ABB Grain recorded some notable achievements in 2007 indicating key progression in the company’s development, from a barley marketing business into a truly comprehensive agribusiness built upon an integrated business model.
This was achieved despite facing some unprecedented challenges in the past year after drought conditions resulted in the lowest volume of receivals in South Australia for 25 years of 1.8 million tonnes. One such challenge was the change in marketing reform which resulted in an end to the South Australian barley single desk. Others included price and currency volatility, overseas governments’ policies affecting grain supply and availability, and the impact of the Australian equivalent to International Financial Reporting Standards (A-IFRS) reporting. These all contributed to ABB recording an 89% drop in profit to $7.3 million for the year ended September 30, 2007.
Next year, although we have experienced a below average harvest for 2007/08, we are anticipating our profit to increase substantially having now built a solid foundation for growth.
In 2007 our malting division, Joe White Maltings, operated at full capacity producing more than 500,000 tonnes of malt – with the potential for a further 70,000 tonnes in sales had we been able to source the barley and had further production plant capacity. Consequently, ABB is investigating options around Australia, and offshore, to determine the best location to further increase malt production.
In the space of just 12 months, ABB has successfully become a company with a single, ‘ordinary’ class of shareholding; we are now exporting grain in a deregulated barley market and we have participated in the deregulated container wheat export market. ABB also has successfully carried out a drought management plan, contributing to a further lowering in the company’s ‘break even’ point for our storage and handling system.
ABB has extended its sights internationally. We have begun a joint venture in Ukraine (with French agro industrial group Soufflet Negoce) creating a company, New World Grain, which will acquire or build grain silos and accumulate and export feed barley and other grains in that country.
Our move into Ukraine is highly significant. It helps ABB to better manage its risk in barley internationally and will guarantee our customers continuity of supply. Ukraine gives ABB a variety of options, enabling the company to better manage grain price variations from July onwards each year. The Ukrainian grain marketing activity will also be complementary to our Australian export program.
Ukraine was specifically chosen for this joint venture because the country has a similar annual grain production size to Australia, yet its productivity has untapped potential, being half that of western European countries. With good farm inputs, better farm management and restructuring of farming in that country, ABB believes there is immense potential to lift production and provide New World Grain with large volumes of grain to sell. The Ukrainian joint venture benefits from having Soufflet as a partner because it has had experience in that country for several years; it also is the world’s largest maltster.
ABB is conscious of the serious threats to Australia’s environment because of diminishing water resources so we are currently developing a national water recycling strategy for our Joe White Maltings’ plants. Following success with the water recycling plant at our Perth malthouse, a similar, but compact plant will be built at Ballarat’s Lake Gardens facility.
In Adelaide, ABB is already well-advanced in building a deep sea grain terminal at Outer Harbor with completion due in 2008. This state-of-the-art facility will enable Panamax-sized vessels to be fully loaded.
It will greatly assist South Australia’s export competitiveness and deliver long-term benefits to growers.
At Port Adelaide, plans are in train to build a three-stage container packing facility, grain processing facility and container marshalling yard that will greatly enhance ABB’s ability to export to customers in Asia and the subcontinent.
This facility will be branded under Prograin, one of ABB’s quiet achievers in the past year, which has delivered a solid profit from existing Victorian operations.
As we move inevitably towards deregulation of wheat exports, ABB believes there is considerable potential to despatch grain to our customers in containers, and even non-grain commodities in this manner.
As previously mentioned, the ability of our storage and handling division to record a break even result (despite a small harvest) speaks volumes for improved efficiencies and cost reductions ABB has achieved in recent years.
Next year we expect greater profits from ABB’s pastoral and rural services division which, in the past year, has established wool export, international livestock marketing, agchem and financial services sections. Although this division was fully operational for only part of 2007, it contributed a modest profit to ABB’s full-year bottom line.
ABB’s vision, under our integrated business model, is to continue to grow all the elements across our business and build on those areas in which we already have particular expertise and track record achievement.
Discussions continue with several parties as to how ABB can use its new Outer Harbor facilities (and existing storage and handling infrastructure at places like Port Adelaide) to complement the mining industry’s activities.
ABB also will be looking to New Zealand to further stamp its international credentials with joint ventures and stand alone developments that tap into the substantial dairy and poultry industries in that country. ABB has already announced it will partner New Zealand’s biggest layer producer, Mainland Poultry’s PCL division, to build a A$30 million state-of-the-art feed mill in South Auckland. Separately, ABB also will invest a further A$10 million building storage facilities in the ports of Tauranga and Taranaki.
Our company is also investigating further international marketing opportunities for third origin grain where it can add value to ABB’s overall business model and deliver benefits to shareholders. In 2007, ABB traded one million tonnes of such grain.
ABB has a special relationship with farmers, a fact that was reflected in July’s redemption event when growers voted in favour of ABB establishing a single ‘ordinary class’ of shareholding. This opens up the opportunity to focus on further diversification, resulting in additional services for our growers being available.
Finally, I thank ABB’s staff for their dedication and application in the past 12 months, which have been among the most challenging in our 68 years of existence. The resounding success of ABB’s drought plan meant that ABB was able to save a further $7.5 million in its 2007 budget, demonstrating our staff’s understanding and commitment to the company.
Given the many achievements ABB has made in 2007, despite all of the constraints, the potential for the company is enormous when we again experience a ‘typical’ growing season.
MICHAEL IWANIW
Managing Director
December 2007
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