AWB buys into Elders
BY WILL RAYNER
AUSTRALIA'S monopoly wheat exporter unravelled a record annual $107.2 million profit last week, and then promptly announced it had spent almost a third of that on a 5pc stake in the parent company of Elders.
It confirmed weeks of market speculation that AWB had been buying Futuris shares (which has two main divisions, including Elders Australia) in an effort to further diversify its core business.
The news was clearly designed to please the institutional investor, which already had fears about AWB's relatively narrow revenue platform, and its exposure to the drought gripping most of Australia's wheat growing regions.
It was also an effort by the board to better utilise AWB's significant cash reserves.
Earlier this year the Australian Competition and Consumer Commission effectively stymied any efforts AWB had been making to acquire the Goodman Fielder milling assets, which were valued at about $200m.
That move - which would have seen AWB's influence spread from grain storage and handling, through to end processing - was considered to give AWB too much market power in the wheat industry.
While the Futuris investment doesn't align directly with AWB's core business activity of grain marketing and managing the wheat single desk, the market is likely to react positively to possible synergies with Elder's merchandise, insurance and finance arms.
In an announcement to the ASX yesterday morning AWB managing director Andrew Lindberg said the Futuris investment "makes good business sense due to a number of complementary business streams and represents good value at current prices."
But, both he and AWB chairman Brendan Stewart said a take-over bid for Futuris was not being considered at this stage.
An industry source said the investment was likely to foster closer relationships between the two agricultural giants, but that it was impossible to predict if or when AWB would look at increasing its investment - or possibly at a take-over bid.
In the meantime AWB has received a $14m bonus for meeting the new Wheat Industry Benchmark performance indicators in its management of the national pools.
This payment was based on predictions AWB would out-perform its management of the pool (improve returns above the benchmark) by $274m.
In all, pool management contributed $17.4m to the underlying annual profit.
The news for grower shareholders was great with earnings per share increased by 15pc to 39.2 cents per share.
Mr Lindberg said the overall financial performance was very pleasing for AWB's second full year as a listed company.
"Total operating revenue of $2.33 billion is up 19pc on the prior year's $1.96 billion, due to higher traded volumes and grain values," Mr Lindberg said.
"A number of strategic initiatives implemented during the year contributed to the strong result, including strengthening AWB's chartering business, strong performance of AWB's domestic trading division and the largest ever loan book for Harvest Payment due to the second largest wheat crop on record of 24.5 million tonnes."
Mr Lindberg said $298 million of the increase in operating revenue was due to higher traded volumes and grain values in the grain acquisition and trading business.
Finance and risk management products revenue increased by $43 million, $35 million of which was due to higher grain sales prices achieved in the basis pool.
But, predictably, the prospects for a third successive record result have literally dried up.
"AWB's earning prospects for the 2002/03 financial year will be significantly impacted by the current drought, which will reduce the 2002-03 domestic wheat production to less than half of 2001/02's harvest," Mr Lindberg said.
*Disclaimer: Will Rayner attended the AWB profit results in Sydney courtesy of AWB