UBS Investment Research Brambles Limited

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1 UBS Investment Research Brambles Limited FY12 result: strong revenue momentum Result highlights strong revenue momentum Brambles FY12 result was slightly ahead of expectations, revealing 11% underlying growth in EBITA, and 13% in the 2H. Revenue momentum was the key highlight with 2H underlying growth of 7%, and 6% for pallets. Quarterly revenue growth has accelerated through the FY, with Jun-qtr producing 9%. Further, net new business wins in the 2H equate to additional 8% annual revenue. These bode well for continued growth in FY13, for which we expect 6%. FY13 clouded by costs, FY14 growth better We have downgraded FY13 and FY14 forecasts by 4%. Mid-point FY13 EBIT guidance of $1,040m only implies 7% underlying growth due to $25m of business development costs and a later than expected recovery in Pallets EMEA margin into FY14. Our forecast is at the top-end of guidance, $1,070m, and results in only 4% A$ EPS growth. We expect a much better 13% growth in A$ EPS in FY14. Attractive traits: defensive, good growth strategy, barriers to entry FY13 could be seen as a transition year by the market as investment in emerging businesses dilute margins. However we expect this to facilitate solid growth over the medium term - we forecast average EPS growth of 11%pa for FY13 to FY16. We continue to see Brambles demanding a premium rating for its solid growth outlook, defensive revenue stream, and high barriers to entry. Valuation $7.20 (was $7.50) DCF valuation falls slightly due to FX assumptions and earnings. Implies 15.5x FY13E EPS (pre acq amort), a 20% premium to Aust Ind median of 13x. Highlights (US$m) 06/11 06/12 06/13E 06/14E 06/15E Revenues 4,672 5,625 5,942 6,346 6,782 EBIT (UBS) 870 1,041 1,100 1,231 1,348 Net Income (UBS) EPS (UBS, A$) Net DPS (UBS, A$) Profitability & Valuation 5-yr hist av. 06/12 06/13E 06/14E 06/15E EBIT margin % ROIC (EBIT) % EV/EBITDA (core) x PE (UBS) x Net dividend yield % Source: Company accounts, Thomson Reuters, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items. Valuations: based on an average share price that year, (E): based on a share price of A$6.43 on 15 Aug :37 EST Global Equity Research Australia Industrial Services 12-month rating 12m price target Price RIC: BXB.AX BBG: BXB AU Trading data (local/us$) 52-wk range Market cap. Shares o/s Buy Unchanged A$7.20/US$7.54 Prior: A$7.50/US$7.85 A$6.43/US$ August 2012 A$ /US$ A$9.52bn/US$9.97bn 1,480m (ORD) Free float 100% Avg. daily volume ('000) 6,268 Avg. daily value (m) Balance sheet data 06/13E Shareholders' equity A$39.6 US$3.13bn P/BV (UBS) 3.3x Net Cash (debt) Forecast returns (US$2.54bn) Forecast price appreciation +12.0% Forecast dividend yield 6.1% Forecast stock return +18.1% Market return assumption 8.3% Forecast excess return +9.8% EPS (UBS, A$) 06/13E 06/12 From To Cons. Actual H1E H2E /13E /14E Performance (A$) /09 Stock Price (A$) 10/09 Source: UBS 01/10 04/10 07/10 10/10 Price Target (A$) (LHS) Rel. All Ordinaries (RHS) 01/11 04/11 07/11 10/11 01/12 Stock Price (A$) (LHS) Rel. All Ordinaries 04/12 07/ Simon Mitchell Analyst simon.mitchell@ubs.com Reji Eapen, CFA Analyst reji.eapen@ubs.com This report has been prepared by UBS Securities Australia Ltd UBS 38 SEE REQUIRED DISCLOSURES SECTION AT END OF NOTES. BELL UBS POTTER does and SECURITIES seeks to do business LIMITEDwith companies INFO@BELLPOTTER.COM.AU covered in its research reports. As a result, investors should be aware ABN that the firm 390 may 772 have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only AFS a single LICENCE factor NO. in making their investment decision.

