In the News
Egg giant Farm Pride may crack under pressure
12 January 2010
STRUGGLING egg marketer Farm Pride is under pressure from its banks to restructure its operations after another breach of its loan agreements.
The company, which has seen its traditional caged-egg business eaten away by demand for free-range products, revealed yesterday in a filing to the ASX that it had breached one of its loan covenants.
However, it moved to quell speculation that the breach would have a significant impact on the company's operations.
"The company is in discussions with its bankers and in the process of finalising details relating to a new business finance agreement on existing terms and conditions," Farm Pride said.
"Given the tenor of recent discussions there is no reason to believe a new agreement will not be finalised over the next few weeks.
"The company is operating on a 'business as usual' basis while a new agreement is finalised."
Farm Pride has been trying to transform its business in recent times by investing heavily in expanding its free-range capacity.
But the debt-servicing headache is looming as a big risk for Farm Pride's shareholders, particularly the WA-based West Coast Eggs which holds a 43 per cent interest.
It is the second time in 12 months that the egg distributor has breached its loan covenants.
Farm Pride's main lender, Westpac, raised concerns last July about the company's ability to service its debt.
The first loan breach prompted the company's auditor, Ashley Butler of Ernst & Young, to draw shareholders' attention to "uncertainty" regarding the company being able to continue as a going concern.
"The ability of Farm Pride Foods Ltd to continue as a going concern is dependent on the company and its banker successfully negotiating to continue the financing facilities," Mr Butler stated in his audit opinion attached to the 2009 accounts.
"Accordingly, in the absence of such outcome, there is material uncertainty about whether the company will be able to continue as a going concern."
Farm Pride's pre-tax earnings collapsed to $644,000 last financial year from $4.06 million the year before.
Its bank-related debt ballooned to almost $24 million from $15.5 million the previous year.
Farm Pride appeared to have resolved its funding issues with Westpac on October 16 when it annnounced that it had renegotiated its business finance facility with the bank.
The company also revealed at the time that it had increased its short-term facilities with Westpac.
Ongoing debt-servicing problems at Farm Pride are fuelling speculation that the company may look to merge its operations with another big egg distributor.
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