, this project will allow us to better prioritise our investments in
market segments and countries that will generate superior growth in profit and
cashflow over the medium to long term.



That said, Brambles is already a profitable company.



Despite our issues in CHEP and a very volatile economic environment, our
continuing businesses increased revenue by 6 per cent to £2.9 billion and
recorded earnings before interest, tax, exceptional items and amortisation of
goodwill of nearly £359 million.



Every one of our core operations showed solid revenue growth and remained
profitable throughout the financial year.



Looking at the 2003 results compared to 2002, the principal reason for the drop
in profits in CHEP was the lower profit in CHEP Europe. We detailed the issues
in Europe a year ago.



To give you a clearer insight into the recovery program, let's look at how the
new Brambles came together.



As you can see from this slide, before the formation of the dual listed
companies structure, revenue in the 'old Brambles' effectively came from three
sources:



•         23% of the revenue came from the businesses which were going to be
sold - because they were not core activities or did not provide adequate
returns;

•         a third of the revenue came from businesses which were wholly owned
and therefore subject to the same kind of financial and other disciplines as any
large company; and

•         notably, nearly 50 per cent came from investments in CHEP and
Cleanaway. Because they were principally joint ventures, these two businesses
operated without many of the disciplines that the transparency of a public
company structure provides.

Along with this, and very importantly, the debt of the joint ventures was off
balance sheet.



When capital disciplines are not robust, the result is often that the culture in
a company becomes focused solely on growth, rather than profitable growth that
creates sustainable value for shareholders.



Creating long term value for shareholders depends not simply on making a profit,
but on generating returns above the cost of capital.



As almost a quarter of the businesses were to be sold and nearly 50 per cent
were joint ventures, it meant that, at the time of the DLC, Brambles' existing
people, operating systems and processes were only geared to deal with less than
30 per cent of the businesses that would constitute the new group.



The extent of change for Brambles, following the creation of the DLC and
assuming full ownership of the joint ventures, cannot be overstated.



It meant a radical change in the way Brambles was going to be managed and, more
importantly, CHEP and Cleanaway had to be changed from a joint venture to a
wholly owned structure.



At the time of the DLC, the revenue picture looked like this.



So the immediate priorities were to:



•         change from a culture of growth at any cost to one of profitable,
sustainable growth,

•         sell the non-core businesses,

•         put in place appropriate operating systems and controls, particularly
strong corporate governance, and

•         enhance the economic viability of the CHEP business model.

Since we started the restructuring program, we have:



•         maintained the strong revenue growth,

•         sold off more than £500 million of non-core or under-performing
businesses, and

•         changed the culture of growth for growth's sake by the introduction of
Brambles Value Added. This initiative was introduced into the business by David
Turner.

Put simply, Brambles Value Added aims to ensure our people think and act like
shareholders.

It ensures that they have to produce a return that at least covers the cost of
capital.

In Brambles today, cutting excess capital is just as important as cutting costs.

As a result, there has been significant cash flow improvement and substantial
reduction in capital expenditure. Capital expenditure has been cut by £265
million over the last two years.

As you would understand from what I've just said, it is absolutely essential
that we remain focussed on the turn around program. Stability of management and
strategy is critical.



That is why the Board decided to appoint David Turner as Chief Executive
Officer.



David Turner officially assumes the role of CEO today. I know David is committed
to the need to generate the kinds of consistent, sustainable returns you have
the right to expect.



In the next few months, David will be setting out for shareholders some
objectives and milestones against which Brambles' progress can be judged.




TRADING UPDATE



At this point, let me talk about the outlook for the year ahead.



Brambles is confirming its outlook statement for the group which we issued on 2
September, and which said:



'In summary, although trading for the first half in constant currency will be
weaker than last year, we expect a better performance in the second half,
leading to improved cash flow and good progress for the year as a whole.'



In terms of trading for the first three months of this year, CHEP USA is
incurring significant short term costs, which should be eliminated by the end of
the current half.



These are principally related to the reduction of excess pallet inventory which
arose following the implementation of the new service centre network.