2 4% reduction in forecasts We are downgrading A$ EPS forecasts by 4% for FY13 and FY14, driven mainly by 5% drop in EBIT, partly offset by lower interest costs. Operational drivers of the downgrade are: Pallets Americas unchanged the FY12 result was slightly ahead of our forecasts. We keep our FY13 margin at 20%, at the mid-point of guidance. Pallets EMEA mostly unchanged - the FY12 result was largely in line with our forecast. We see a flat margin in FY13 with a 2%pt rise in FY14 in accordance with guidance. Western Europe posted an impressive 2% rise in 2H revenue, but we forecast this flat over FY13 and +1% in FY14. This sees the division growing EBIT by 5% in FY13 and 14% in FY14. Pallets Asia-Pacific reduced by 12% and 6% - reflects lower than expected margin in the 2H. We now forecast only 3% EBIT growth in FY13. RPCs reduced by 3-6% - implying ongoing margin dilution from growth in the Americas region. We now expect 11-13% growth in EBIT in FY13 and FY14, which results in a return on capital of 10% (due to IFCO goodwill). Containers reduced by c.45% - for higher business development costs (assume 50% of $25m) in addition to the $8m already incurred in FY12 and $4m pa in acquisition amortisation. We now expect a flat EBIT result from FY12 to FY14 despite strong revenue growth. Recall reduced by 8-9% - to reflect lower revenue growth outlook (now 4%pa, was 5%), flat EBITDA margin, and higher capex (return to FY11 levels). We now expect FY13 EBIT growth of 2% on 4% revenue growth. Corporate centre EBIT loss has been increased by 20% in FY13 and 30% in FY14 for additional business development costs. Table 1: Earnings changes FY13E FY14E Was Is Now Change Was Is Now Change EBITA 1,160 1,100-5% 1,291 1,230-5% Acquisition amortisation (30) (32) 7% (30) (32) 7% EBIT 1,130 1,068-6% 1,261 1,198-5% made up of: Pallets Americas % % Pallets EMEA % % Pallets Asia-Pacific % % RPCs % % Containers % % Recall % % Corporate (41) (49) 19% (43) (59) 37% Total EBIT 1,130 1,068-6% 1,261 1,198-5% Interest (131) (124) -5% (124) (121) -3% Taxation (290) (264) -9% (330) (302) -8% Profit before special items % % Reported Profit % % Normalised profit % % Normalised EPS - US % % Normalised EPS - A % % Source: UBS estimates

3 FY13 and FY14 forecasts explained Our FY13 forecast EBIT is $1,070m, at the upper end of management guidance of $1,010-1,070m. This implies 9% constant currency growth in EBIT and 10% growth in pre-tax profit. However this is diluted to only 4% EPS growth due to negative FX impact and share dilution. For FY14 we expect 12% constant currency EBIT growth and 14% pre-tax profit growth. Slight share dilution takes this down to 13% growth in A$ EPS. Of most importance is our forecast for underlying pallets EBITA growth of 6% in FY13 and 8% in FY14. This reflects ongoing subdued conditions in FY13 and a slight recovery in FY14. We expect organic revenue growth of c.1-2% boosted by net business wins of c.5-8% - see section below on revenue momentum. The additional growth in EBITA above this underlying pallets amount comes from the following drivers: RPCs and Containers growing by c.15%, in line with management guidance of similar revenue growth. Recall growth of 4-5%, reflecting a flat margin (after aggressive cost cutting in FY12) and a moderation in revenue growth to c.4%pa. USA pallet quality costs declining by $28m from accelerated spend incurred in FY12. Pallets operations, logistics savings and IFCO synergies are guided to $20m in FY13 and $40m in FY14 (we have netted off Pallets EMEA margin recovery). Business development costs of $25m are expected in FY13 (split between Corporate and Containers), and we have cautiously allowed for a further $10m in FY14. Pallets EMEA margin guidance is for a 2-3%pt improvement in FY14, which we forecast to be 2%pt, equating to $26m extra EBIT. Table 2: Earnings growth drivers in FY13 and FY14 FY13 FY14 Item Implied growth US$m US$m Implied growth US$m US$m Pallets underlying growth 6% 40 8% 61 RPCs and Containers 13% 20 15% 25 Recall 4% 7 5% 8 Underlying growth in EBIT 7% % USA quality investment normalising 28 Pallets operations and logistics savings Business development costs Europe margin improvement 26 Identifiable changes in EBIT Change in EBITA in constant currency 9% 90 12% 124 Interest bill 28 4 FX and corporate Change in pre-tax profit 10% 85 14% 134 Source: UBS estimates

