GLENCORE has entered into an agreement with AACL Holdings to take over the grain co-production arm of its business, AACL Pty Ltd.
The deal was announced last week after AACL Holdings requested a trading halt from the Australian Stock Exchange (ASX).
Last Tuesday it released a statement to the ASX saying its previously announced market profit forecast of $2.1 million was being downgraded to a $7.2m loss.
It said the initial profit forecast was based on the delivery of approximately 400,000 tonnes of grain anticipated to be contracted to AACL by farmers for the 2012-13 season.
It also said based on new information and other information not previously made available to AACL's Board, its revised estimate of contracted tonnes would be in the vicinity of 275,000 to 300,000t.
The forecast was revised down further on a basis of a change in accounting policy.
Then last Thursday it announced that Glencore would acquire AACL Pty Ltd, a subsidiary of AACL Holdings and the assets and certain liabilities of AACL Services Pty Ltd that provide management services to AACL's grain co-production projects.
While this is just another chapter in AACL's chequered history, non-executive director Nathan Omodei, who was appointed to the position in April, said the time had come for the company to clear the decks.
"This company has got to be transparent and I don't think it has been that in the past," Mr Omodei said.
"The more the board dug, the more the board found the business was in different shape to what it thought.
"The difficult decisions have now been made and I think it is in the best interests of AACL Holdings and the project management company.
"I am not here to defend the company and I don't need to defend but some reporting has suggested there has been a nearly $10m turnaround in its financial position but you need to compare apples to apples.
"Of the $7.2m loss, $6.2m of that is a changing of the accounting treatments.
"We could easily have announced a $1m loss this year and that would have been bad but people do need to remember that a big part of AACL's business is as a corporate cropper and it is no secret that farming enterprises have been struggling in the last few years and the economics of farming aren't fantastic.
"So if we had announced a $1m loss it would have been defendable but the board took the tough decision and the reason we did it is because previously when it was an MIS-driven business you would get the MIS funds invested and AACL was entitled to charge what it called initial period fees and rent and that was as per the product disclosure statement of the MIS business.
"As those funds have diminished AACL has essentially become the investor themselves so there was no point in our view saying let's charge ourselves a fee just so it makes our revenue look better this year and charge ourselves rent this year and unwind it the following year.
"What it effectively was doing was bringing forward revenue from this harvest into June.
"And while you can do that from an accounting period because technically it still is part of the MIS project, the board's view is that we should be reflecting it like a corporate cropper and that is farmers book their revenue when they sell their grain.
"What the board is doing is drawing a line in the sand and getting rid of some of the issues that have been building up over a number of years in AACL.
"Had it done this from the start it probably would have booked losses. It did book significant losses in 2009 and 2010 and it would have booked a loss last year and one this year but it would have been a $1m loss instead of $7m loss.
"From a financial position it is very easy to say it has gone from a $2.1m profit to a $7.2m loss but that is not right. It is not as if it lost $7.2m cash this year it is more like $3m."
Mr Omodei said the heads of agreement with Glencore would effectively mean that AACL Pty Ltd would be bought by Glencore and the holding company, AACL Holdings, would be totally separate.
"What we will be left with at the end is the holding company which will have some money in the bank and it won't have any liabilities," he said.
"It will have a fund management arm which is AACL Fund Management, which has some projects it is working on such as its broadacre land concept, but essentially it will be a much different business to what it is today. It won't have anything to do with AACL cropping and that's good news from a shareholders' point of view because it certainly hasn't been a good investment for people who have put money in."
Mr Omodei couldn't speculate on what Glencore may do with the business in the future.
"AACL won't have any funding concerns in terms of operating the company with Glencore's backing," he said.
"Farmers in the AACL project this year can be very confident that it will be properly run through and if this deal goes ahead it is likely to complete somewhere towards end of September. "
Rumours of growers not being paid or payments being delayed have surrounded AACL for many years but Mr Omodei said these rumours were not correct.
"In the last 12 months AACL has fixed issues with payments. It has fixed timing of payments and it has fixed having certain capital because it had Glencore as a funder," he said.
"In the past, the pool AACL managed as part of its projects wouldn't have been wound up for 18 months following harvest.
"This year we wound up the pool in June, so at the end of June all growers got paid all their proceeds from harvest.
"That shows that operationally AACL has got some things together, but it was a case of too little too late really."
Mr Omodei said the deal was subject to due diligence and more negotiations and it still had to go to shareholder approval for AACL Holdings.
"We expect all of these things to be completed relatively quickly," he said.