The first major reduction in this inventory was achieved in September. It is
continuing in October and should be completed by the end of December 2003.



As a consequence, and as explained in our annual results announcement, CHEP
Americas' profits in the first half of the current year will be lower than those
of the second half of last year. They should, however, rebound in the second
half of this year, driven by lower costs and continuing revenue growth, which is
currently running at 10%.



In CHEP Europe, revenue is growing by approximately 8% although this has been
boosted to some extent by the hot summer in Europe and the resulting increased
demand for soft drinks. Profits in Europe are on track and the pan European
reorganisation is also on track. To date, the net reduction in headcount in CHEP
Europe is 170, with 350 targeted for June 2004.



CHEP in the rest of the world is continuing to perform strongly.



Cleanaway in the UK is facing a difficult market, particularly in technical
waste where the early months of the current year have been impacted by lower
volumes notably from the chemical and pharmaceutical industries. There is now
evidence of some pick up in these volumes. In Germany, Cleanaway is trading to
plan, although at a lower level than last year. The outcome of the DSD
re-tendering is uncertain and the process is continuing.



Both Recall and Brambles Industrial Services are performing satisfactorily.



Before I ask David to talk to you, I would like to thank on your behalf the
30,000 people who make up the Brambles team in over 50 countries around the
world. They continue to make an outstanding contribution in very difficult
times. Their loyalty and dedication is very much appreciated.



I would also like to pay tribute to my Board colleagues who have demonstrated
extraordinary commitment and professionalism in addressing the difficult issues
which we have had to confront as we work towards re-establishing value for
shareholders.



At this point, let me now introduce your new Chief Executive Officer, David
Turner, to give you some insights into where he sees the business heading.





DAVID TURNER - CHIEF EXECUTIVE OFFICER'S PRESENTATION



Thank you, Chairman, and good morning, ladies and gentlemen.



I am delighted to be the CEO of Brambles. The job will be a challenge, but I am
totally committed to turning this group around and creating shareholder value.



Our focus is on the future - but we cannot look forward without acknowledging
and learning from the hard lessons of the last two years.



CHEP



Much of the negative comment and disappointment has related to CHEP.



Many of you will therefore be wondering what happened in CHEP and I want to
spend a few minutes talking about it.



One of the issues we had to face was the profitability of CHEP on the one hand
and its negative cash flows on the other.



This is best illustrated by looking at the extraordinary growth in revenues in
CHEP Americas and CHEP Europe between the period 1998 through to 2001. In the
Americas the compound annual revenue growth rate was 33% and in Europe it was
10%.



In any business, this is a very fast rate of growth and it carried with it high
capital expenditure.



The negative cash flow that was therefore associated with this fast growth was
not sustainable and needed to be changed. So, also, did the operational base on
which these businesses were managed, and two major reorganisations were embarked
upon.



The first major reorganisation was in the US where CHEP has reduced some 230
service centres down to about 75 locations.



With the new service centre network, there has been a major change in the way
CHEP operates: distributors now return pallets rather than CHEP collecting them;
unit transport costs have dropped; and pallet delivery costs have also fallen.



This change has not been without its difficulties. There have been
inefficiencies in execution and costs have risen, albeit some of a temporary
nature in 2003. The goal, however, is to have a model which will result in lower
costs and will be more suited to underpin the future growth of the business,
while improving pallet quality for our customers.



The introduction of a surcharge for non-participating distributors, otherwise
known as channel pricing, was also an important change, as was the greater
control of pallets moving through this circuit. Channel pricing has been fully
implemented and now less than 4% of all issues are going into the
non-participating distributor circuit, compared with over 5% a year ago. Returns
of pallets from this channel have also improved and are now more than 80%,
compared with 55% a year ago.



Finally, in terms of people and skills, there has been, and will continue to be,
an upgrade of talent in CHEP USA as the business changes and the reorganisation
moves towards completion. CHEP is still incurring costs associated with the
final execution of this project, although we expect these to tail off towards
the end of this current half year.



