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Brambles Industries was under pressure again yesterday as it was forced to
respond to questions from the Australian Stock Exchange about the timing of
last week's shock profit downgrade.
The ASX queried Brambles repeatedly on exactly when management became aware
of both the necessity for the earnings revision and the extent of the problems
with the Chep Europe pallet business.
In a letter to Brambles the ASX asked whether it knew of the downgrade
before last week and, if so, ``please advise why the information was not
released to the market at an earlier time".
Shareholders peppered chairman Don Argus with similar questions at Monday
night's marathon annual meeting, held jointly in Sydney and London.
In a letter replying to the ASX Brambles defended the timing of the downgrade
on November 21, which sent the stock tumbling almost 30 per cent to six-year
lows.
It said the board only became aware of a sharp deterioration in Chep Europe
at a meeting on November 12 when draft results were presented for the four
months ended October 31.
Management was told to clarify ``the extent of the issues", finalise the
results of Chep Europe, and develop a plan of remedial action for approval by
the board.
Brambles said the board was presented with the findings on the evening of
November 20, and then directed managing director Sir CK Chow and finance
director David Turner to inform the market the next morning.
``We haven't formed a view yet on whether the disclosure could have been
better," an ASX spokesman said.
The regulator is also making preliminary inquiries into the flurry of
trading immediately following the profit warning.
The ASX noted ``considerable" increases in share volumes.
Brambles defended the time taken to identify the problems.
The new head of Chep Europe, Mark Luby, initiated a ``comprehensive review"
when he took over at the start of July, 4 1/2 months before Brambles announced
its warning.
Brambles said it was important to keep in mind ``the scale and complexity"
of Chep Europe's operations.
``Chep Europe operates a pool with around 100 million pallets in 17 countries
across Europe," the company said.
In an effort to put the savage sharemarket reaction in context, Brambles
noted the expected $71 million decline in Chep Europe's pre-tax profits for
2002-03 only equated to 6.5 per cent of last year's earnings for the entire
group.
An improved performance by Chep in the Americas would substantially offset
the shortfall.
Angry shareholders have attacked Brambles over the surprise downgrade the
third in 12 months and the $238 million in charges required to fix Chep Europe.
There were numerous calls at the annual meeting for Sir CK and Mr Turner to
resign, or at the least hand back their handsome bonuses paid for 2001-02.
Directors were grilled repeatedly on why management had not detected such
major structural flaws in Chep Europe much earlier.
Mr Argus indicated the issues were a hangover from the pursuit by previous
management of growth at the expense of profit.
Large shareholders dismissed quibbling over the timing of the statement,
especially if it came down to a dispute about weeks or even months.
``The problems with Chep Europe should have come to the market sooner rather
than later," one major fund manager said.
``The structural issues in Europe should have been known about years ago."
Brambles rose 9c to $4.69, its fourth straight gain.
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