CBH move sees 10pc staff cuts

30 Jun, 2010 12:32 PM
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CBH CEO Andy Crane
CBH CEO Andy Crane

CBH has cut 10 per cent of its permanent and contract staffing positions in a move it describes as a a major organisational re-design.

The move was made as part of a range of initiatives seeking to improve CBH's overall efficiency and effectiveness and increase its capacity to respond effectively to mounting competition in deregulated grain markets.

Speaking via a media statement on Tuesday, a day after the final measures were announced internally, CBH CEO Dr Andy Crane said the new organisation structure was a necessary step to creating a strong and sustainable company that could continue to put grower members' interests first in a more competitive environment.

"We need a simple and effective structure in place to support our strategy, enable faster decision-making, reduce our cost base and drive value for growers," Dr Crane said.

"The re-organisation is only one part of a much bigger project that ensures CBH can compete with the world's biggest players and secure the future success of our business."

The re-design's implementation started in late May when CBH restructured its senior management team.

Following a realignment of its operational and corporate support roles, the executive committee team was reduced from 12 to only seven managers now reporting directly to Dr Crane.

Since then the re-design has been extended and communicated throughout the remainder of the organisation.

Dr Crane said the necessity to implement a new organisation structure suited to a new environment, had resulted in the removal of around 10pc of the permanent and contract positions.

"Regrettably, this will see a number of talented and experienced employees leave us in coming weeks and months," he said.

"I thank them for their service to the CBH Group and for their role in helping build CBH Group into Australia's leading grain storage, handling and marketing organisation.

"Our employees recognise as much as anybody that CBH must change if it is to retain its unique position of being the only organisation in the industry that exists to maximise value for our growers."

CBH has about 1000 permanent and contract employees.

When the senior management team was cut in late May, a CBH spokesperson said the staffing changes were a result of the company's Grain Chain project.

"The Grain Chain initiative includes several initiatives including a review of our internal organisation to ensure we remain cost effective and competitive," CBH said.

As part of the revamp, Kwinana East and West Zone operations are understood to have been rolled into one, with staff changes reflecting that change.

In May Dr Crane said CBH had established a new structure at the highest level of the business and would follow that change throughout the rest of the business to ensure "we are a lean provider of storage and handling services".

Most industry analysts spoken to by Farm Weekly endorsed the move, saying CBH was responding to the external pressures created by increased competition in the grains industry and seeking to lower its fixed cost structures.

Meanwhile, CBH Grain is continuing negotiations with AACL to secure about $25 million funding for growers to complete the remainder of this year's cropping program under the Grain Co-Production scheme.

The crop funding was thrown into turmoil when CBH went cold on what was thought to be a previous agreement to fund AACL's $50m for pre-payment of grain from this year's cropping program.

CBH and ACCL struck a similar deal last year.

AACL requested and was granted a share trading hold by the Australian Stock Exchange last month when it discovered CBH was not providing the pre-payment facility.

In the middle of the funding negotiations, AACL managing director and founder Andrew McBain resigned and was replaced by AACL director Michael Shields.

CBH said it remains willing to purchase grain from AACL but the earlier deal failed to pass the co-operatives' due diligence test.

Independent agricultural consultant David Falconer, a long time critic of the AACL scheme, said he was concerned about growers who needed more funding for this year's cropping program.

"While I have always questioned the cost of funds when using the AACL product, I have some sympathy for growers who relied on public announcements by the company which seemed to indicate the funding source was secure," he said.

Mr Falconer said on March 30, AACL indicated the CBH deal was subject to due diligence but on April 9 it was announced that AACL and CBH execute agreement for $50m grain purchase facility.

"No mention was made of due diligence conditions and now it turns out there were conditions, which were originally to be met by May 1 with no mention of this on April 9," he said.

"This date, however, was extended three times before the market and growers were informed the deal had fallen over.

"During this time both AACL and CBH were fully aware of farmers making seeding decisions yet chose to make no comment that the source of funds to pay farmers was under threat.

"I am surprised that CBH who prides itself on helping growers was not more forthcoming of the situation and I hope a solution is found to help growers who acted in good faith based on information provided to the ASX."

Speaking to Farm Weekly last week, Mr Shields said AACL was meeting "continuously" with CBH over the funding agreement and wanted to make an announcement by June 30 because it was a critical deadline for farmer payments.

He said $24m in retail funding was already in place which had helped fund growers' initial seeding programs with AACL but the company needed $25m from CBH to fund its entire program.

Mr Shields said in re-negotiating its contract with CBH, the critical point was how farmers would get paid.

He said CBH Grain wanted to pay growers directly and avoid paying out funds to AACL.

Mr Shields said a number of other grain marketing companies had contacted AACL recently to discuss options but they remained committed to CBH Grain and were trying to "meet their expectations".

"We don't care if the funding goes direct to farmers; as long as they get paid," he said.

Mr Shields said AACL was hoping CBH Grain would gain management approval for the re-negotiated deal and make a recommendation for the CBH Board to sign off on June 30.

"If that doesn't happen we will have to source alternative funding but we don't want to do that because we have a good working relationship with CBH," he said.

Mr Shields said CBH wanted to pay growers directly because that method offered more security.

He said AACL had funding requirements for 203 contracted growers but stopped signing more growers due to the funding uncertainty.

Mr Shields said AACL was also seeking a long term funding arrangement with CBH.

AACL has also responded to a series of questions from the ASX, providing affirmative responses to queries about having sufficient cash to meet debts when they become due and payable; compliance with the ASX's listing rules; the company's financial position being appropriate for ASX listing and taking further steps to secure wholesale funding and continue negotiations with CBH on the grain purchase facility.

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READER COMMENTS

mark
4/07/2010 4:05:33 PM, on Farm Weekly

Too little too late, these changes should have been made many years ago. CBH's cost have been rising at a faster rate than our capacity to pay. The grain industry moved on when wheat was de-regulated however CBH is stuck in the old structure and focused on building an empire instead of cutting costs. Lets hope the light is on from now on.
Derrick
4/08/2010 8:02:25 AM, on Farm Weekly

This change was sorely needed, but badly implemented. Senior Management was cut, but then the change cascaded downwards according to a preset formula handed down by external consultants, not really what the business needed to continue effective operations. The light may be on from now, but CBH will take some time to recover from the cuts, either by employing absent roles or changing business processes to align to the new structure. Either way it will not be a quick fix and it will be interesting to see how they perform in the coming harvest. I think they'll perform below par this harvest, but they may be saved by higher international grain prices. I think CBH growth as a company will be at least static for the coming years. All this at a time when Viterra are making announcements about investing heavily in the Australian Grain Industry...
Frank
6/08/2010 11:40:37 AM, on Farm Weekly

The cuts should have been made more at senior management level - the people who created the overstaffing problem in the first place. CBH needed the do-ers they have cut - not the talkfest managers and the sons of ex-CEOs that now remain. CBH culture needs to change - not get rid of the 'changers'.

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