In CHEP Europe, the reorganisation announced in November last year at an
expected total cost of £85 million is on track, with £50 million charged so far
and cash expenditure of £26 million.



In the restructuring of the CHEP Europe organisation, the objectives have been,
first, to create a pan-European management structure, second, to enhance the
quality of the management 'bench strength', and third, to save costs through
closing numerous country-based administration systems and re-focussing on two:
one in the UK and the other in Spain. This will reduce net headcount by at least
350, a target we expect to achieve by mid next year.



A further objective is to optimise service centre operations through adding
capability to existing service centres. Finally, as in the US, pricing is being
introduced to reflect the higher cost of collecting pallets from the numerous
small distribution points. It is essential that CHEP's pricing relates closely
to its cost to serve a particular customer.



Initiatives to improve asset productivity are also underway, with intensified
audits both of customers and distributors. More than 60% of this special audit
program has been completed.



All this has been extensively discussed in the public arena. This whole
reorganisation is complex and clearly carries with it some risk in execution. We
are only one year into the process but the pay-off will be significant.



The fundamentals of the CHEP business model are sound as demonstrated by the
strong performance in Latin America, Australia, Canada and South Africa. When
the reorganisation programmes in Europe and the US are completed, we are
confident that strong profit growth will be restored in CHEP Europe and CHEP
USA, albeit at a less dramatic rate of revenue growth than in the late 1990s.



The creation of the dual-listed companies structure in 2001 established a
situation in which specific issues within the CHEP business were identified,
with subsequent corrective action put in place.



The CHEP team is working extremely hard and the programmes are on track. We are
12 months into our 30 month plan in Europe and, while complex, both the
timeframe and costs flagged to you remain appropriate.



2003 FINANCIAL RESULTS



Briefly recapping our final results for 2003 - which were released in September
and which you have received in your annual reports - there was a significant
improvement in operating cash flow after capital expenditure. It was £112m
higher at £228m for the year. The 18% reduction in group capex supported this
strong result.



As the Chairman said, revenue from continuing businesses was up 6%.



CHEP revenue was up 10% although profit was down by 11% as anticipated, with
capex 15% lower.



Cleanaway performed well. It generated excellent cash flow in a difficult
market.



Recall grew both sales and profits by 17% and 30% respectively.



Brambles Industrial Services was strong in Australia and made good progress
elsewhere.



In the last year, capital expenditure for continuing businesses again reduced,
principally in CHEP but also in other businesses as a tighter capex regime
became the norm. For CHEP, the implication is that the efficiency of the pallet
pool is beginning to improve.



Within the Group, the tension which we always have to balance, is one of
balancing prudent capital expenditure while ensuring our businesses have
sufficient capital to prosper. We are careful to ensure that we achieve that
balance.



In part as a consequence of tighter capital expenditure there has been a gradual
improvement in cash flows.



Cash flow after capital expenditure has improved from £5 million in 2001 to £116
million in 2002 and was £228 million in the year to June 2003. Generating
further cash will be an ongoing objective of the Brambles group as we look into
2004 and beyond.



Cleanaway's performance was solid. In Europe, Cleanaway had a good year in a
most difficult economic environment when many of its competitors were performing
poorly. Cleanaway performed well in Australia.



In terms of segments, there was strong growth in municipal waste in both the UK
and Australia, though the full year results from Cleanaway for 2003 were
adversely affected by the impact of legislation in the UK and Germany.



In Germany, this is the year of the re-tendering of the national packaging
recycling scheme, the DSD system.



Our position on this is well known: due to the three year contract periods, we
took a decision that it was not in our shareholders' interest to significantly
increase the level of contracts sought.



There remains some continued uncertainty relating to the retendering of the DSD
contracts, and we still expect there to be a contraction in Cleanaway's margins
following the changes the process will bring. There are also pressures due to
reduced technical waste in the UK. Overall, however, Cleanaway is well
positioned for future development although, in the short term, there will be
pressure on profits.