4 Impressive revenue momentum This result gives us two windows into Brambles revenue momentum and expected growth in FY13: June quarter revenue growth for each division can be calculated from the 9- month trading update and the full year figures to show the quarterly progression of revenue growth. Net annualised value of business won and lost during the 2H can be calculated which provides a good indication of marketshare growth into FY13. This data is shown in the tables below and reveals: Pallets Americas has consistently accelerated its revenue growth throughout FY12 entering the year at +4% and exiting at +9%. This reflects the ConAgra and PepsiCo contract wins in the 1H. Business wins during the 2H point to further momentum, equating to 10% additional revenue. Our forecast for FY13 is 7% which contemplates a strong 1H and a slower 2H. Pallets EMEA saw a strong Jun-qtr growth rate of 7% and net new business wins was 9% of revenue. Western Europe revenue still grew by 2% in the 2H despite weak macro conditions. Given the ongoing concerns in Europe we have only forecast 3% growth in FY13, which contemplates flat growth in Western Europe. Pallets Asia-Pac also experienced accelerated growth in the Jun-qtr at 10%, but new business wins in the 2H only equated to 3% of revenue. We forecast 8% growth in FY13. RPCs and Containers were mixed but we have followed management guidance of c.15% growth for both divisions in FY13. Recall saw negative sales growth in the June-qtr, potentially due to the falling paper price. We only forecast 4% revenue growth in FY13, down from 5% achieved in FY12. Table 3: Revenue growth indicators Net annualised revenue won as % of revenue in period Like for like revenue growth rates for FY12 FY13 1H11 2H11 1H12 2H12 Sep-qtr Dec-qtr Mar-qtr Jun-qtr forecast Americas 3% 6% 6% 10% 4% 6% 8% 9% 7% EMEA 4% 3% 4% 9% 4% 2% 3% 7% 3% Asia-Pac 4% 4% 3% 3% 8% 6% 5% 10% 8% Pallets Group 4% 5% 4% 8% 4% 4% 6% 9% 6% RPCs 9% 3% 8% 14% 18% 20% 9% 14% Containers 10% 4% 10% 43% 20% 7% 14% Recall 5% 4% 11% -5% 6% 4% 8% -2% 4% Source: Company, UBS estimates

5 Capital and returns Cashflow was weak due to a working capital build in the 1H result and cash one-off charges. Pre-tax ungeared operating CF was only 94% of EBITDA compared to a 4-year average of 104%. We expect this to rebuild to this level in FY13. Capex was $1.0bn, as expected, and we see this continuing at this level for the foreseeable future. Within this, growth capex is expected to remain at $0.3bn pa, while maintenance capex broadly equates to depreciation plus the IPEP charge. Net debt is expected to fall slightly in FY13 from $2.7bn to $2.5bn, aided by $0.1bn of equity raising proceeds received in July. We expect a resumption of retained cashflow in FY14. Gearing remains healthy following the capital raising with Debt/EBITDA seen at 1.5x in FY13 (versus desired maximum of 1.75x) and EBIT net interest cover of 8.6x. Return on capital for the group fell in FY12 from 21% to 18% reflecting dilution from the acquisitions in RPCs and Containers. We see a recovery to 22% in FY15 due to a strong rebound in Pallets Americas and gradual build in Recall. Returns in the higher growth and emerging regions are expected to remain subdued until greater scale is reached. Chart 1: Return on capital (EBITA) 35% 30% 25% 20% 15% 10% 5% 0% Pallets Americas Pallets EMEA Pallets Asia- Pacific RPCs Containers Recall Group FY08 FY11 FY12 FY15E Source: Company, UBS estimates

