AWB Limited Chairman, Mr Brendan Stewart, said the Board deeply regrets the manner in which the company’s wheat trade with Iraq from 1999 until 2004 under the United Nations Oil-for-Food program was conducted and the damage to Australia’s trade reputation.
Mr Stewart said the Board ultimately accepts accountability for the way in which the wheat trade with Iraq under the United Nations Oil-for-Food program was conducted and is committed to making significant changes to ensure it does not happen again.
“The Board is committed to building the right accountability and operating culture in the future and the task before everyone at AWB is to embrace the necessary changes to restore the confidence of the broader community,” Mr Stewart said.
“We have already appointed a new Managing Director, Mr Gordon Davis, and a new management team, initiated an independent review of governance structures and practices within AWB and separate reviews of international marketing activities.
“Gordon Davis has embarked on a cultural change program to develop and commit to a set of values that will guide employees in interactions with stakeholders and with each other. We will ensure that these values and behaviours will be integral in all of our people management processes – performance management, feedback, reward and recognition, recruitment, promotions and training.
“We accept that more needs to be done, and the Board has agreed to seek shareholder approval to split AWB Limited and AWB International as part of a reform program to ensure improved governance, culture and operating performance.” A separate release outlines the reforms that will be put to shareholders in the next few months.
“The Board is prepared to accept accountability for the actions of management and the culture at AWB during the Oil-for-Food program. The de-merger process will enable a structured and orderly transition of the company and Board renewal including the Chairman’s role. As such, I intend to step down as Chairman once shareholders have approved the split.”
A list of governance, cultural change, wheat marketing and business performance initiatives implemented by the AWB Limited Board and the new Managing Director, Mr Gordon Davis, this year is attached.
Media contact: Peter McBride 03 9209 2174 or 0417 662 451
AWB Reform Agenda
Functional separation of AWB Limited and AWB International was announced on 27th July 2006.
It was the first step towards greater separation and the creation of a separate AWB International Board and separate Audit and Risk Committees.
A separate management team was appointed to AWB International on 27th September 2006.
KPMG was appointed to review Governance structures in February 2006. KPMG was asked to consider the current governance, internal reporting structures and practises of the Company generally, and its practical application.
PwC was appointed in February 2006 to conduct a special review of the design and operation of internal controls around current wheat export sales. The objective of the review was to assist the Board to assess the Company’s systems of control and, where necessary, implement improvements.
AWB Limited appointed a new Managing Director, Gordon Davis, who commenced on 11th September 2006.
The Board of Directors have decided to seek shareholder approval for legal separation of AWB Limited and AWB International as part of a wide-ranging program to reform wheat marketing.
AWB has embarked on a cultural change program engaging over 600 staff to develop and commit to a set of values that will guide employees in interactions with stakeholders and with each other.
In the past ten weeks, Gordon Davis has made a significant personal investment in the re-engagement of employees through his involvement in the values and behaviours program.
Employees are participating in four-hour sessions to develop the values and behaviours required to take the business forward. These values will influence our choices and help to maintain organisational integrity by providing a framework for consistency and accountability in decision making. Employees will have clear statements and experiences about what our culture is and how these values guide our actions and how we operate going forward. Systems and processes will reflect these values.
The establishment of the new executive team with the relevant experience base and skill set will be fundamental to take the business forward. The team has experience in environments where the focus is on leadership, values and behaviours that are supported by accountability, performance and open communication.
2006-2007 National Pool
On 28th September 2006, AWB Limited provided an indemnity to AWB International to cover costs of the Oil for Food Inquiry and costs of contesting any ATO amended assessments and any outstanding tax which may be liable to be paid in connection with any payments made for trucking fees under the Oil-for-Food program.
On 28th September 2006, AWB Limited and AWB International established a trust structure to better protect growers delivering wheat into the 2006-2007 National Pool from unforeseen liabilities which are not related to that season’s Pool.
AWB Limited has agreed to a 40% cut in the base fee it charges for managing the National Pool from $66.7 million to $39.5 million to minimise costs for growers delivering in the 2006-2007 drought year.
The out-performance hurdle has been increased from US$5 per tonne to US$7.50 per tonne and the out-performance fee as been capped at $2 per tonne or $8 million (based on four million tonne pool).
A new services agreement is being finalised to manage the National Pool in the 2006-2007 drought year. The key terms and conditions will be publicly released separately.
The new management team, led by the recently appointed Managing Director, Gordon Davis, has introduced a number of business initiatives to reduce costs and improve profitability.
Project Simplicity is designed to reduce costs and business complexity and improve organisational effectiveness
Project Focus has been designed to improve the profitability of the rural services network by focusing on customer management, business unit structure and reducing the cost base.
Following a review of growth opportunities in the dairy sector in New Zealand and Australia, AWB Limited announced a 50/50 joint venture and strategic dairy alliance between Landmark and New Zealand based dairy co-operative Fonterra.
AWB has purchased a $1.58 billion loan book from Rabobank and the $165 million rural loan book of Adelaide Bank. A Rural Trust funding vehicle was introduced, providing a platform to grow the Landmark loan book. The funding arrangements are in the main non-recourse to AWB.
There is a more rigorous assessment of the capital allocation within the business to ensure that we have improved returns on shareholders equity. This will result in decisions to allocate scarce investment capital across the business in future where returns justify such investment.
There will also be heightened awareness of cash flow within the business and stringent cost control programs will maximise and protect cash flow. This will reinforce our focus on improved shareholder returns.
It will lead to a new set of performance measures to guide management decisions and performance assessment within the company. These are expected to be introduced over the next 12 months.
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