Recall did very well indeed with both strong revenue and profit growth,
particularly in the second half of the year. It is also beginning to derive
tangible benefits from its global quality programme, known as Perfect Order,
which focuses on positioning Recall as a quality service supplier for our
customers and also on delivering internal productivity benefits.



Recall continues to have underlying organic growth of around 8%. This was
underpinned by the second half performance and bodes well for the future
development of this business.



In our other businesses, Brambles Industrial Services performed soundly with an
excellent cash flow and the Regional Businesses, which are a very small part of
Brambles, had a tough time.



STRATEGY



We have a comprehensive strategy in place which has been endorsed by the Board
as the right way in which to return Brambles to sustainable, profitable growth.
This strategy is to generate shareholder wealth through achieving three key
goals: first, sustainable cash flow; second, profitable growth; and third, the
efficient use of capital which you will appreciate is tied in to profitable
growth.



The means to do this is by taking a disciplined approach to growing our
businesses.



We strive to maximise organic growth in CHEP, to continue to pursue organic
growth and selected acquisition in Recall and Cleanaway, and to ensure the
continuing robustness of Brambles Industrial Services.



Importantly, the introduction of Brambles Value Added - which we know as BVA -
is helping to change the culture within the business. Businesses and short term
rewards are measured on the basis of improvement in value added, after charging
an appropriate cost of capital. This process was introduced in 2002, has now
been running for over a year and is beginning to show results.



In each of our business units, quality programmes are underway and they are
strategically critical.



Each of CHEP, Recall and Cleanaway now has universal quality improvement
programs to transfer best practice globally to develop robust business models to
underpin future growth. Brambles Industrial Services is currently implementing
such a program in Australia. These programs are focused on achieving measurable
improvements in two specific areas - service quality and internal productivity -
and each program engages our employees directly in this process.



With our people we must continue to upgrade the talent pool - both by raising
the bar when we recruit as well as providing development opportunities for the
people who are already part of our team.



In the year ahead, our energy will be channelled into a number of key
priorities.



In CHEP, we have a strong global business with good market positions. We have a
complex European reorganisation now underway and on track with another 18 months
to go. CHEP USA is progressing with operational and cost control being focal
points. In particular, in the current half CHEP USA is incurring significant
cost associated with eliminating a pallet inventory overhang from last year. We
will continue to implement these programmes to return this business to
profitable and sustainable growth.



Cleanaway has traded well in a difficult economic environment with a major
retendering of DSD contracts in Germany underway. Our objective is to maintain a
good return on invested capital.



We will continue to grow Recall through sensible investments and selective
acquisition. Recall is growing extremely well and looks set to continue to do
so, albeit not at the exceptional margins of the last year.



For Brambles Industrial Services, we intend to maintain the steady progress the
company achieved this year.



Finally, we will continue to improve the effective application of capital and
improve cashflow generation.



Again, our focus is on creating value in Brambles through sustainable cash flow,
profitable growth and the efficient use of capital. The efficiency of the pallet
pool is improving. We have introduced capital expenditure disciplines across the
group, working capital is reducing and cash flow is improving. The ongoing
change in the group cannot be underestimated and we are determined to make it
work for the benefit of our shareholders and the businesses themselves.



Thank you, ladies and gentlemen, and now I'd like to hand back to the Chairman.





DON ARGUS - Chairman's address.  Part II



Thanks, David.



Before moving to the formal part of the meeting, I would like to cover two
issues.



BOARD SUCCESSION PLANNING



The first is Board succession planning. We are all very conscious of the need to
ensure that proper processes are in place to deal with succession issues at
Board level and to keep the Board vital.



The Board will be seeking to appoint new members to succeed existing Directors
as they retire, ensuring an appropriate balance of skills and experience. To
this end, we have engaged an international firm of search consultants to produce
candidates for consideration of appointment to the Board. We expect to appoint
two new Non-executive Directors to the Board over the next 12 months.



REMUNERATION POLICY



The next issue that I would like to address is our Remuneration Policy, and in
particular executive remuneration.



As you will recall, at the last Annual General Meeting we endeavoured to bring
the whole issue of executive remuneration closer to shareholders by asking you
to approve the Group Remuneration Policy.