6 Brambles (BXB.AX) MARKET INFORMATION COMPANY DESCRIPTION Rating: Price (as of 15-Aug-12): (A$) Buy 6.43 Brambles (BXB) is the global leader in pooling solutions and operates under four divisions: PROFILE- (1) Pallets, operating under the CHEP banner, is the largest provider of Price Target (12 months): (A$) 7.20 pallets with a pool of c240m, which are used for the transportation of FMCG Shares outstanding: (m) Market Capital (US$ m): Avg. daily turnover (US$ m): 1,480.4 through the supply chain, (2) Reusable Plastic Crates (RPCs), which operates 9,996.6 under both the CHEP and IFCO brands, utilises a pool of c160m RPCs for fresh 40.9 food distribution from grower to retailer, (3) Containers, which offers specialised Year end: Website: Major Shareholders: INVESTMENT SUMMARY June - pooling products to the automotive and industrial sectors, and (4) Recall, the worlds second largest provider of document storage. KEY RATIOS (US$ m) E 2014E 2015E E 2014E 2015E Net profit [reported] Profitability (%) Net profit [adjusted] Revenue growth EPS [reported] (A$) EBITDA margin EPS [adjusted, diluted] (A$) EBIT margin EPS Growth (%) Effective tax rate PER [adjusted]* (x) Return on Inv Cap (post-tax) Dividend (A$) Return on Equity Payout ratio, [EPS adj.] (%) Dividend Yield [Net]* (%) Capital Structure Shares [period-avg, basic] (m) 1, , , ,480.4 Net Debt / EBITDA (x) Book value per share Net Debt / Common equity (%) Price to Book* (x) Net Debt / Core EV* (x) Equity Free Cash Flow Yield (%) Capex / Depreciation (x) Franking (%) EBIT / Net Interest (x) PROFIT AND LOSS PROFIT AND LOSS [HALF YEAR] (US$ m) E 2014E 2015E (US$ m) 1H 12 2H 12 1H 13E 2H 13E Revenue 5,625 5,942 6,346 6,782 Revenue 2,783 2, EBITDA [adjusted] 1,562 1,647 1,807 1,956 EBITDA [adjusted] Depreciation & Amortisation (521) (547) (576) (607) Depreciation & Amortisation (267) (254) 0 0 EBIT [adjusted] 1,041 1,100 1,231 1,348 EBIT [adjusted] Net interest (152) (124) (121) (114) Net interest (84) (68) 0 0 Income from associates Income from associates Other non-operating items Other non-operating items Profit before tax [adj] ,110 1,234 Profit before tax [adj] Tax on pre-abnormal profit (233) (264) (302) (337) Tax on pre-abnormal profit (106) (127) 0 0 Minority Interests Minority Interests Dividends (preferred) Dividends (preferred) Net Profit [adjusted] Net Profit [adjusted] Abnormal Gain/(Loss) after Tax (81) (32) (32) (32) Abnormal Gain/(Loss) after Tax (37) (44) 0 0 Net Profit [reported] Net Profit [reported] BALANCE SHEET ENTERPRISE VALUE* (US$ m) E 2014E 2015E (US$ m) E 2014E 2015E Cash & equivalents Market capital 10,494 9,997 9,997 9,997 Accounts receivable 1,055 1,075 1,096 1,118 Net debt / (cash) [avg] 2,844 2,844 2,473 2,335 Inventory Estimated share buy backs Fixed assets 4,139 4,362 4,538 4,744 Minorities Intangibles 1,970 1,970 1,970 1,970 Pension provisions Investments Total Enterprise Value 13,338 12,841 12,470 12,332 Other assets (Non-core assets) (17) (17) (17) (17) Total Assets 7,546 7,789 7,986 8,214 Core Enterprise Value 13,321 12,824 12,453 12,315 Accounts payable 1,177 1,177 1,177 1,177 Core EV Ratios Short & long term debt 2,864 2,718 2,576 2,441 EV / Sales Provisions & other EV / EBITDA Preferred securities EV / EBIT Total liabs & pref shares 4,805 4,659 4,518 4,383 EV / OpFCF [post-tax] Minorities EV / Invested Capital Common equity 2,740 3,130 3,468 3,832 DIVISIONAL BREAKDOWN Total liabilities & equity 7,546 7,789 7,986 8,215 (US$ m) E 2014E 2015E Net cash / (debt) (2,690) (2,544) (2,402) (2,267) Total Revenue 5,625 5,942 6,346 6,782 Pallets Americas 2,042 2,179 2,297 2,421 CASH FLOW Pallets EMEA 1,326 1,316 1,376 1,453 (US$ m) E 2014E 2015E Pallets Asia-Pacific Operating income [EBIT, UBS] 1,041 1,100 1,231 1,348 RPCs ,064 Depreciation & Amortisation Containers Net change in working capital (108) (20) (21) (22) Recall Other (operating) EBIT 1,041 1,100 1,231 1,348 Pre-tax op cash flow 1,462 1,742 1,904 2,055 Pallets Americas Interest (paid) / received (158) (124) (121) (114) Pallets EMEA Tax paid (215) (264) (302) (337) Pallets Asia-Pacific Other RPCs Operating cash flow 1,089 1,353 1,484 1,607 Containers Capital expenditure (910) (917) (902) (967) Recall Free cash flow Corporate (38) (49) (59) (62) Net (acquisitions) / disposals (23) Adjustment Dividends paid (Common) (398) (412) (445) (509) Shares issued/(repurchased) Source: UBS estimates, * Historical valuations are based on an average share price for the period. Current & future valuations are based on a share price of A$6.43 on 15-Aug-2012

7 Brambles Limited Brambles (BXB) is the global leader in pooling solutions and operates under four divisions: (1) Pallets, operating under the CHEP banner, is the largest provider of pallets with a pool of c240m, which are used for the transportation of FMCG through the supply chain, (2) Reusable Plastic Crates (RPCs), which operates under both the CHEP and IFCO brands, utilises a pool of c160m RPCs for fresh food distribution from grower to retailer, (3) Containers, which offers specialised pooling products to the automotive and industrial sectors, and (4) Recall, the worlds second largest provider of document storage. Statement of Risk Key risks for Brambles include (1) Execution risk on CHEP Europe - turning around the operations of CHEP Europe are more complex than the Americas, with greater risk of complications, (2) Drop in volumes - CHEP pallets are primarily used by fast moving consumer goods manufacturers, meaning any decline in retail volumes could impact revenue growth, (3) High expectations - the high P/E premium and consensus forecasts for the company mean that any under-deliverance would harshly impact the stock, (4) Recall - results from Recall have been volatile, which could continue, and (5) Asset turn - Our ROIC and capex forecasts are highly reliant on Brambles achieving higher asset turn rates within CHEP, which may prove more of a challenge than we expect.

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