Brambles announced on Thursday that its pallet business, CHEP, will continue to be involved in Walmart's logistics network, following a review by Walmart that included the possibility of the customer taking on CHEP's role itself.
The new agreement comes at a cost to CHEP of $US30 million before tax to implement in fiscal 2009, and $US5 million a year from fiscal 2010, Brambles said.
The previous arrangement had been described as "cost neutral" by Brambles.
Brambles chief executive Mike Ilhein said the new arrangement would have no impact on sales revenue or issue volumes.
Walmart's announcement in April that it was to review its pallet sorting arrangements, possibly to take on the job itself, sent Brambles shares into a nosedive.
Ilhein said the new agreement came after an undesirably long negotiation process.
"Over the last few months, I've indicated that whilst developing a solution was taking longer than I wanted, it was important to develop the best sustainable solution and not simply the quickest," he said in a conference call on Thursday.
CHEP will incur annual costs of $US5 million as it will no longer receive income from the sale of white wood pallets previously collected from Walmart distribution centres.
That is offset by CHEP no longer incurring costs for the inspection and sorting empty white wood pallets in the distribution centres, and a reduction in transportation costs for damaged pallets by relocating its service centres.
"This outcome of $5 million is consistent with our objective that I've outlined to the market before, to achieve an arrangement that is broadly operating-cost neutral to CHEP on an ongoing basis, as compared with the previous arrangements," he said.
The transition to the new arrangement, to be implemented in June 2009, will incur an estimated cost of $US30 million in the current financial year, Ilhein said.
"We've got a lot of work to do on this over the coming months of 2009," he said.
"It is an estimate, but we have done a lot of analysis to be comfortable that that is a good expectation."
