Brambles finds CEO no longer palletable
The Age
Wednesday October 7, 2009
BRAMBLES has forced out its embattled chief executive, Mike Ihlein, after just over two years, replacing him with the boss of its European pallet division who has been given the tough task of reviving its underperforming US business.The second shake-up of the American Chep business in less than two years will lumber Brambles with ongoing annual costs of $US50 million ($A56 million) as it upgrades its pallet pool to a "minimum standard". It will also book $US110 million in additional costs over the next three years to fast-track the program so it can limit the erosion of margins.Ending a tumultuous period at the top, Mr Ihlein will be replaced by Tom Gorman, a New Yorker, on November 1.A former boss of Ford Australia, Mr Gorman joined Brambles in March last year to head its European business as Mr Ihlein instituted major management changes."It is my decision [to step down]," Mr Ihlein said yesterday. "I don't have any immediate plans to go and do anything else. It is just a logical time."But the underperformance of Brambles' US business resulted in investors putting pressure on Mr Ihlein. Early this year the US division lost a major contract to rival iGPS.Other executives, such as chief financial officer Liz Doherty, have been spared.But Credit Suisse analyst Anthony Moulder said that changes to Brambles' board were more important to accompany a change in strategy than management upheaval."While we believe there needs to be greater accountability for Brambles' underperformance over the last 18 months, we believe most of the issues lie with the board," he said."The senior members of the board must take ultimate responsibility for the necessity of the Chep USA review and the myopic strategic focus."The long-awaited changes in the US involve the introduction of "premium pallets" over the next three years. Brambles has had a $US160 million program under way since early last year aimed at improving the quality of its pallets. So far, it has spent $US107 million.The company said the latest program was expected to lower underlying profit margins in its Chep Americas business until 2012-13.Brambles said it would not push through general price increases in the US over the next year while it carries out the program. It is also targeting further cost reductions but said that would not mean additional job losses.Despite some clients opting for plastic pallets, Brambles insisted yesterday that wood was the "only sustainable platform" for the US supply chain in the foreseeable future.Mr Ihlein, who will remain as an executive until next March, will receive a cash payment of $1.18 million and stock awards when he steps down.Shares in Brambles, the world's biggest supplier of pallets, fell 20 to $7.45 yesterday, almost half the value the stock was trading at two years ago.The company has laid off more than 600 of the 750 workers it said it would axe in February. It is also part way through scrapping 7 million Chep pallets in the US €” or almost one in 10 €” after manufacturers and retailers returned the stock.
© 2009 The Age