As expected AWB, the country’s largest wheat exporter, was battered by the drought and the impact of its dealings with the former Iraq regime of Saddam Hussein.
The company, which has been stripped of its wheat export veto powers, said first half earnings fell 71 per cent to $11.8 million, compared to $41.4 million in the first half of 2006 when it was in full denial about its dealings with the Hussein regime and its bribes.
Sales fell 10 per cent to $2.4 billion.
The drought has cut wheat exporters after the amount harvested plunged 60 per cent to the lowest level for 12 years.
The AWB lost its monopoly on wheat exports after the Cole inquiry last November found 11 former executives had paid kickbacks to Saddam Hussein in Iraq. These totalled almost $300 million.
AWB shares fell 10 per cent to $3.33 on Tuesday after the government confirmed it would not get its export veto powers back. Federal Agriculture Minister, Peter McGauran will keep a veto over exports until July next year. The shares have fallen 18 per cent in the past year on uncertainty over the drought and the kickbacks scandal and its impact on the company’s single desk marketing system.
AWB says it may cut dividends after it slashed the interim payout after the profit fall.
AWB slashed its interim 75 per cent to 4 cents a share compared with 16 cents a year earlier.
The company said the board will make a decision on its dividend policy once it has “greater clarity” about future Australian wheat marketing arrangements.
Managing Director, Gordon Davis told a conference call yesterday on the results that “It’s likely that we will move to a payout ratio that is more closely aligned with earnings in future years”.
With the company shorn of its wheat marketing rights it is now just a rural services group with the Landmark business, acquired from Futuris, all there is left to drive earnings from next year.
That still depends heavily on rural Australia and on the health of the sector, although there is some diversification with the spread of services now offered.
There is still a lot of the nitty gritty to be sorted out about the loss of the single desk and marketing veto: these include; who will administer the wheat pools on behalf of growers? It is a lucrative right AWB has, as is all the shipping, handling and other servicing of the export market.
AWB International is likely to be hived off from AWB and turned into the marketing company. It will be owned by the existing shareholders of AWB.
Will the pools go to the new organisation that will control the single desk authority from next year, assuming the Howard Government retains office, or will they stay with AWB? Millions of dollars are riding on that answer.
AWB will still have the rights to sell this year’s crop and administer the wheat pools (which collect and pay income to farmers).
The new grower organisation planned by the Howard Government will in fact be a case of back to the future.
That’s what AWB was as The Australian Wheat Board before it was privatised and floated by the Howard Government back in the late 1990s, with weak controls and a blind eye.
The listed rump, AWB Ltd, is now in fact a takeover target for anyone aggressive enough to want to expand and rationalise the rural sector.
Could the likes of Graincorp, ABB or Furturis, be prepared to make a move, or the West Australian group, Co-Operative Bulk Handling?
