Brambles to demerge Recall

Brambles Ltd will demerge its information management business, Recall, into a separate company listed on the Australian Securities Exchange, after scrapping plans last year to sell the subsidiary.

In a statement to the ASX, the group said it still expected to meet its full-year guidance for underlying profit of between $US1.03 billion and $US1.06 billion ($A1.1262 billion to $A1.1590 billion). 

“We believe this transaction will deliver sustainable value creation opportunities for shareholders, providing an investment in two high quality companies with different characteristics," Brambles chairman Graham Kraehe said.

"Each of Brambles and Recall have a dedicated leadership team and strategic focus on maximising value from the specific opportunities available to them.” 

The pellet provider announced the new Recall Holdings Ltd would be headed by Doug Pertz, who continues his position as chief executive officer, with Ian Blackburne as chairman.

Recall generated sales revenues of $US 845 million in 2011-12, which is approximately 15% of Brambles' total revenue of $US5.62 billion. Underlying profit for Recall was $US174 million while return on capital invested was 16%.

But Brambles anticipates Recall's underlying profit to be hit this year, forecasting its a reduction in its topline of around 3% because of slowing demand in the sector and weaker selling prices for destroyed paper.

"Despite the short-term issues impacting the 2013 financial year... we believe Recall Holdings will be well-placed to deliver sales revenue and underlying profit in the 2014 financial year," said Brambles chief executive Tom Gorman.

Brambles' share price has surged in the past year by 47.4% to $9.08, with the company benefiting from its exposure to the resurgent US economy.

Eureka Report identified Brambles as a stock price laggard with good earnings growth prospects back in February.