Expenses cut into AWB profit

31 May, 2006 08:45 PM

AWB announced a modest profit for its 2006 half year results, despite operating in a shadow cast by the Cole inquiry.

In making the announcement, AWB Limited chairman Brendan Stewart acknowledged the company had experienced difficulty operating in an environment that included the Cole inquiry, describing the interim profit as a good result.

The Cole inquiry is investigating allegations that AWB paid $300 million in kickbacks to the former Iraqi regime of Saddam Hussein, via bogus trucking fees paid to Jordanian front company Alia.

Mr Stewart denied reports the board was considering changing AWB's name to Landmark in order to help restore its damaged reputation.

"My view is that the AWB name is a very strong name, not just domestically, but internationally," he said.

As expected, no announcement was made regarding AWB's search for a new chief executive officer, although Mr Stewart did not rule out further management restructuring once the Cole inquiry was completed.

Mr Stewart said that a third of the board would automatically retire as part of the company's constitution, regardless of the inquiry, but he did not rule out further restructuring once the inquiry findings were handed down.

"We will obviously wait for the commissioner's report and once we have received that report, we will consider it and make appropriate responses at that particular time," he said.

In reference to its half yearly result, Mr Stewart described AWB as resilient.

"We have maintained underlying profitability and continue to have a strong business base for the future," Mr Stewart said.

AWB announced an underlying profit before tax and amortisation (depreciation) of $85.6 million for the half-year ended March 31, 2006.

This figure was up by 5pc on the previous corresponding period.

AWB also announced a fully franked interim dividend of 16c a share, the same as the previous corresponding period.

Mr Stewart said AWB had continued to experience growth in Landmark finance and insurance despite strong competition across rural Australia in these areas, with the gross profit increasing by 25pc.

"We acquired Landmark's $1.58 billion loan book from Rabobank in November 2005 and created a new funding vehicle called Rural Trust," Mr Stewart said.

"The Rural Trust provides the platform to further grow the Landmark loan book and has enabled us to launch a range of new enhanced Landmark lending products for which there is already strong demand.

"Landmark's wool and merchandise operations have delivered positive results. The outlook for merchandise and fertiliser remains positive with improved margins expected to flow into the second half of 2006.

"AWB Harvest Finance has maintained its position as the market leader in Harvest Finance with 65pc market share.

"AWB Harvest Finance also made the largest and earliest ever post harvest top-up in January extending an additional $120m to Australian wheat growers."

AWB's diversification strategy was also highlighted by the recently announced joint venture between Landmark and New Zealand-based dairy co-operative Fonterra, after identifying growth opportunities in the dairy sector in New Zealand and Australia.

"This initiative gives Landmark access to a national network for its products and services in New Zealand, as well as ensuring a foothold in the dairy sector," Mr Stewart said.

AWB's forecast for domestic wheat production for 2006/07 is in the range of 23 - 25 million tonnes, which is based on normal seasonal conditions.

It was also announced that earning for year ending September 30, 2006 would be impacted on by costs associated with the Cole inquiry, redundancies and restructuring.

"AWB remains committed to restoring its reputation, growing the business and delivering good returns to AWB's shareholders, many of whom are growers," Mr Stewart said.

He said AWB maintained good relationships with its overseas buyers - with the one exception of Iraq, which had refused to buy wheat through AWB until it saw the findings of the Cole inquiry.

"We are participating as normal in every other market place," Mr Stewart said.

"From international customers I haven't received anything other than letters of support."



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