AACL cuts jobs, secures $150m funding

Following a strategic review agricultural investment firm AACL has announced plans to slash its workforce by 15 per cent, streamline its management structure and cut its operating costs by $1 million.

Today AACL also announced it has secured a $150 million three-year funding deal with Glencore Grain.

But in a statement to the Australian Securities Exchange, AACL said it had downgraded its Western Australian production component to 146,000 tonnes because of the state's protracted dry spell.

Overall AACL expects to produced 356,000 tonnes of grain from WA and eastern states farmers down from 403,500 tonnes.

Under the terms of the $150 million funding facility AACL has an option to extend a further three- year extension.

The agreement follows AACL's previous 2010 season funding and marketing arrangement with Glencore.

AACL chairman and chief executive officer Peter McEwen said the extension of the agreement was an important step forward for AACL.

"The company has delivered on its commitment to secure funding for its farming partners ahead of the season and the new facility is recognition of Glencore's confidence in AACL's product and growth path," said Mr McEwen.

"Locking in funding for future seasons well in advance will provide greater certainty for both our growers and shareholders.

"The new agreement creates a strong platform for AACL's growth strategy as it affords us greater time to obtain additional funding to complement the Glencore facility and grow our contracted tonnages.

"With funding of at least $57 million for next season, AACL expects to contract an additional 25 per cent in tonnages in FY11."

AACL has also appointed Chris Brooks as a non executive director.

AACL Holdings Limited (ASX: AAY) is pleased to announce that it has successfully executed a new funding and marketing agreement with Glencore for the next three seasons, with a further three year extension able to be agreed.

The agreement follows AACL's previous 2010 season funding and marketing arrangement with Glencore, which was executed earlier this year on 6 July 2010.
AACL has drawn $24.4 million from the existing Glencore prepayment facility and this has assisted the company to meet all of its contracted commitments with farmers for the 2010 season.

Under the terms of the new agreement, Glencore will provide funding for AACL's GCP contracts for 2011 to 2013. AACL and Glencore will continue to partner to market the grain, utilising Glencore's worldwide marketing expertise.

The new Glencore facility will provide a minimum of $50 million per season commencing in 2011 and will be combined with funding from retail and other wholesale raisings.

AACL Chairman and Chief Executive Officer Peter McEwen said the extension of the agreement was an important step forward for AACL.

"The company has delivered on its commitment to secure funding for its farming partners ahead of the season and the new facility is recognition of Glencore's confidence in AACL's product and growth path," said Mr McEwen.

"Locking in funding for future seasons well in advance will provide greater certainty for both our growers and shareholders.

"The new agreement creates a strong platform for AACL's growth strategy as it affords us greater time to obtain additional funding to complement the Glencore facility and grow our contracted tonnages.

"With funding of at least $57 million for next season, AACL expects to contract an additional 25% in tonnages in FY11."

The key commercial terms of the new agreement are:
Glencore to provide AACL with a minimum amount of $50 million for each season (2011 to 2013) to be invested in GCP Projects.
AACL will pre-sell grain to Glencore to enable AACL to invest in GCP Projects to the same level as other investors. Glencore will invest directly in the projects to the amount of $50 million minus the prepayment amount.
Glencore will continue to provide grain marketing services for all project grain utilising their international network.
Glencore will continue to provide an inventory finance facility for the 2011 to 2013 harvests to support AACL in meeting timely payment obligations to its contracted farmers post harvest.
The agreement includes normal termination rights for either party related to events such as a material breach or insolvency and for Glencore related to material adverse changes, major ownership changes of either party or AACL's conduct adversely affecting Glencore's reputation.

"We have been very pleased with the professionalism and performance of the Glencore team to date and we look forward to strengthening our relationship with them to deliver value for all of our stakeholders," said Mr McEwen.
Strategic Review

The Board has undertaken a strategic review of the business and, in addition to the priority of securing early funding with Glencore, has implemented the following initiatives:
Established a new streamlined management structure
Reduced staff numbers by 15%
Targeting a reduction in annual operating costs of $1 million
Modification of AACL's key GCP product to provide an improved balance of risk/reward for investors/growers

AACL Board Changes
AACL is also pleased to announce the appointment of Chris Brooks as a Non Executive Director of the Company, effective 25 October 2010.

Mr Brooks is currently the Managing Director and Chief Executive Officer of the Australian operation of Glencore, a wholly owned subsidiary of global trading giant, Glencore International. He is also a director of the Australian Grain Exporters Association, the Grain Industry Association of Victoria and the Managing Director of Corporate Cropping Australia.

"We are delighted to have a person of Mr Brook's experience and capability on AACL's Board of Directors as we implement our growth strategy," said Mr McEwen.

Stephen Dixon has now stepped down from the Company Secretary role to focus on other business interests. Henry Thong, who was recently appointed as AACL's Chief Financial Officer, will become Company Secretary effective 25 October 2010.

"The Board would like to thank Mr Dixon for his significant contribution to AACL throughout his tenure," said Mr McEwen.

FY11 Earnings Guidance
AACL's GCP contracts with farmers across southern Australia were expected to produce in the order of 403,500 tonnes. The total comprised 252,000 tonnes from Western Australia (being 68%) and 151,500 tonnes from eastern Australia (being 38%).

The protracted dry spell in Western Australia, accompanied by recent high temperatures, has resulted in the Western Australia production component being downgraded to 146,000 tonnes (being 58% of contracted tonnes).

Conversely, significant rainfall in eastern Australia has had a positive impact on grain production, supporting the crop forecast of 210,000 tonnes (being 135% of contracted tonnes).

Overall, AACL's GCP contracts are expected to produce 356,000 tonnes (88% of contracted tonnes), highlighting the benefit of geographic diversification across the GCP model. These forecasts have been based on AACL's most recent agronomic inspections.
Mr McEwen said that while the overall production tonnage was lower than initially expected, the GCP model is based on value (production and price).

"The shortfall in production of grains around the world has resulted in prices that have been significantly higher than those used at time of contracting with growers," he said.

As a consequence and including projected income from the 2011 GCP Project, AACL's outlook for FY11 is positive with the Company confident of returning to underlying profitability.