AWB Limited (AWB) today announced its first package of significant measures in response to the 2004 Wheat Marketing Review recommendations to further improve the operations of AWB International (AWBI).

In response to the 2004 Wheat Marketing Review, AWB will put in place the following actions to address several of the recommendations.

1.       AWB will prepare a resolution to take to the AGM to ensure that the AWBI Board has a majority of independent directors and continues to have a majority of grower elected directors. (see Appendix 1).

2.       Subsequent to approval of item 1, AWB will implement changes that allow for the AWBI Board to elect its Chairman.

3.       AWBI is implementing a new remuneration model based on the principle of establishing a base fee related to costs and where AWB will only make profits based on the out-performance of the AWB National Pool (see Appendix 2).

4.       AWBI will continue to annually review the remuneration system and the Wheat Industry Benchmark’s (WIB) construction, to ensure the performance based remuneration model (PBRM) is maximising benefits to growers within an appropriate risk framework.

5.       The General Manager of AWBI will be asked to directly attest to the AWBI Board on risk rather than through the Managing Director of AWB Limited.

6.       AWBI will at the end of the current Pool period engage an independent third party to report to the Board on the value provided to the national Pool of AWB Chartering Services.

7.       AWBI will continue to expand the content of its Statement of Financial Performance in line with the Panel’s recommendations. 

AWB Chairman, Mr Brendan Stewart, said while AWBI had identified these actions that can be adopted in the immediate term a number of the other recommendations require further consultation with growers, grower groups and government prior to responding.

“Many of the recommendations are quite complex in nature and require thorough and sophisticated analysis in terms of their impact and implementation.

“Regarding other structural changes recommended, such as direct staffing of AWBI, it is the Board’s view that these should be prepared for consideration once the structure of the AWBI Board is resolved by shareholders at the AGM in March 2005.

“It is right and proper that shareholders decide first on the structure of the AWBI Board. Once this matter is resolved then the Board of AWBI can consider other structural matters relating to staffing and governance outlined in the report,” said Mr Stewart.

ADDITIONAL INFORMATION

Appendix 1:    Proposed Board Changes

A Class shareholder approval will be sought to replace two current AWB Ltd directors sitting on the AWBI Board with two independent appointed directors that will sit solely on the AWBI Board.

If approved this would deliver a 7 member AWBI Board which comprises 5 independent directors and a majority of grower elected directors.

Appendix 2:    AWB Remuneration Model Amendments

On October 15 the Independent Panel conducting the 2004 Wheat Marketing Review announced a number of recommendations some of which related to the operation of the performance based remuneration model (PBRM) under which AWB Limited receives payment for pool management services. Specifically the Panel recommended that the model be refined so that the base fee was reflective of the costs and risk of running the national pool.

As such several changes have been made to the PBRM. These include:

• The base fee will be de-linked from Pool Value and fixed to the cost base of providing services to the pool.
• The Out Performance Incentive (OPI) structure has been divided into two tiers however both tiers are performance based to enable the manager to achieve a return through performance.
• The first tier is set between the Wheat Industry Benchmark (WIB) and the Hurdle (US$5/t), but the majority of the OPI will reside in tier 2, which is set above the Hurdle.

For 2005, the respective Boards have negotiated a fixed base fee of A$65.1m. For OPI, a 20% incentive will continue to be paid based on performance, with tier 1 OPI capped at 0.375% of Pool Value and tier 2 capped at 1.125% of Pool Value.