Brambles' Remuneration Policy consists of the following principles:



The first is to provide competitive rewards to attract and retain the most
talented international executives. It also aims to align rewards with the
creation of shareholder value, to place a significant part of rewards 'at risk',
and to apply demanding performance criteria to 'at risk' remuneration.



The policy also ensures equity between executives and limits severance payments
on termination to pre-established contractual arrangements.



Our executive remuneration structure consists of three components:



These are:



•         base pay,



•         other benefits, including pension contributions, and



•         incentive arrangements. These are provided under a Short Term
Incentive Plan, and a Long Term Incentive Plan.



In Australia, the first two elements may be combined in the form of Total Fixed
Remuneration or 'TFR', which gives executives some flexibility as to the precise
mix of salary and other benefits.



Let me now walk you through an explanation of how we package remuneration.



I will use David Turner's recently announced salary structure as an example.



The reward structure is made up of a base salary plus other benefits such as
pension contributions which form David's Total Fixed Remuneration. This
represents 47% of his possible remuneration for the year if he were to meet his
target level of performance.



The base salary or TFR is set by reference to the scope and nature of his
experience, performance, span of control, and comparative market data provided
by external consultants.



As I mentioned earlier, Brambles operates a Short Term Incentive Plan and a Long
Term Incentive Plan. These are the 'at risk' components of his package and
represent 53% of his potential remuneration for the year at on-target
performance.



At the beginning of every financial year, the Remuneration Committee and the
Board set performance hurdles for the Chief Executive.



The performance hurdles are divided into two categories: financial objectives
and personal objectives.



At the end of the financial year, the Remuneration Committee will assess David's
performance against the performance hurdles set, and makes a decision on what
incentive payments will be made.



The Short Term Incentive Plan offers the opportunity to receive an annual cash
bonus for the achievement of specific, pre-determined performance targets as
mentioned earlier.



As indicated on the slide, on-target performance payments will be 55% of TFR. He
would only achieve a maximum of 100% of TFR for outstanding performance.



The provision of performance-based Long Term Incentives is an important part of
the overall approach to executive remuneration.



There are two awards for an executive to consider.



Under the Executive Share Option Plan, senior executives may be granted annual
awards of options to acquire shares in BIL and/or BIP at a future date for an
exercise price fixed at the time of the grant.



The Remuneration Committee sets a performance hurdle on the exercise of options
under the Options Plan. The performance hurdle which has been applied to all
options granted under the Option Plan to date is based on relative Total
Shareholder Return against a peer group of companies, consisting of the top 50
Australian companies by market value and the FTSE 100 companies.



The other award that an executive may consider is the Executive Performance
Share Plan.



Under this Plan, Executives may be granted a right to acquire shares in BIL and/
or BIP at a future date for no payment.



The vesting of awards under the Share Plan is based on compound earnings per
share growth of both BIL and BIP over a performance period from the end of the
financial year before the date of the award to the third anniversary of that
date.



The important thing to remember is that, if an executive does not meet the
performance hurdles, the awards in the relevant Plan will not vest.



This slide gives you an indication of how the remuneration structure works in
David Turner's case if he meets target performance levels.



Let me also give you the details of Sir CK Chow's exit arrangements.



As you will observe, his options lapsed upon his resignation and he chose to
surrender his performance shares and his sign-on award.



Ladies and gentlemen, having outlined what I consider to be the issues about
which some shareholders have expressed some interest, let me now go back to Sir
David Lees, who will introduce the formal business.







The slides referred to in this presentation are available on the Brambles
website www.brambles.com





For further information, contact:
UK
Investor    Sue Scholes, Head of Investor Relations                      +44 (0) 20 7659 6012
Media       Richard Mountain, Financial Dynamics                         +44 (0) 20 7269 7291

Australia
Investor    John Hobson, Head of Investor Relations                      +61 (0) 2 9256 5222
Media       Jeannette McLoughlin, Group General Manager, Corporate       Mobile +61 (0) 401 990 425
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